environment tax
...other one is based on economic incentive. Basically two types of policies are included: TDP and environment tax. Both of them is started by “centralized policy” (p233, Field: 2002), then firms may make flexible choice to attain efficient pollution control. The former one works “under the decentralized market intersection of polluter themselves” (p257, Field: 2002). At first, a reasonable total pollution level is determined. Permits are issue for allowable emission level and then distributed among polluters. Usually different firms will have different permits, they are based on the past pollution level and set lower than current level. Any polluter gaining the lower pollution than their own permits can sell their rest permits to the companies with high pollution cost, at whatever price which is agreed on the participants themselves. As regards to environment tax, it is levied on some polluted production. Once it is set, firms responsible for pollution should pay for any cost affecting environment, that is to say they are free to decide how best to reduce pollution. This process can be illustrated in Fig1.setting an environment tax Fig1. Setting an environment tax MAC= marginal abatement cost, MEC= marginal externality cost According to Fig1, MAC intersects with MEC to achieve social optimum level Q, where government imposes a tax rate t just equal to MEC. If the firm produces any output over Q, where MAC is less than the tax, such as Q’ and thus firm probably have strong incentive to reduce output to Q and so reduce the pollution to the optimum level. Comparison among environment tax, TDP, and CAC The serious situation of externalities pollution problem entails human to find a proper method to improve environment. Which is more desirable? Environment tax, TDP or CAC. They will be compared on the basis of the policy criteria provided. To star with, efficiency, if a tax policy is adopted. All firms are subject to the same charge, they will adjust their pollution rate by themselves so that marginal abatement costs equal the tax. However, for TDP approach, it may be less efficient, although it is under the operation of market, which may be considered most efficient. That is because market failure is inevitable, how the market operates may be much more complex, which is concerned about many factors, for example, who get the permit first, the incentive to diminish cost and so on. More factors would bring about more uncertainties. Admittedly, uncertainties exist in tax strategy because administrating agency is not sure whether firms will report an accurate marginal abatement cost, which will lead to the uncertainty on the amount of pollution reduction. But it needs to emphasize that an efficient environment tax can be achieved “even though the administrating agency knows nothing about the MAC of any sources (p242, Field: 2002) since environment tax would be administrated within the current tax framework, it is likely to be low –risky. In addition, TDP approach has a strict requirement on market size, in a small and less competitive market, TDP may not work well. Next, cost-effectiveness will be put forward. In the CAC strategy, a standard of emission rate is applied to different firms with different MAC, while using tax policy, the same tax is levied on different firms. The comparison is shown by Fig 2 Taxes versus standard setting Fig2. Taxes versus standard setting In this diagram, there are 3 firms with 3 different MAC curves, when using CAC: TAC=Q1YP+Q2BP+Q3XP But under the taxes; TAC’=PAQ2+PBQ2+PCQ2 TAC-TAC’=YCQ2Q1+AXQ3Q2 The former area is larger than the latter one, so the total abatement cost will be higher under CAC solution. There are people arguing that tax don’t only bring abatement cost, but also the charge on tax, while CAC only incurs abatement cost, so tax might more expensive than CAC solution. But The World Bank reported that the overall costs of a revenue-neutral pollution tax are negative in the benchmark simulations, at least for pollution reductions up to 17 percent, and possibly up to 42 percent. (http://www.worldbank.org/nipr/work_paper/wps2119.htm) In addition CAC solution may include a big excess cost on bureaucracy since such solution is solely dependant on regulatory controls. In the facet of equity, CAC approach and TDP appear to be more equitable. It is on the amount that CAC sets the same standard to all the sources and in TDP, two firms would sell and buy out of willingness. However, tax approach is called “distributionally regressive” (p175, Turner, Pearce, Bateman,); the tax might take a larger proportion of income in poor family than the rich ones. Because based on the national statistics that large population of low income live in the hazardous waste site. But this problem may be overcame through the compensation of government spending on the type of social welfare, transfer payment, which will be mostly distributed to low- income people. Incentive is also an important point that shouldn’t be neglected. When a pollution standard is set, firms are likely to have little incentive to cut the emission below the level. This is not in the case of environment tax policy, which may provide more incentive for controlling pollution, because the cost of paying tax is higher than abatement cost. Firms possibly consider it worthwhile to control pollution and this may motivate them to study and invent new abatement technology. The comparison of the two strategies is shown in Fig 3 and fig 4 Fig3.the incentive of CAC Fig4. The incentive of tax policy In Fig3, MAC1 is the original marginal abatement curve, which intersects with marginal externality cost curve at e1, the pollution standard, so the total compliance cost for the firm is the area a plus b, while if CAC is adopted, MAC1 will decrease to MAC2, where the compliance cost is b. Thus, the difference is area b. For Fig4, MAC1 and MAC2 stand for the same meaning. The total cost of original way is the combination of taxation and abatement cost, which is a+b+c+d+e, under the pollution level of e1. On the other hand, the total cost is a+b+c under the pollution level of e2. The difference of taking taxation approach is the area of d plus e, which is obviously larger than that in the CAC approach. As for TDP, theoretically, it can provide the same incentive as environment policy, and it is likely to result more pollution reduction. This has been proved by lots of facts, such as in USA,...