Taxation In Pollution

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iv. Taxation
Taxation is one of the methods that many economists support because of its supposed efficiency. Under this method of pollution regulation, a tax rate is set for each standard unit of pollution that is equal to the social cost that pollution creates on society. The firm then has a choice of whether to pay the tax or seek methods to abate pollution. This method provides the firm with the freedom to compare the potential tax with the cost of abatement and reductions in output to allow selection of the option which leads to the smallest expense for the firm.
Taxation to reduce pollution produces some very distinct benefits for society. It will incentivize firms to search for the most cost efficient method to prevent pollution. This
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The firm’s increased cost of production on account of the added tax burden will be passed onto consumers (pollution victims), in the form of higher prices for the firms products. Since a firm’s cost of production will increase roughly in proportion to output, a pollution tax will require exemptions, rebates, and changes elsewhere in the tax code to ensure the overall progressivity of the entire tax system is preserved. Lastly, there is no guarantee that a taxation method will generate a lower social cost if the tax level set is too strict when compared to a direct emissions …show more content…
Direct control simply limits the impact of pollution per unit of production and taxation only seeks to incentives abatement without requiring it. Increases in demand under either of those systems will lead to an increased in pollution, but under cap and trade the total level of pollution emission cannot be increased. Even new sources of pollution cannot increase the total amount of emissions above the number of total permits but new firms may enter the market if they purchase excess permits from current polluters.
The cap and trade method will reduce administrative cost and delays related to regulation. Regulators will no longer be required to conduct lengthy information gathering to select the “best” technology or method of abetment or defend their final determinations in court against lawsuits from the polluting firms. This will shift the information gathering burden to those who can gather it most efficiently, the market and firms within the market.
Lastly, cap and trade presents the public with a simple question of what aggregate level of pollution should be allowed. This is a much simpler question for the public and government to answer versus the complex scientific and engineering analysis that is required under the other methods of abating pollution. It also avoids any potential corruption that will be caused by requiring the government

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