New Internationalist

Make The Polluters Pay

Issue 220

new internationalist
issue 220 - June 1991

Make the polluters pay
Some environmentalists believe that the tax system can be used to get
corporations and consumers to clean up their act. Dick Russell
surveys the possibilities and pitfalls of green taxes.

It is no secret that free-market economies, left to their own devices, have largely failed to place proper value on environmental concerns. Despite heightened public awareness, widespread industrial and agricultural pollution continues, as well as the profligate use of fossil fuels. Until now, governments in North America and Europe have sought to balance the marketplace's inadequacies through regulatory standards - a command-and-control approach which has proved effective up to a point. But economists have noted there is little cost imposed on a firm that fails to comply with the standards.

Increasingly, environmental think-tanks and government policymakers are beginning to raise another possibility - green taxes'. As the Washington-based Worldwatch Institute sets forth in its latest 'State of the World' report: 'A set of environmental taxes, designed as part of a broader restructuring of fiscal policy, could do much more to steer the economy toward sustainability'.

Last September, the 12 environment ministers from the European Community (EC) met in Rome to discuss the possibility of community-wide green taxes. While no agreement was reached, environmental taxes had found their place on Europe's political agenda. The European Commission, along with Belgium, Denmark, France and Germany, support a common tax on carbon emissions. Less wealthy members worry, though, that the tax might be set too high, jeopardizing economic growth. The Netherlands, by contrast, is concerned that the tax might be too low.

The fact is, a number of countries already levy charges on products that are polluting either in production or consumption. These include non-returnable containers, lubricant oils, oil products in general, plastic bags, fossil fuels, fertilizers and pesticides, and mercury-cadmium batteries. A Worldwatch survey of industrial countries shows more than 50 such environmental charges in place.

Researchers at the Environmental Assessment Institute in Germany recently analyzed more than 30 possible 'eco-taxes' and determined tax levels that would markedly shift consumption patterns for each item. In certain cases, a doubling or tripling of prices was viewed as necessary to cut consumption substantially. Cutting pesticide use in half would require a tax of around 200 per cent of current pesticide prices.

At the moment, far more common than taxes are government subsidies to corporations to encourage them to control pollution. These are of little use. But might not taxes be used to discourage production and push corporations in the direction of alternative technologies?

Both in the UK and the US, there are examples that make this seem feasible. A higher tax on leaded petrol in Britain made the market share for unleaded gas soar - from 4 per cent in April 1989 to 30 per cent by March 1990. The US Congress, late in 1989, passed a tax on the sale of chlorofluorocarbons (CFCs), known to be destroying the earth's protective ozone layer. The tax was implemented in order to hasten a CFC phaseout and to capture anticipated windfall profits as the chemicals' price rises. The most widely used CFCs are initially being taxed at $1.37 per pound, about twice their current price, with the tax rising to $4.90 by 1999. It is expected to generate $4.3 billion in revenue over the first five years.

A number of US state governments are altering their tax policy to achieve environmental goals. Minnesota exempts some land from property taxes to preserve marshy areas. New York and New Hampshire have reduced property taxes for wetlands that are protected from developers.

In the wake of the Gulf Crisis came renewed calls for a stiff tax on gas which would encourage Americans to drive less, buy more fuel-efficient cars, share rides and, eventually, live closer to work. Even the Chair of oil company Atlantic Richfield, Lowdrick Cook, said in February that he favors it, telling the Southwestern Legal Foundation: 'I think we've got to discourage unneeded consumption. American gasoline taxes average out at 29 cents a gallon, by far the lowest of any major industrial country. West Germans pay two bucks, the Japanese a dollar, and Italians close to four dollars. We ought to think about that.' Analysts have determined that taxes would need to rise by at least 50 cents a gallon to have a significant effect on consumption. Cook believes this should be phased in, with the revenues channelled into public transportation and conversion.

The Bush Administration's recently-unveiled National Energy Strategy makes no recommendations, however, for either 'pollution purchase fees' or gasoline taxes. And even some environmentalists question whether such a tax would be regressive, impacting poor and rural residents the hardest. Says Ed Rothschild, director of energy policy for the Citizen Action organization: 'The question from our point of view is, what is equitable? Who ends up paying and who ends up getting the benefits?'

One way of addressing this problem would be to offer credits or payments to low-income citizens who might face a tax that raises gasoline prices or home heating costs. The same criterion could be applied to farmers, in discouraging the use of agricultural chemicals.

Perhaps most vital of all is the growing discussion of a tax on carbon-dioxide emissions generated from fossil fuels. Worldwide emissions of CO2 have tripled since 1950, now accounting for about half of the impending 'greenhouse effect'. Some time between the middle and end of the next century, scientists predict a doubling of CO2 output in the atmosphere - with probable dire consequences for the world's climate.

In 1990, Finland introduced the world's first carbon tax on fossil fuels at the rate of $6.10 per ton of carbon emissions. The Netherlands soon followed suit. Sweden is expected to unveil a similar program shortly, but with a more significant levy.

According to researchers at the Battelle Memorial Institute, a policy-research group in Washington DC, by putting an $85-per-ton tax on the carbon content of fossil fuels, the US could cut its current CO2 emissions by between 14 and 20 per cent. Such a tax would initially generate $112 billion in annual receipts, enabling the Government to reduce federal income taxes by between 15 and 25 per cent - and ease the threat of global warming at the same time.

How would such a tax affect prices? The US Congressional Budget Office has calculated that a $100-per-ton carbon tax would lead to a 15-to 20-per-cent increase in the price of gasoline, and a 20-to 25-per-cent increase in the price of electricity. But the tremendous upsurge in annual revenues could finance other environmental programs, reduce the massive Federal budget deficit, or finance reductions in regressive payroll taxes.

All told, the Worldwatch Institute has come up with eight possible green taxes. Besides CFCs and the carbon content of fossil fuels, it foresees implementing charges on hazardous wastes, paper produced from virgin pulp, pesticides, sulfur-dioxide and nitrogen-oxide emissions, and groundwater depletion.

'Beyond their role in reshaping national economies,' says Worldwatch, 'green taxes can raise funds for global initiatives that require transfers from rich countries to poorer ones, transfers that would begin to pay back the ecological debt industrial countries have incurred by causing most of the damage to the global environment thus far.'

Dick Russell is a regular contributor to the NI based in Los Angeles.

[image, unknown]

Illustration: Alan Hughes
THE MERCHANT PRINCE

IQBAL KHAN. The Pakistani merchant prince. A scion of one of Pakistan's 26 families and a guy with style a British aristo couldn't dream of - he makes tax dodging sound patriotic. Khan's status as informal adviser to the Pakistani Finance Ministry has seen him well placed to veto rules that would have seen the elite having to put their hands in their oh-so-elegant pockets. Khan's personal finances have not suffered. Most of his investments have stayed safely out of the reach of the tax collector - helping to underwrite Pakistan's bustling black market in guns and heroin or locked up in the most reputable of Swiss banks.

Khan was known to be irritated by Rakowski's insistence that Third World countries should tax wealth to pay their debts. This is one proud guy who could have taken personally Rakowski's jibes about a decade of underdevelopment sponsored by high-living plutocrats. But what might finally have prompted Khan to act were the corridor whispers that Rakowski was working on a draft of an international tax treaty that would result in a minimum tax on capital income wherever it was lodged.

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