The case for risk-based environmental taxation

Author

Thomas Robert Sadler

Date of Award

8-1998

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

Robert Bohm

Committee Members

Amy Farmer, Matt Murray, Jim Kahn, Jack Barkenbus

Abstract

Risk-based environmental taxation offers a new method to regulate chemical emissions. The risk-based levy is an emissions tax that uses an approximation of the damage function. To formulate tax rates, an index of “risk values” first takes into account human health effects, environmental effects and the exposure potential for target pollutants. Then, by using a common tax base (the risk unit) that reflects relative risk values, and determining the number of risk units for each chemical emission, the risk-based system taxes according to approximate pollution damage. The use of the risk unit allows a policy maker to relate a number of chemical emissions and implement a tax rate on one risk unit, which then translates a different rate to each pollutant. As a result, relatively higher tax rates provide industry with the incentive to reduce the emissions of the most harmful chemical pollutants.

In a first-best world, economic theory prescribes, for pollution reduction and efficiency gains, an environmental tax above the marginal cost of abatement (MCA). But this paper admits that the MCA is unknown for target firms. In addition, information restrictions limit the ability to prescribe fully informed policy. The inclusion of a number of pollutants, information restrictions with marginal abatement costs and damage functions, and the admission of pre-existing tax distortions in the economy create an n^th best pollution problem. As a result, the risk-based regulation recognizes, under plausible circumstances, the inability of the policy to reach an optimal solution. To levy taxes, the risk-based regulatory firework focuses on the relative damage values of individual pollutants. The system uses the chemical ranking of the Carter of Clean Products and Clean Technology at The University of Tennessee. The risk-based system taxes, at the state level in the United States, chemical emissions in the Chemical and Allied Products Industry Group.

The risk-based system encompasses a number of pollutants under the jurisdiction of one policy, levies one tax rate cm a risk unit which translates to a different rate for each target emission, provides incentive for firms to reduce the emissions of the most harmful target emissions, focuses on approximate marginal damage, and establishes logic for environmental regulation.

Recommended Citation

Sadler, Thomas Robert, "The case for risk-based environmental taxation. " PhD diss., University of Tennessee, 1998.
https://trace.tennessee.edu/utk_graddiss/9353