Is a Pollution Tax Worth it ?

Washington DC has seen several proposals for strange regulations. The latest one of these suggestions is a pollution tax. Many people believe that levying a tax may be the solution to eradicating the problem of climate change gradually. The world in general and Washington DC, in particular, wants to get rid of high levels of carbon emissions which are an environmental nightmare. However, the real question is how one does it in a way that is equitable for all the parties involved. Seems like a pollution tax, or green tax, as it if often called, maybe the perfect way to fight the carbon problem head on.

In this article, we will have a closer look at the concept of pollution tax and how it will help people eradicate the problem of pollution.

Economics and Science at Odds

The root cause of the carbon problem is that economics and science are at odds. Science says that carbon is polluting the earth, increasing temperatures and causing climate change. Economics has a complicated viewpoint. In the short run, using carbon based fuels is cheaper. In the long run, as climate change turns into a bigger disaster, it will be expensive. However, since it is cheaper in the short run, businesses and people tend to justify the usage of fossil fuels which emit a high level of carbon monoxide. People’s behavior is influenced more by economics than by science. The climate change problem is at its root an economic problem.

Why Regulation is Ineffective

Since the problem is economic, regulation is an ineffective way to reach a solution. Regulation is an attempt to force people to engage in behavior which they do not want. Through collusion and corruption, people end up finding a way to evade the regulation and do what is economically beneficial. The issue of climate change can only be addressed when it is changed from being a social good to a personal virtue. In simple words, climate change solutions should be such that people would not be forced by regulation to implement it. Rather the implementation should be intuitive.

Make Pollution Expensive

The best way to ensure that science and economics are not at odds is to make pollution expensive. This can be achieved by implementing a pollution tax. This tax would be levied on all products that are known to emit carbon and damage the environment. When pollution becomes expensive, market forces will be automatically set into operation to correct the problem. Innovation will ensure that sooner or later, more effective means will be created that will cause the least amount of pollution. Businesses will only pollute until it is cheap to do so.

Revenue Neutral

The experts are confused as to whether this tax should be revenue neutral or not. Revenue neutral means that the money generated from this tax will be offset by tax cuts given on other taxes. For instance, Washington has proposed that a lower sales tax must offset the money generated from the green tax. Hence, most households will pay more for fossil fuels and less in sales tax thereby balancing their budget. It has however been observed that lower income households tend to use fossil fuels more. Hence, this tax would impact them disproportionately. To get rid of this problem, a subsidy can be wired to these households every month so that their budgets aren’t affected.

The other idea is not to make the tax revenue neutral. This means that the revenue generated by the tax will be in addition to the normal revenue that is generated by the state. This additional revenue will then be distributed to parties which are affected the most by pollution.

Competing With Non-Taxed Imports

The problem with this idea is that it cannot be implemented locally. This is because if only one state were to implement this idea, then the production in that state would become expensive. Their efficient production will lag behind in terms of competitiveness due to this carbon tax. As a result, labor will be affected. Businesses will either ramp down their workforce or simply move to a different state. In both cases, the loss to the government will be massive in the form of unemployment benefits and other entitlement payments that have to be made.

It is unlikely that the United States will be able to gain consensus on this issue with all other countries like China, India, Brazil, Russia, etc. Hence, the carbon tax will dissuade local production. Imports will be cheaper because of the lack of such a tax. One way out is to increase customs duty on these imports to keep them on equal footing with the domestic produce.

Global Solutions

To sum it up, carbon pollution is a global problem. This issue requires global solutions. As we have seen in this article, anyone that tries to do just their bit without getting others to do the same will face losses in a competitive market. The Carbon tax is a good idea that needs to be pushed through in international bodies to ensure uniform regulation worldwide.

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.