Ecological taxes are categorically different from the classical taxes that seek to extract a certain revenue at a minimum excess burden. Classical taxes are levied so as to interfere with the market-based allocation of resources as little as possible. Ecological taxes, on the other hand, are designed to achieve a well-defined ecological effect again at a minimum of excess burdens. The revenue of an ecological tax, however, is coincidental and nil when the tax is ecologically optimal. Most ecological taxes currently proposed are not ecologically optimal as they are defined here. In generating revenues, they partly miss the ecological objective. The tax revenue is an indication that the ecologically relevant decisions of some agents in the jurisdiction have not been affected so as to achieve the desired ecological result. This paper explores the law and economics of ecological taxation from this point of view. The question is: How can an optimal ecological tax be institutionally structured so as to have a maximum impact on ecologically relevant decisions in the desired scope and direction? The paper systematically explores and applies the work contained in James M. Buchanan's Cost and Choice: An Inquiry in Economic Theory (1969) to this question and derives an innovative institutional solution.