Discussion Of The Effectiveness Of Environmental Taxes
Early this year 2018, World Health Organization (WHO) has released an approximated figure of 250 000 additional deaths per year due to malnutrition, malaria, diarrhea and heat stress caused by climate change between 2030 and 2050 (1). Such acceleratingly adverse environmental trends together with other responses from the nature such as global warming and greenhouse effect ring an alarm bell for worldwide organizations and governments to take immediate measures in the short run and to plan a foolproof plan to curb those damages in the long run.
The problem, however, remains intractable since the link between policy and economy is tangible. In other words, any unwise move from the government could bite its market; a restriction passed on pollutant-intensive products, namely fossil fuels, might yield stagnancy in that particular sector of the economy as well as hardships among consumers considering those products indispensable. Thus, in order to sustain trade and to preserve the environment simultaneously, an introduction of environment taxes (taxation of environment-deteriorating activities and products) has been made for its effectiveness, which this essay would discuss thoroughly both sides of the matter.
Environmental taxes, also known as “green taxes” or “taxes on pollution”, are defined by the UK government (2017) as those explicitly linked with government’s environmental objectives on proportional levy of tax to one product’s level of damage on the nature, in hope of environmentally positive behaviours among firms and consumers (2). These types of taxes have been amongst mankind since the previous century with the initial name “Carbon tax”, initiated by the Netherlands in 1990. Not only do green taxes generate income, but they also assist in creating incentives and social benefits, which catalyzes improved the overall efficiency of the economy (Stiglitz, 2004) (3). Green taxes, firstly, act as an incentive towards an ecologically friendly economy, an evaluation for environmental deterioration and a compensation for such damages caused. This approach doubtlessly addresses the economy’s failure to account charges of ecological restructure by adding up a fee in the cost of production and consumption, and dismisses the propensity of trade-off between environment and economic growth by fixing a model ceiling for businesses to adjust their production (either lowering output or shifting towards a more environmentally-safe strategy).
A research conducted by Department of the Environment and Energy of Australian Government in 2005 shows that industrial activities related to fuel combustion constitute the dominant part of sulfur dioxide (SO2) emissions which make “people feel the worst symptoms in 10 or 15 minutes after breathing in”. The same problem in the past, however, was reduced by 6,000 tons of S corresponding to 6% reduction of total S emissions and ¼ of taxpayers reduced S emissions by 70% on average thanks to the fiscal environmental tax in Europe (Domingo Jiménez-Beltrán, 1996) (4). Another exemplarily successful impact of green taxes on consumption is the imposition on plastic bags in Ireland. In 2002, Ireland introduced a €0. 15 plastic bag levy on plastic bags at the point of sale, which increased to €0. 22 in 2007 and as a result, discarded plastic bags fell from 5% of total litter pollution in 2001 to 0. 13% in 2015 (Jean-Pierre Schweitzer, 2007) (5). Environmental taxes also help in raising the governmental budget for investment in new ecological projects, management of natural resources or even finance of its budget deficit.
The aforementioned levy of plastic bags in Ireland does not only end with lower consumption of such products but also generates a revenue of €200 million over a 12-year period to fund ecological projects across the country (Jean-Pierre Schweitzer, 2007). In 2014, Australian environmentally related tax revenues were only 1. 86% (lowest among 39 countries compared) out of a $1,460-billion GDP (The World Bank, 2014) (6), which amounted to $27 billion according to Australian Centre for Tax Policy and Administration (2014) (7). However, that Australian government allocating $1. 4 billion to environmental funding and $525 billion (roughly 36% of GDP) (Trading Economics) (8) in the 2013-14 budget clearly illustrates green taxes’ mutual impacts on both ecosystem and economy – a so-called compensation for In addition, green taxation appears to outstrip regulation of environment-unfriendly substances. Unlike regulation that limits and restricts certain goods, which, if enforced strictly, might cause price inelasticity of demand in case of shortage of substitutes, such taxes on pollution “free the market within the boundary”, helping open market to maintain its competitiveness while ecosystem is subsequently preserved. Consumers would still have a wide range of abatement options to suit their preferences and firms could reform the production procedure as mentioned earlier. Governments also seemingly favor taxation policy rather than subsidy one focusing on a few specific aspects at a time; for example, developing green technology or purifying water, which additionally require governmental fund.
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