4 ms·

Pigouvian taxes: When the interests of individuals and society do not coincide

ZeroGravitas 9y ago
"Research may have guided the initial level of a British landfill tax, at £7 a tonne in 1996. But other considerations may have boosted it to £40 a tonne in 2009, and thence to £80 a tonne in 2014." While it is a theoretical issue, this particular example seems overly harsh, many tax introductions like this are phased in, so that people are given fair warning and time to change their behaviour. I can't find full documentation but certainly in 2009 it was already decided that the price should rise by £8 pounds every year until it got to £80
londons_explore 9y ago
I would like to see more taxes like this, with "free allowances" below which one does not need to fill in any paperwork or pay anything. For example, have a car and have it produce 50 tons of co2 per year, don't worry. But if you have a power station and it produces 2500 tons, you have to measure it, report it, and pay co2 tax on it. But if you leave your car running at full throttle hooked up to powering all the houses in your street, you'll have to pay.
- benlorenzetti 9y ago
  An alternative would be have the pigouvian tax on power stations, but at a rate where it is cheaper to buy from the line than hook up an ICE to a generator. Tax regimes should always take market effects and enforcement into account. Thermal efficiency of a good ICE: 38% Thermal efficiency of a good natural gas plant: 54% Average power line losses: 8-15% http://www.greencarreports.com/news/1091436_toyota-gasoline-engine-achieves-thermal-efficiency-of-38-percent http://www.greencarreports.com/news/1091436_toyota-gasoline-... https://en.wikipedia.org/wiki/Combined_cycle https://en.wikipedia.org/wiki/Combined_cycle http://blog.schneider-electric.com/energy-management-energy-efficiency/2013/03/25/how-big-are-power-line-losses/ http://blog.schneider-electric.com/energy-management-energy-...
clairity 9y ago
great exposition about taxes on externalities often being sub-optimal. part of the problem with pigouvian taxes as the solution to externalities is that taxes are often viewed with skepticism because of the association with either a big black hole of waste or one of greedy corruption, so you get all kinds of resistance (not to mention the primary resistance of the "greedy wanting to greed"). but the general idea of pricing in externalities is a neceesary, and possibly an ingenious, way to keep our greedy selves in check for the good of the whole. it's only fair that individuals and small groups of people shouldn't exploit collective resources for only themselves. benefits shouldn't be privatized while costs are socialized. they should go together (private benefit with private cost, public benefit with public cost). more to the point, "making sure all costs are paid for" by the prevailing party is much more palatable over the vagueness of taxation. external costs should be assessed and charged appropriately and the proceeds be used as much as possible to prevent or restore the resources used and/or the damages caused. the government will need to be involved at a regulatory level, but taxation doesn't seem to be it's most successful intervention option.
CalChris 9y ago
Since the (excellent) Economist is behind a paywall, this is the description of Pigovian Taxes from Wikipedia: A Pigovian tax (also spelled Pigouvian tax) is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. An often-cited example of such an externality is environmental pollution. https://en.m.wikipedia.org/wiki/Pigovian_tax https://en.m.wikipedia.org/wiki/Pigovian_tax

"Research may have guided the initial level of a British landfill tax, at £7 a tonne in 1996. But other considerations may have boosted it to £40 a tonne in 2009, and thence to £80 a tonne in 2014." While it is a theoretical issue, this particular example seems overly harsh, many tax introductions like this are phased in, so that people are given fair warning and time to change their behaviour. I can't find full documentation but certainly in 2009 it was already decided that the price should rise by £8 pounds every year until it got to £80

londons_explore 9y ago

I would like to see more taxes like this, with "free allowances" below which one does not need to fill in any paperwork or pay anything. For example, have a car and have it produce 50 tons of co2 per year, don't worry. But if you have a power station and it produces 2500 tons, you have to measure it, report it, and pay co2 tax on it. But if you leave your car running at full throttle hooked up to powering all the houses in your street, you'll have to pay.

benlorenzetti 9y ago
An alternative would be have the pigouvian tax on power stations, but at a rate where it is cheaper to buy from the line than hook up an ICE to a generator. Tax regimes should always take market effects and enforcement into account. Thermal efficiency of a good ICE: 38% Thermal efficiency of a good natural gas plant: 54% Average power line losses: 8-15% http://www.greencarreports.com/news/1091436_toyota-gasoline-engine-achieves-thermal-efficiency-of-38-percent http://www.greencarreports.com/news/1091436_toyota-gasoline-... https://en.wikipedia.org/wiki/Combined_cycle https://en.wikipedia.org/wiki/Combined_cycle http://blog.schneider-electric.com/energy-management-energy-efficiency/2013/03/25/how-big-are-power-line-losses/ http://blog.schneider-electric.com/energy-management-energy-...

clairity 9y ago

great exposition about taxes on externalities often being sub-optimal. part of the problem with pigouvian taxes as the solution to externalities is that taxes are often viewed with skepticism because of the association with either a big black hole of waste or one of greedy corruption, so you get all kinds of resistance (not to mention the primary resistance of the "greedy wanting to greed"). but the general idea of pricing in externalities is a neceesary, and possibly an ingenious, way to keep our greedy selves in check for the good of the whole. it's only fair that individuals and small groups of people shouldn't exploit collective resources for only themselves. benefits shouldn't be privatized while costs are socialized. they should go together (private benefit with private cost, public benefit with public cost). more to the point, "making sure all costs are paid for" by the prevailing party is much more palatable over the vagueness of taxation. external costs should be assessed and charged appropriately and the proceeds be used as much as possible to prevent or restore the resources used and/or the damages caused. the government will need to be involved at a regulatory level, but taxation doesn't seem to be it's most successful intervention option.

CalChris 9y ago

Since the (excellent) Economist is behind a paywall, this is the description of Pigovian Taxes from Wikipedia: A Pigovian tax (also spelled Pigouvian tax) is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. An often-cited example of such an externality is environmental pollution. https://en.m.wikipedia.org/wiki/Pigovian_tax https://en.m.wikipedia.org/wiki/Pigovian_tax