0
$\begingroup$

I understand that taxes (Pigovian taxes) can be used to steer the economy in a certain way. For example, if you increase the taxes on things related to cigarettes, the price increase will decrease the demand. Or, if you put a carbon tax, the industry will try to produce its products in a carbon-neutral way in order to keep the prices - hence demand - on the same level, which will transform the economy in a more green one.

However, why don't we also pay money to industries that have a negative carbon footprint?

I mean, while producing your product, if you either capture some carbon or product something that can be used to capture carbon, you are directly doing a "good" to the society. Wouldn't this also incentivize companies not just to have a zero-carbon footprint but instead to have a negative footprint?

Are there any examples of such policies?

$\endgroup$
  • 5
    $\begingroup$ There are subsidies for renewable energy, carbon capture, research. $\endgroup$ – Kenny LJ Jun 30 at 8:17
  • $\begingroup$ @KennyLJ but it is not the same. When you give subsidies, there is no competition, and (as far as know) the more you have negative footprint, the more you won't be paid. $\endgroup$ – onurcanbektas Jun 30 at 18:24
  • $\begingroup$ There is direct competition for getting loans and grants and even in subsidized industries businesses still compete within the industry, so if your margin is better (and it's assumed you have a negative or less positive carbon footprint, being in the subsidized industry) then you make more money for having a better carbon footprint relative to the inputs. $\endgroup$ – gormadoc Jun 30 at 20:38
  • $\begingroup$ @gormadoc "if your margin is better then you make more money for having a better carbon footprint relative to the inputs": how? negative carbon footprint doesn't always lead to cheaper production cost $\endgroup$ – onurcanbektas Jun 30 at 20:50
  • $\begingroup$ I'm talking specifically about those subsidized industries. If a business operates on a better margin than its competitors and you assume the businesses get largely comparable subsidies for their size (like tax breaks for the biofuel industry), then it also receives more subsidies relative to the operating cost. $\endgroup$ – gormadoc Jun 30 at 20:54
5
$\begingroup$

Are there any examples of such policies?

Yes. Under the 45Q tax credit program, the US pays

\$50 per metric ton of CO2 for projects that sequester carbon and \$35 per ton for projects where carbon is captured and then used for recovering oil underground.

| improve this answer | |
$\endgroup$
-2
$\begingroup$

I suggest you read into Tietenberg's Environmental and Natural Resource Economics, or the Externalities chapter of Rosen's Public Finance.

The main problem with such subsidies is that they cost money to the government, that is, to the taxpayer.

| improve this answer | |
$\endgroup$
  • $\begingroup$ "The main problem with such subsidies is that they cost money to the government, that is, to the taxpayer." obviously but do you realize that if the Earth becomes unliveable, there won't be anyone to pay taxes nor will there be any government to collect it, right? $\endgroup$ – onurcanbektas Jun 30 at 20:52
  • $\begingroup$ I do, but I also understand that the average taxpayer has no concern for such matters. This means that no government will get elected by promoting higher taxes. And the likelihood that they'll get re-elected is even smaller, if they actually move on with such matters. It is easy to see why Economics is called "the dismal science". $\endgroup$ – the_rainbox Jun 30 at 21:05
  • $\begingroup$ "This means that no government will get elected by promoting higher taxes": it is simply not true! $\endgroup$ – onurcanbektas Jul 1 at 4:27
  • $\begingroup$ 1) People do not trust their governments more than themselves; lowers taxing revenue 2) People try systematically and illegally to avoid paying taxes; lowers taxing revenue 3) Every elected official promotes higher rates to the economic class that doesn't support them. That's not how taxation works (neither equitably nor efficiently) Perhaps you'd like to consider reading the books first. $\endgroup$ – the_rainbox Jul 1 at 9:42
  • $\begingroup$ To the extent that my answer seems ignorant, please, understand that it's merely simple. $\endgroup$ – the_rainbox Jul 1 at 9:48

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.