Environmental Economics, Politics, and Worldviews - Environmental Science - page 419

Environmental Laws and Regulations
Environmental laws and regulations work best if
they motivate companies to find innovative ways
to control and prevent pollution and reduce resource
waste.
Regulation is a form of government intervention in the
marketplace that is widely used to help control or pre-
vent pollution and reduce resource waste. It involves
enacting and enforcing laws and establishing regula-
tions that set pollution standards, regulate harmful
activities, ban the release of toxic chemicals into the
environment, and require that certain irreplaceable or
slowly replenished resources be protected from unsus-
tainable use.
A number of environmental and business leaders
agree that innovation-friendly regulations can motivate
companies to develop eco-friendly products and in-
dustrial processes that increase their profits and com-
petitiveness in national and international markets. But
they also agree that some pollution control regulations
are too costly and discourage innovation. Examples in-
clude regulations that concentrate on cleanup instead
of prevention, are too prescriptive (for example, by
mandating specific technologies), set compliance
deadlines that are too short to allow companies to find
innovative solutions, and discourage risk taking and
experimentation.
An innovation-friendly regulatory process em-
phasizes pollution prevention and waste reduction
and requires industry and environmental interests to
work together in developing realistic standards and
timetables. It sets goals, frees industries to meet them
in any way that works, and allows enough time for in-
novation to emerge.
For many years, many companies mostly resisted
environmental regulation and developed an adversar-
ial relationship with government regulators. In recent
years, a growing number of companies have realized
the economic and competitive advantages of making
environmental improvements and recognized that
their shareholder value depends in part on having a
good environmental record. As a result, some firms
have begun looking for innovative and profitable
ways to reduce resource use, pollution, and waste
(Individuals Matter, p. 394). At the same time, many
consumers have begun buying green products.

• Decreases depletion and degradation of
natural resources

• Improves environmental quality by full-cost pricing

• Encourages pollution prevention and waste reduction

• Stimulates creativity in solving environmental
problems to avoid paying pollution taxes and thereby
increases profits

• Rewards recycling and reuse

• Relies more on marketplace rather than regulation for
environmental protection

• Provides jobs

• Can stimulate sustainable economic development

• Allows cuts in income, payroll, and sales taxes

Figure 18-8 Solutions: advantages of taxing wages and prof-
its less and pollution and waste more. Critical thinking: pick the
two advantages that you think are the most important.

Economists point out two requirements for suc-
cessful implementation of green taxes. First, they
should reduce or replace income, payroll, or other
taxes. Second, the poor and middle class need a safety
net to reduce the regressive nature of consumption
taxes on essentials such as food, fuel, and housing.
To many analysts, the tax system in most countries
is backward. It discourages what we want more of—
jobs, income, and profit-driven innovation—and en-
courages what we want less of—pollution, resource
waste, and environmental degradation. A more envi-
ronmentally sustainable economic system would lower
taxes on labor, income, and wealth and raise taxes on
environmentally harmful activities.
Shifting more of the tax burden from wages and
profits to pollution and waste has a number of advan-
tages (Figure 18-8). Some 2,500 economists, including
eight Nobel Prize winners, have endorsed the concept
of such tax shifting.
Nine Western European countries have begun
trial versions of such tax shifting, known as environ-
mental tax reform. So far, only a small amount of rev-
enue has been shifted by taxes on emissions of CO 2
and toxic metals, garbage production, and vehicles en-
tering congested cities. But such experience shows that
this idea works.

Tradable Pollution and Resource-Use Permits
The government can set limits on pollution emissions
or use of a resource, issue pollution or resource-use
permits, and allow holders to trade their permits in
the marketplace.
One market approach would have the government
grant tradable pollution and resource-use permits. For

x

H OW W OULD Y OU V OTE ? Do you favor shifting taxes on
wages and profits to pollution and waste? Cast your vote
online at http://biology.brookscole.com/miller11.