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It would be nice if it could work, but…

I provided a bit of scepticism around a scheme to assess environmental taxes using satellite imagery.

Dr Eric Crampton, head of research at the New Zealand Institute, said that in principle, taxes on pollution were far better than taxes on income so long as they were set properly – but this was very hard to do.

A land use-based tax could be unfair if a farmer who used better practices to reduce nutrient runoff and faecal coliform – which were invisible to satellites – was made to pay the same rates as a neighbour who had not.

“Second, the environmental cost of activity on any one piece of land depends a lot on what else is going on in the area – setting a tax and subsidy scheme to account for that does not seem simple.”

Environment Minister Dr Nick Smith has not reviewed or received any advice on the concept, but he also said the approach could be flawed.

I discuss a few more of the complexities over at Offsetting Behaviour. I wish this kind of thing could work though. A couple of points to keep in mind:

  • If you set a tax to make people bear the cost they impose on others, whatever revenue is raised is a bit beside the point. If you start advertising it as a way of funding other things, you risk having the revenue be the point. It’s important to keep those two things separate. If the scheme raised net revenue, then you would want to cut taxes elsewhere to keep things balanced. But that’s the side-effect.
  • What economists would consider an appropriate tax level for some environmental externality might differ from what ecologists would prefer. A lot depends on your baseline for assessment. I worry about taxes that get established based on economic justifications, then are used differently. Tobacco taxes that run about three times the costs smokers impose on the public health system are case in point.
About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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