The chapter will include discussion of the general principles involved in the use of taxes to address environmental externalities, and also of specific issues arising in particular areas of potential application. It will review the evidence base in this area and assess whether we have good empirical models of how consumers and firms respond to policy in this area. Further, the chapter will address how we measure costs and benefits as a basis for policy, and the future data that will be needed to make good policy in this area. The general issues to be discussed include the relative merits of taxes and other approaches to environmental externalities (direct regulation, emissions trading, subsidies), the relationship between environmental externalities and existing taxes, and the double dividend issue. Specific applications to be discussed include road transport (motor fuel taxation and multiple externalities - air pollution and congestion), taxes on energy use (carbon taxes versus the alternatives, the optimal time profile of energy taxes and the international aspects of energy taxation), waste management, the spatial pattern of development, and natural resource taxes.