This GIZ Summary Note sets out how environmental fiscal reform can correct market failures, because it includes the costs of environmental and social damage or resource use in the price of a particular pollutant or resource. It redistributes the burden of taxation, and reforms mechanisms within the fiscal system so that appropriate price signals for producers and consumers are created to reduce pollution and inefficient energy and resource use. Provided the reform is properly designed, it can also have positive effects on poverty alleviation by generating resources for pro poor investments, in health and education for instance.