This article examines the structural constraints imposed by federal constitutional systems on the effective implementation of environmental taxes. It uses the Australian experience as a case study to highlight some of the issues that federal jurisdictions encounter in the contemporary context. Under Australia's federal constitution, express powers to enact laws dealing with fiscal issues are conferred on the Commonwealth .(Federal) Parliament. The Constitution is however silent in extending a corresponding power on environmental matters to the Commonwealth. To enable it to regulate on environmental matters, the Commonwealth has had to rely on its derivative powers under the constitution. Some of the legislative and judicial responses in addressing the potential problems associated with the absence of an express constitutional mandate in the environmental area are also examined in the article. One of the legacies of the federal constitutional arrangements is that direct environmental regulation is implemented at three different levels - federal, state, and local government. The interaction of these regimes with fiscal measures, and their impact on the effectiveness of environmental taxes, are analysed in great detail in the article. In particular, the article examines specific federal environmental tax provisions to highlight the extent of the problem. The article also considers the extent to which the constraints of operating within a federal constitutional structure compounds the task of regulating and supervising practices occurring within state boundaries which potentially have perverse environmental effects. Once again, the issue is analysed from the perspective of the extent to which it undermines the efficacy of environmental taxes. The conclusion draws lessons from the Australian experience and proposes measures for addressing some of the problems highlighted in this article.