Carbon and Toxins Tax

Summary:

There are a significant number goods which have an external cost associated with their production; pollution.  This can be measured in real dollars due to the associated work that is involved in addressing the externality: the cost cleaning up the pollution, the cost of purifying the air or water, or the storage of waste.  This cost is normally borne by taxpayers through government run clean up programs.  Instead, a pollution tax placed on consumer goods will reflect the  total cost of the product when these considerations are included.

Long Description:

A carbon and toxins tax adds a cost to products which cause carbon or toxic pollution.  The tax collected is to cover the costs of clean up or the loss of natural capital.  The tax rate is adjusted per pollutant based on the cost of clean-up that occurs.  This would cover the external cost of pollution.

(Definition of External Cost: A product will cost money to create because you must pay for labour, materials and machinery to create it.  However, an external cost is a side effect of the process which you do not need to pay for.  For instance, a factory may have left over copper sludge and then simply dump it into a lake.  It would be up to the government, an external entity and hence the name, to then pay to clean up the copper sludge)

(Definition of Natural Capital: Natural capital is a relatively new concept which attempts to measure the dollar value of natural habitat.  Forests, for instance, produce clean air and purifies water, which would normally cost money at a water purification plant.  Therefore, the loss of forest has to be made up for with artificial machinery that accomplishes the same goal.  This costs money and this amount of money is used to determine the value of the natural habitat.)

Different pollutants and the method of polluting costs different amounts of money to clean up.  Generally the ideal goal is to have corporations pay for the clean-up costs up front, and not require any taxation thereafter.  However, for goods that are imported, an equivalent tax must be placed on these products to put them on a fair footing with locally produced (and monitored) goods.

For domestic industries, environmental inspectors can determine the level of pollution (and method of pollution) and then place a tax rate on the products.  The added bureaucratic cost can be reduced by having an assumption system where products are assumed to have an associated pollution cost and corporations only give information on their processes to show that they are more efficient.  Otherwise, products are assumed to be maximally polluting.

The bureaucratic reduction could be achieved by registering a factory.  Or there could be a general tax rate levied against corporations (who can then raise the price of their products if they choose to cover the cost of the tax) based on the number of tons of each type of pollutant they produce each year.  For instance, a $30/ton tax rate for carbon, $80/ton tax rate for sulphur and so on.

Imported goods could face the maximum tax rate for their good if they do not choose to identify the level of pollutants their factories create each year.  Bilateral trade agreements can help offset the damage to trade through the nomralisation of pollution monitoring systems.

Overall, it is an attempt to fairly assess the full cost of a product.  The loss of natural capital or the clean up of pollution have real costs associated and consumers can shop more wisely when these costs inherently built into the price of the products they buy.  Afterall, if taxes must increase to pay for the side effects but taxpayers do not know what is causing the pollution they cannot change their spending habits to lower government costs.

Rationale:

In terms of real world examples, a recent audit by the Canadian Environmental found that federally owned will cost 7.7 billion dollars.  That is 7.7 billion tax dollars being used for contamination site clean up due to lax environmental enforcement by the government over the last 15 years.  Considering that the Canadian government is heavily in debt and has a significant deficit in the budget, it is not a cost that it would like to have but without a tax levied against the producers of the pollution it is the taxpayers that must shoulder this cost.

If tackled well, a generalised tax placed on high pollution goods will raise their cost and thus push consumers to buy more eco-friendly items without any special incentives.  This cost is "fair" in the sense that if a corporation contaminates a lake with toxins with a clean up cost of 10 million dollars, then they should pay to remove the toxins from the lake.  It makes little sense to ask an organisation that had no relation to the pollution to pay for the cost of clean up.

The tax will also incentivise corporations to act more responsibly.  So long as they have to pay for the cost of pollution, they will act in a manner that produces less pollution.  This may be different processes, more efficient machinery or simply more responsible handling of nature.



Tools:

Generally, this is an issue that revolves around the implementation of a new tax bureaucracy.  Therefore it is best to keep the process for imposing pollution taxes as lean as possible without harming market fairness.

First is attempting to create a schedule of costs of different toxins.  A statistics agency is likely to compile this information regardless of a pollutants tax, simply because it is useful information both for public policy and for private entities.  This is helpful in determining the cost per ton of pollution when levying a tax.

Second, are trade disputes that may arise due to the taxation.  Generally, countries may become agitated if they feel their exports are being taxed more heavily than local goods.  In this sense, the most fair solution is to simply build a system in which both countries monitor their respective businesses for pollution levels.  Although problems may still arise, such as spotty inspections in one country but not the other, the cheapest bureaucratic route is to tax goods at the "expected pollution level" rather than waste money attempting to properly calculate a business' pollution levels.

Third, large corporations versus small businesses are more easily able to compile information on their pollution levels.  It may be better to offload the inspection costs onto the government who then incorporate the cost of inspections within the pollution tax to avoid an unfair cost of accounting between larger and smaller businesses.

Fourth, the government must be clear with a clearly published schedule of costs for pollutants.  With the internet, this can be achieved through a government wiki (the best solution) or alternatively simply on the Environment Ministry's website (or the equivalent government agency).  They must also be clear on the bureaucratic cost of the inspections and regulations.  This would incentivise keeping the bureaucratic cost low.


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