The Effects of an Emissions Tax to Be Levied per Unit of Carbon Output on Producers - Term Paper Example

The Effects of an Emissions Tax to be levied per Unit of Carbon Output on Producers Name Course Name and Code Instructor’s Name Date Executive summary This paper entails a details report on the issue of the effects of the emission tax levied on a unit of carbon output that is produced by the producers. The issues of economic basis of the introduction of that tax with an aim of reducing the environmental damages are dealt with. All the effects that will be realized as a result of imposing the tax on the people are discussed in details. The paper also discusses who is responsible for paying the tax as well as the aggregate welfare and initially the consumption and production decision as well as the environmental outcomes due to the tax are discussed. Introduction Taxing means the process of imposing some financial charge or a levy on a taxpayer. In most cases a tax is also a burden that is laid down on the individuals, companies or properties for the purposes of helping the government. This is usually a payment that is enacted through the power of legislative. Environmental tax refers to the taxes that are put on natural resources extraction or the tax that is exerted on the green gas or other pollutants emission in the environment. The main purpose for this form of tax is to ensure that there is a reduction in the amount of pollutants released in the atmosphere and as a resultant industries will turn to environmental friendly raw materials and technologies as well as materials or ways of processing that will produce less waste I terms of dangers and volume. The economic basis of tax introduction to alleviate environmental damage Much efforts have been put forth to control the emission of dangerous substances in the atmosphere (Hite et el, 2001). That has not been enough because some of the industries are still operating at the expense of the generations of the future. Due to the high rate of innovation taking place in the world, so many raw materials are being converted into waste products within a very short time. This has then subjected the economy at the verge of breakdown due to the burden it has been put in as a result of pollution. Environmental taxes are placed on all pollutants emitted per unit and that will not only limit the rate of pollutant emission in the atmosphere but will also ensure there is an achievement of economical expense. The tax placement will lead to a lesser utility in that Taxes will not significantly reduce the emission of pollutants significantly Environmental friendly technology are not in place to motivate the industries to reduce pollution in the environment The greatest pollution is not as a result of energy pollutants The potential of danger to the atmosphere will depend on the various ways or means of energy production like fossil fuel, nuclear and renewable sources but are not yet discerned by the taxing system. It is important to establish a justified environmental goal ecologically which will be the basis for applying the taxation law which should include the following issues; relevant pollutants, geographical location, quantity that must be reduced and the time to which the goal should apply. The environmental tax must focus on one goal or specific pollutant so that it will be efficient and effective. The specific tax should be in a position to reduce significantly the emission of pollutants to the atmosphere. When setting the tax, price elasticity must be put into account as much as the whole idea is to benefit the environment (Shrum, 2007). This means that consideration of the effect the tax will have on the emission amount because failure to give an elastic price the resultant will be economic and ecological inefficiency. Another challenge that can result is the tax turning out to be arbitrarily set or rather a lobby interest. All of these challenges must be avoided by ensuring that the tax is set quantifiably and of ecological efficiency. The taxes that are charged should also be in a way that they will lead to a high ecological positive effect but also the international competitiveness of the industry in question should be put into great consideration. In addition, the tax should be in such a way that it will not lead to an economic burden due to over taxation (Nielson, 2011). The entire tax volume must be raised in such a way that through the environmental tax all the hikes in tax as well as the introduction of any new tax will lead to a balance through the reduction of other taxes. The businesses as well as the citizens should not be expected to actually submit to that high overall tax as well as the expenditure resulting from the expenditure burden after that environmental tax introduction. It should be noted that the added value tax on pollutant should be added to the entire contemplation to revenue neutrality then given to the businesses and citizen back. Income function must be prevented through the use of function of guidance which is to be the focus point. The tax should also not be used for the reasons of pre-specification instead it has to be included in the general revenue. By doing so, the government will retain its scope for decision making and bargaining. Incase the tax is meant for some specific functions, there will be high tax income retained meaning that any environmental damage reduction will simply be a way of countering the production with reference to the national tax income (Walls & Palmer, 2001). Effects of the tax Taxes can be affected greatly by the elasticity of supply and demand. This is because by the knowledge on both the elasticity of supply and demand very accurate predictions on effects of some new tax as well as determining the amount of tax that will fall on the consumers. Specific tax can affect the equilibrium through three ways namely; prices rise on the equilibrium, fall of the equilibrium quantity and the tax revenues collected by the government ((Walls & Palmer, 2001). In cases where there are issues of pollution, there are two ways the government can use to limit the emission of these pollutants. These are setting a standard meaning that a limit is set for the organization so that none of them is supposed to emit more than Y amount of the substance that is a pollutant or setting a specific tax on every unit of substance that is emitted in the environment. The regulation put across must be efficient in that the action that is taken must take into consideration the issue of costs equa.ise abatement between the firms so that they can achieve some reductions in at least cost. Marginal abatement cost means the cost that will take to abate a unit emitted while the efficient outcome must be equal to the marginal abatement cost. The action it should at least be in such a way that it leads to the adoption the abatement technology and innovation (Nielson, 2011). The output also should e in such a way it reaches the optimal level that is socially acceptable. The government must have the information before imposing the tax. This is whereby it needs to have the knowledge of how much of the pollution it allows the firms to produce to the environment. It is also important for the government to understand the extent to which the fee will affect the total amount of the pollution the firm in question will produce. The government may set those costs in such a way that the standard is at socially optimal level or rate but even though, the abatement that is not the least cost incase abatement costs is differing between the firms. Firms themselves will have more flexibility incase their output value or production processes changes. The advantage of the monetary to pollution will reduce innovations due to the reduction in the payable taxes but the cost of abatement for all of the firms is equal this is with reference to efficiency ((Parry et el, 2009). The major challenge is therefore choosing a tax that will lead to the achievement of socially an optimal level in the output and that information may be difficult to acquire. There should not be an increase in the volume of the subventions by the revenue returned from any environmental tax. The ecological tax reform of conventional model may need to transfer the environmental revenues of tax to the social security leading to subsidize in the social security revenue. It should be noted that running the social security subsidize revenue for very long time may lead to a challenge of misdirected development (Sullivan, 1997). This is because as a result of subventions allocations of accounting costs for all social security casualties will not be possible any longer. It should be noted that realistic prices should prevail to achieve a realistic environmental protection demands. Also genuine pricing of all the products must be done so that the public can also benefit and for the social security to apply. Violation of the principle through return of the revenues of cause should be avoided from the environmental tax. Incase there is a subsidize on the social security together with the income tax then the following is bound to happen; ((Pigou, 2002). The finance of the social security of the salaried employees and workers will be done through the environmental tax and especially by husbands and housewives, students, civil servants, retirees and self employed people. This means that those groups will not at all be beneficiaries of the subvention of that a social security as will as unemployment insurance and so they will be forced to finance their very own old age (Nielson, 2011). Who will pay Ecotaxation also called the green taxation being one of the economic instruments whereby taxes are used to encourage people to adopt behaviors that will lead to a reduction in pollution and it is very environmental favorable (Nielson, 2011). This kind of tax is simply designed to provide the individuals or the firms a disincentive economically to ensure there is a creation of externality. This can happen whereby another firm, activity or individual is capable of imposing a certain cost on another of which the firm or that individual is not at all charged for by the market economy price system. An example is the kind of pollution that is experienced by some people as a result of a down flow in a river of polluted effluent by an industry (Pigou, 2002). This means that the dweller along the river have a right to charge or impose a charge on the industry. The person, firm or company responsible for releasing the pollutants on the environment is liable to pay the tax. In most cases the one responsible for paying is the consumer, the stakeholder, the producers and basically everyone in one way or another pays for the tax. Aggregate welfare There are a number of advantages that are to be enjoyed as a result of environmental tax. Through the recollection of the abatement there are static gains that are realized (Hanson & Sandalow. 2006). It should be noted that by varying the pollution cost of abatement across different individuals or firms there is a great potential of the environmental tax reduction. The reason for that is because the other instrument policies are not able to make a difference between the various pollutants who has varying marginal abatement costs meaning that there may be a need for high cost abatement although the tax each of the polluters with some abatement incentive the most less expensive way (Parry et el, 2009). In addition, the need of the authority that will regulate can be side stepped for achieving some detailed information concerning abatement cost of individual source hence leading to a situation whereby the public sector enjoys low regulation of cost. There can also be a gain in the static efficiency by the performance incentives. There can also be a situation whereby there is dynamic innovative kind of incentives. They are also responsible for ensuring there is a limit on the total cost of emission reduction. These taxes are very predictable as far as their costs are concerned. This is because they enable the company to make plans for their energy consumption as well as make plans for investments in the issue of energy efficiency so that they ensure the initial cost is less. These taxes are a great source of revenue for the government. They are also very effective in ensuring there is a reduction in the emission of carbon in the atmosphere due to the fact that they are a very permanent form of incentives that will cause a reduction in the emission of carbon and other pollutants (.O’Riordan, 1997). It is also a way of achieving a double dividend in the sense that there is increase in revenue o the county as well as reduction in the level of pollution which is one of the major causes of climate change. Reduction of pollution not only reduces climate change and issues of global warming but also reduces illnesses that are caused by the pollutant once consumed by the people (Nielson, 2011). Production and consumption decisions The control and command regulation being a market based king of instrument will control pollution. It also demands flexibility in the control of pollutants emission. This means that there are decisions that have to be made if the emission quantities have to be avoided for the purposes of reducing the tax the company will have to pay. It is obvious that the tax will lead to a change in the prices of services and goods (Nielson, 2011). This is because the emission related kind of good and services will be rather expensive as compared to the non-emission related goods and services. This means that there will be a need to make decisions for coming up with less expensive mechanisms for producing those goods and services. Some of the decisions which will have to be made must revolve around environmental effectiveness, the rates of the taxes, competitiveness, distributional implications, administrative and technical feasibility and ensuring the policy objectives are aligned. It is obvious that when the demand goes up the prices tend to increase. This is because as the law demand tax payment the cost of production of some goods will go high. On the other hand, the supply will go down since the companies will not be willing to incur so many expenses on the process of production. This means many companies may stop dealing in those kinds of services and goods (Hanson & Sandalow. 2006). Price production cost Demand for tax payment supply of the goods and services Gains of the market based kind of instrument on economic efficiency Environmental outcomes The taxes will lead to some environmental outcomes. There can be some uncertain environmental outcomes but some of the other outcomes are anticipated. There is definitely a possibility of pollutant emission reduction (Goodstein, 2003). This is due to the fact that tax will mean an increase in prices for any pollutant emitted. IT is obvious that many companies would rather do away with the specific procedures or processes that are likely to cause high volume of pollutant emission. It is very obvious that many people would like to attempt using some other processing as well as raw materials that are likely to emit less of the pollutants in the atmosphere (Nielson, 2011). By doing so, there will be less pollutants released in the atmosphere. Most of the economist have suggested that the pollute pay principle which is the law governing the polluters tax, is not very effective since the mechanism is deferring from the command-control kind of regulation. It is also evidenced that this advantage can only be realized in the developed countries that have regulatory institutions for ensuring there is compliance as well as there is efficient and effective implementation of the law and as far as the issue of market mechanism with reference to the control of pollution (Hanson & Sandalow. 2006). Reference Goodstein, E. 2003. The Death of the Pigovian Tax? Policy Implications from the Double-Dividend Debate. Land Economics, vol. 79, no. 3, pp. 402–414. Hanson, C., and D. Sandalow. 2006. Greening the Tax Code. Washington, D.C.: World Resources Institute and Brookings Institution. Hite, D., Wen Chern, F. and Alan, R. 2001. Property-Value Impacts of an Environmental Disamenity: The Case of Landfills. Journal of Real Estate Finance and Economics, vol. 22, no. 2/3, pp. 185-202. Nielson, L. Emissions Control: your policy choices, Background note, Parliamentary Library, 10 May 2010. O’Riordan, T. (ed.) (1997), Ecotaxation, London: Earthscan. Parry, I., R. Williams, and L. Goulder. 2009. When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets. Journal of Environmental Economics and Management, vol. 37, no. 1, pp. 52–84. Pigou, A.C. 2002. The Economics of Welfare, London: MacMillan. Shrum, T. 2007. Green house gas emissions—policy and economics. Kansas: Kansas Energy Council. Sullivan, T.F.P. 1997. Environmental Law Handbook, 14th Ed. Rockville, Md.: Government Institutes. Walls, M. and Palmer K. 2001. Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies. Journal of Environmental Economics and Management, vol. 41, no. 1, pp. 94-108. Read More