Pigovian taxes may not sound familiar just yet, but you certainly will not forget them. The principle idea behind Pigovian taxation is that these taxes attempt to counteract a negative externality, which is a cost not translated through prices, through the institution of a new tax law. A healthy environment would be a positive externality and a damaged or stressed environment would be a negative externality. This would result in an Ecotax.
The institution of an ecotax would be positive punishment. Until natural conditions improve, carbon taxes (related to burning fossil fuels), taxes on deforestation and coal-burning, and waste disposal would all increase. This would not need to start as a large change either; ecotaxes could be created in connection with the lowering of income or property tax. If ecotaxes replaced existing taxes, citizens and businesses would have a way of lowering their taxes but only if they made a change to help better the environment. Individuals using less gasoline or creating less trash would pay less taxes; and corporations who harvest less minerals from the earth, cut less trees and produce less waste (leading them to recycle) would also be taxed less.
You can already get a tax break by being environmentally conscious. People who drive fuel-efficient vehicles or otherwise improve their lives in a measurably “green” way (having solar panels) can get government money to help finance this. The difference with earning these tax breaks and ecotaxing is that ecotaxing is not optional. It is a deductable built into everyone’s taxes. Business-standard.com summarizes this well; with an ecotax “there is always an incentive to reduce pollution, whereas with direct regulation a polluting company has no incentive to pollute any less than what is allowable.”
A Pigovian tax would be an effective way to strike up environmental change because it would increase the money available for conservation and restoration of nature, but would also alarm people to the importance of environmental protection, when they feel the pain of degradation to their wallets.
· Does Ecological Taxation Work?, http://skeptics.stackexchange.com/questions/2362/does-ecological-taxation-work
· Eco-tax should not spoil simplicity of GST by Sukumar Mukhopadhyay, http://www.business-standard.com/india/news/eco-tax-should-not-spoil-simplicitygst/392982/
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