Pollution Taxation: "Saving Mother Earth" or Hurting Economic Growth?

Since the first Earth Day 36 years ago, government regulation and taxation related to pollution has been greatly expanded. In theory, this is an appropriate approach to reducing a "negative externality"; the question then becomes: does this work in practice? The authors reply: results are mixed. Some legislation, such as taxing ozone-depleting chemicals and development of the SuperFund, have been successful at reducing undesirable emissions and raising monies for clean-up. Sewer fees in Maryland have helped Chesapeake Bay as well. In general, the authors believe that taxes are more effective than regulations, especially where emissions can be clearly measured. Taxes, the authors argue, are more flexible in application (example: they are better at adjusting for internal costs of pollution to the firm), are more likely to encourage innovation and a possible reduction in societal costs. A major assertion of the authors is that pollution compliance costs is FAR removed from trivial. The Hawaii Reporter estimates that compliance costs for environmental regulation nationwide exceeds $200 billion and the Conservative Voice estimates that the overall tax compliance cost to society is between $100-200 billion.

Several items here: [1] I believe that it is a matter of time until reporting of the environmental impact of publicly-traded corporations becomes a required disclosure in the notes to the financial statements, [2] environmental activists and governmental leaders cannot be allowed to ignore the costs of environmental legislation. By no means should the latter point mean that NO legislation regarding environmental regulation should exist; what is does mean is some past legislation should be reconsidered based on cost/benefit analysis and that future environmental legislation should provide incentives as well as penalties. Finally, there is a tension between using tax policy to produce environmental important, an approach favored by the authors of this report, and controlling complexity in the tax code.