Question

What are the arguments for and against an emissions tax?

What are the arguments for and against an emissions tax?

Homework Answers

Answer #1

Arguments for an emission tax:

  • An emission tax makes polluters pay for the external cost imposed by them
  • Such a tax helps in achieving the socially optimal level of production and makes production socially efficient
  • Such a tax increases government revenue, which can be spent on the social sector or technological innovation for cleaner technologies
  • Emission taxes would encourage firms to find cleaner and greener techniques of production
  • Such taxes can help prevent environmental degradation

Arguments for an emission tax:

  • A tax burden might reduce investment and economic activities by firms
  • Firms may become more secretive in polluting to avoid taxes
  • Firms might shift production to countries which do not have emission taxes
  • It is a difficult task to measure external costs and determine the amount of tax to be charged
  • It is a difficult task to monitor firms and collect taxes
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