| A nation's annual budget establishes the framework of
economic and fiscal incentives and disincentives within which corporate
leaders, businessmen, farmers and consumers make decisions. It is perhaps
the most important environmental policy statement that any government
makes in any year, because in their aggregate
these decisions serve to enhance or degrade the nation's environment and
to increase or reduce its stocks of ecological capital. A budget that levied taxes on energy, resources and pollution, matched by an equivalent reduction in labor, corporate and value-added taxes, could have a significant effect on consumption patterns and on the cost structure of industry without adding to the overall tax burden on industry and society. Reform of tax systems along such lines seems essential to encourage a transition to sustainable development. With increased awareness, the politics of changing incentive systems should not be insurmountable. Some leaders of the most advanced industries have welcomed analyses linking economic incentives and environmental integrity. Provided their income is not jeopardized, farmers have everything to gain from incentive systems that encourage practices that maintain or enhance their soil, wood, water and other farm capital. For consumers, many such shifts in incentives would be neutral, and the impact on employment could even be positive. Reforming tax and incentive systems, though crucial, will not be sufficient. The market is limited in several ways, the most important one being that it cannot take into account the external environmental costs associated with producing, consuming and disposing of goods and services. The market treats the resources of the atmosphere, the oceans and the other commons as free goods. It "externalizes," or transfers to the broader community, the costs of air, water, land and noise pollution and of resource depletion. The broader community shoulders the costs in the form of damages to health, property and ecosystems. Internalizing these costs again requires government intervention. One attempt was the so-called Polluter Pays Principle (PPP), introduced by member countries of the OECD in 1972. The PPP requires that industries pay the full costs of protecting the environment from the pollution resulting from their activities. It is important mainly because it has the potential to cause the environmental costs of development to be reflected in the prices that consumers pay for goods, thereby biasing consumer choice in favor of those goods whose production, use and disposal have the least impact on the environment. Unfortunately, governments have been notoriously slow to apply the principle, perhaps because it affects consumer prices. Another reason, no doubt, has been pressure from industry. Although as a rule industry is a strong advocate of the market, in this instance it has usually marshalled its forces against it. Strategies for Sustainable Economic Development, by Jim MacNeill. Scientific American, September 1989, pp.105-113 |