Green taxes

The search for alternatives to legislation and enforcement of environmental policy led a 1988 bipartisan Congressional study group (Project 88) to call for the use of market forces, including taxes, to protect the environment . Project 88's advocacy of these "green" taxes and other economic incentives for reducing pollution is actually an old idea. Charles Schultze, chairman of the Council of Economic Advisers under President Jimmy Carter, maintained in the 1976 Godkin Lectures delivered at Harvard University (later published as a book titled The Public Use of the Private Interest ) that detailed laws and bureaucratic requirements were a costly and ineffective way to control pollution. Instead, reliance should be placed on taxes and subsidies that would make private interests more congruent with public goals.

The economists' argument, posed by Project 88, Schultze, and others, is that the harm pollution causes to health, property, and aesthetics is not paid for by business. Industries have no reason to consider this harm in their production decisions. By taxing pollution, the government would make polluters pay for the damage they inflict. External production costs would be incorporated into ordinary production decisions. This would correct a market defect and the market would become more efficient. Green taxes would not lower environmental standards; they would provide more protection at the same level of expenditure, or the same protection with less money.

The present regulatory system is expensive and inefficient. The amount of litigation is excessive, and relations between business and government suffer. The uniform standards often do not make sense, because different companies have different removal costs depending on their production process and other factors. For example, a study in the St. Louis area found that removing a ton of particulate matter from a paper factory cost $4, while removing the same material from a brewery cost $600.

Industries that can easily reduce pollution should be encouraged to go beyond the standard and not stop at mere compliance. Businesses for whom pollution reduction is a great burden should be able to pay a fine equivalent to the damage caused. To impose the same requirements on all businesses regardless of cost is unfair. Moreover, regulations do not permit pollution-reducing experiments. Companies should be allowed to choose the lowest-cost method whether it means treating wastes, modifying production processes, substituting less-polluting raw materials, or other innovations. By shifting away from uniform standards, pollution-control costs can be cut drastically. According to one study, an equivalent air quality can be achieved at 10 percent of existing costs.

Why have governments been so slow to implement green taxes? The primary reason is because taxes have never been popular with legislators or their constituents. Nor do interest groups support them. Businesses prefer court delays and lobbyists, to the certainty of taxes. Environmentalists argue that pollution must be eliminated and that companies should not be given the right to pollute for a fee. Bureaucrats, moreover, have been comfortable with the existing system. Pollution-tax proposals proposed by Presidents Lyndon Johnson and Richard Nixon were almost immediately dismissed.

During the Clinton administration there was new interest and support for pollution tax proposals. However, the necessary Congressional support did not materialize. Moreover, industry spokespersons and lobbyists promoted the idea that definitive scientific proof for global warming had yet to be established.

However, in 2002, during the Bush administration, which had previously stated that there was not enough evidence to link industrial emissions to global warming, the Environmental Protection Agency released a report that endorsed what many scientists had argued, i.e., that oil refinery, power plants , and auto emissions were important causes of global warming. In 2001, President Bush had caused international outrage when he said that he would not join other nations in ratifying the Kyoto Protocol, a United Nations plan to cut emissions of green house gases, because he claimed it would be too costly to the American economy.

Yet by 2002 at least nine European nations had implemented environmental taxes as a means of reducing air pollutants, the growing shortage of landfill space, and to promote the conservation of water and electricity. But in spite of the growing concern over global warming and pollution, efforts to implement environmental taxes have not found the needed support in this country due in large part to a general anti-tax sentiment. At this point there still remains a majority interest in preserving the status quo as opposed to addressing needed environmental concerns through such measures as environmental tax reform. With the growing body of evidence supporting the need for action, and pressure from other nations, that sentiment may change in the future. However, the issue at that time will more likely be whether or not it is too little reform, too late.

See also Corporate Average Fuel Efficiency Standards; Environmental economics; Externality; Internalizing costs; Pollution control; Pollution control costs and benefits

[Bill Asenjo Ph.D. ]

RESOURCES

PERIODICALS

Franz, D. "The Environmental Tax Shift." E/The Environmental Magazine, May 10, 2002.

——, and B. W. Whitehead. "Dealing With Pollution: Market-Based Incentives for Environmental Protection." Environment 34 (September 1992): 7–42.

OTHER

Stavins, R. N., ed. Project 88—Harnessing Market Forces to Protect the Environment. A Public Policy Study Sponsored by Senator Timothy E. Wirth and Senator John Heinz. Washington, DC: U.S. Government Printing Office, 1988.