Ecological fiscal reform (EFR) can occur on various levels, from a broad restructuring of expenditure and tax policies to micro-level adjustments at the sector-specific or individual levels.

A broad restructuring occurs when a portion of the total government tax burden is shifted from the current tax base to an activity or good whose consumption results in negative ecological impacts.

For example, the government might shift a portion of the tax burden from employment to carbon dioxide emissions by reducing taxes on income and increasing them on fossil fuel consumption. Or it could reduce corporate capital taxes and implement an offsetting tax increase on automobile use.

A broad restructuring might also involve a shift in government expenditure, credit or subsidy programs away from pollution-intensive activities — for example, fossil fuel exploration and consumption — and towards more environmentally benign goods or activities by offering incentives such as subsidies for the purchase of zero-emission automobiles.

A sector-specific EFR occurs when the reform takes place within a particular sector. It might involve levying an emissions tax on a particular industry and reinvesting the revenue from the tax in the same industry in the form of a subsidy for investment in pollution reduction technologies. A second example of a sector-specific ecological fiscal reform would be adjusting or shifting some level of a current subsidy program so that it is increasingly consistent with sustainable development objectives, where the subsidy nonetheless remains within the same industry. For example, a portion of a subsidy that is currently awarded to the agriculture industry might be modified to support certain behaviour within the same industry, such as a movement towards organic farming or the formal preservation of agricultural land.

Taking an even more micro perspective, EFR can occur at the level of the individual consumer. This might involve, for example, levying a tax on the purchase of a particular good and using the revenue from the tax to finance refunds to individuals in return for certain behaviour, such as participation in recycling programs. A common example of this kind of reform is a deposit refund system for beverage containers. Here, the same person pays the charge associated with the purchase of a beverage container and receives the rebate upon recycling the container. Similar policies could be applied to other products, including automobiles, household appliances, small engines and computer hardware.