Pollution Taxes

see also: externality, polluter pays,

Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)

Two other questions about pollution taxes are who pays them and where the money goes.

There’s another, more fundamental reason why taxes are a poor tool for guarding nature. It’s not higher pollution prices we want; what we actually want is less pollution. Taxes are at best a roundabout way to get there. We assume that if we raise pollution prices, pollution will come down. But not even the smartest economist can know how quickly it will come down, or by how much. We can only proceed by trial and error. Much of the tax-setters’ time will be spent debating how much of a price hike will produce how much of a reduction in pollution, when in fact what we should be debating is how quickly we want pollution to drop. Once that debate is settled, we should be able to set a valve at the agreed-upon level. We can’t do that with pollution taxes.

Pollution taxes, in short, though better than nothing, are far from an ideal way to protect nature. They’d make polluters internalize some of the costs they now shift to others, but in a clumsy, regressive, and ultimately insufficient way. If another way to internalize costs is possible, we should consider it.

 

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