Economist view
Economists have long been advocating the use of market-based instruments (mbis) such as emission taxes to address environmental problems including industrial pollution. The common element among these economic instruments is that they work through the market and alter the behaviour of economic agents such as firms by changing the nature of incentives / disincentives these agents face. This approach is perhaps the most effective way to reach out and alter the myriad of individual decisions. For example, an emission tax levied at a given rate (in rupees per gram of biological oxygen demand discharged), irrespective of the nature of the factory, would create the flexibility for the owner to decide the least costly manner to reduce pollution. To reduce his tax bill the owner could pick one or more of wide range of options like using of cleaner fuel, improve maintenance, and retrofit emission control devices. Under this approach the long arm of the law would be replaced by the even larger arm of the market!
In cases where direct monitoring of pollution is not feasible, as a second best approach environmental taxes can be levied on final products associated with pollution (such as motor vehicles). Taxes on goods that are generally used as inputs into a polluting activity (such as coal or chromium), and taxes on polluting substances contained in inputs (such as sulphur in coal) is another option.
International experience shows that environmental taxes are not very difficult to administer, particularly in countries where other taxes are already collected from industries. At least six oecd (Organisation for Economic cooperation and Development) countries (Canada, France, Japan, Portugal, Sweden and the United States) use emission fees. Other countries such as Columbia, Poland and China have also successfully used environmental taxes. China has had these in place since 1979 and left India several years behind in this regard.
Economists have long been advocating the use of market-based instruments (mbis) such as emission taxes to address environmental problems including industrial pollution. The common element among these economic instruments is that they work through the market and alter the behaviour of economic agents such as firms by changing the nature of incentives / disincentives these agents face. This approach is perhaps the most effective way to reach out and alter the myriad of individual decisions. For example, an emission tax levied at a given rate (in rupees per gram of biological oxygen demand discharged), irrespective of the nature of the factory, would create the flexibility for the owner to decide the least costly manner to reduce pollution. To reduce his tax bill the owner could pick one or more of wide range of options like using of cleaner fuel, improve maintenance, and retrofit emission control devices. Under this approach the long arm of the law would be replaced by the even larger arm of the market!
In cases where direct monitoring of pollution is not feasible, as a second best approach environmental taxes can be levied on final products associated with pollution (such as motor vehicles). Taxes on goods that are generally used as inputs into a polluting activity (such as coal or chromium), and taxes on polluting substances contained in inputs (such as sulphur in coal) is another option.
International experience shows that environmental taxes are not very difficult to administer, particularly in countries where other taxes are already collected from industries. At least six oecd (Organisation for Economic cooperation and Development) countries (Canada, France, Japan, Portugal, Sweden and the United States) use emission fees. Other countries such as Columbia, Poland and China have also successfully used environmental taxes. China has had these in place since 1979 and left India several years behind in this regard.