Taxes and Tradable Permits As Instruments for Controlling Pollution

Abstract

This paper examines the relative merits of two dominant economic instruments for reducing pollution—”green” taxes and tradable permits. Theoretically, the two instruments share many similarities, and on balance, neither seems preferable to the other. In practice, however, most countries have relied more on taxes than on permits to control pollution. The analysis suggests a number of lessons to be learned from country experiences regarding the design and implementation of both instruments. While many, particularly European countries, currently have long-term programs involving environmental taxes, a willingness to experiment with tradable permits seems to be growing, especially given the Kyoto protocol emission targets.Taxes;Environment;emission, environmental taxes, pollution, emission tax, emission taxes, tax reform, lead, pollution control, abatement costs, environmental tax, tax reforms, product taxes, pollution taxes, environmental protection, auctioned permits, tax system, energy tax, labor taxes, pollutant, income taxes, emissions trading, coal, emission trading, sulfur, pollution sources, tax commission, air pollution, input taxes, consumption taxes, clean air, acid rain, tax exemptions, point sources, marginal tax rates, tax systems, sales taxes, water pollution, payroll taxes, air quality control, product tax, emission sources, nitrogen oxides, energy taxes, oxides, carbon emissions, indirect taxes, direct taxes, total tax revenue, pollution externalities, air quality standards, environmental taxation, waste water treatment, pollution control agency, noise, pollution charges, tax increases, emission standards, personal income taxes, pesticides, waste treatment, excise tax, pollution abatement, pollution legislation, value-added taxes, international tax, particulates, excise duties, pollution emissions, pollution permits, energy taxation, tax differentiation, tax measures, investment tax credit, nonpoint sources, tax revenues, carbon taxes, indirect tax, abatement technologies, tax structure, sulfur dioxide, motor vehicle taxes, tax instruments, tax ? reforms, polluter-pays principle, pollution levels, corporate income taxes, carbon monoxide, investment tax credits, pollution control equipment, tax payments, water pollution control, pollution externality, optimal tax, air pollution abatement, pollution level, volatile organic compounds, air pollution control, sulfur tax, detergents, carbon dioxide, distortionary taxation, pollution controls, waste disposal, consumption tax, optimal taxation