Make Taxes and Subsidies Eco-Friendly

[Jewel]

Make Taxes and Subsidies Eco-Friendly


Why do so many economic activities harm the environment? It is not that environmental destruction is inherently profitable. Nor are green practices necessarily too costly. It is simply a symptom of the way we view and manage our economy.

Governments profoundly influence the economy through a series of subsidies, many of which artificially reduce the costs of environmentally destructive activities. Additionally, environmental costs are not often reflected in the prices of goods and services, meaning that society as a whole bears the burden of destructive activities rather than the individual producer or consumer.

Sustainability can be made more profitable by changing these price manipulations to favor sustainability.



Subsidy reform

Government policies often subsidize the consumption of natural resources rather than discourage it. A 1997 Earth Institute report found that over $700 billion is spent by governments worldwide each year funding environmentally destructive activities (Brown). As a result, prices often do not reflect the full cost of producing a good or providing a service.

Take, for example, automobile use. Drivers in the U.S. pay only 20-50 percent of the cost of parking, traffic services, and road construction and maintenance (de Moor and Calamai). While effective transportation is important to economic development, the fact remains that Americans drive more than necessary, with negative results such as accidents and air pollution. The massive subsidies on automobile travel make this possible.



This is not to say that subsidies are always bad. The task, rather, is to shift subsidies so that they encourage conservation rather than consumption. Subsidies should promote investment in renewable energy or tree planting, not pollution or waste.



·Environmental taxes


Taxes, like subsidies, can be shifted to better support sustainability. This has been done in many European countries. In Denmark, for example, income taxes have been lowered and replaced by higher taxes on the sale of water, fuel, coal and electricity (Brown). Such shifts are engineered such that the government receives the same amount of revenue. The only difference is that people are no longer penalized for making money, but instead for spending it on the consumption of important, finite resources.



Many destructive environmental activities are not yet taxed at all. If a tire manufacturer wants to calculate how much money he is going to make by selling one set of tires he will subtract his input costs (labor, overhead, raw materials, advertising, etc.) from the expected price of the tires. A resource that is not included in the price of the tires, however, is the environmental impact of the production of these tires. By filling up landfills with manufacturing waste or polluting the air with factory emissions, our natural resources are being strained. The environment is a resource the manufacturer is relying upon, but it is often not factored into the price of the finished good. Although harmful externalities are often overlooked when calculating the costs of production, society still has to pay the costs of pollution or other environmental impacts, regardless of how difficult they are to define monetarily. It is more sensible for the users of a resource to pay than for society at large to soak up the burden, especially since it is more likely to curb wasteful behavior by individuals. In addition, whatever revenue is generated through such a tax can be funneled back into the system as an incentive for business to continue to search for environmentally sustainable ways of doing business.

Environmental tax example

One example of an effective environmental tax is the U.S. Ozone Depleting Chemicals Tax (1995), which directly targeted a specific source of pollution: ozone-depleting chemicals (ODCs). Before the tax, regulation of the ODCs was costing $3 billion for a 50% reduction in production; after the tax was put in place an estimate for complete elimination of ODCs was less than $3 billion (Jackson 2001). In addition, the tax encouraged both companies and consumers to find less environmentally damaging substitutes by increasing the price of products with ODCs. The key factors in this dramatic turnaround have been the gradual and pre-announced increase in tax levels, which gives companies enough time to conduct research and develop alternatives, as well as the direct use of tax revenue for research and development into environmentally sustainable options.

http://www.geog.ucsb.edu/~gallo/vision/EcoEconomy.html