Environmental Protection

Pollution taxes would have to be carefully designed and implemented if they are to deliver the intended environmental and economic benefits. An accurate monitoring system would be needed to ensure that the tax was reducing pollution. Accurate monitoring technology exists for some smokestack emissions, but in other cases, such as those involving fugitive emissions of dust, monitoring could be very difficult. It would also be important to ensure that the tax led to an overall reduction of environmental risks. The regulator would need to be aware that taxing one pollutant might increase the use of other pollutants that are equally toxic. For example, a tax on lead alone could boost the use of cadmium in batteries. In addition, the tax rate that would be needed to reduce pollution to acceptable levels might not always be known. As a result, taxes might need to be introduced gradually and their effects monitored to determine whether pollution was being reduced to acceptable levels. The value of pollution taxes will depend on how well these issues are addressed. Pollution-tax revenues could be used to lower federal taxes that discourage economic growth or to reduce the federal budget deficit.

GAO found that: (1) the Environmental Protection Agency (EPA) and state and local governments do not have sufficient resources to effectively regulate and control all of the substances identified in legislation as harmful; (2) taxes on emissions of pollutants and on the harmful substances themselves could supplement regulatory efforts to meet the objectives of existing environmental laws; (3) pollution taxes could lower the costs of controlling pollution, address pollution that historically has not been well controlled, and generate significant revenues; (4) although it may be easier to tax substances rather than limit and regulate use of substances, a product tax would penalize all uses, regardless of the degree of risk posed, of a product; (5) a pollution tax that addresses all possible risks posed by different uses of a substance could be complicated and costly to enforce; (6) pollution taxes must also consider the risks posed by the incentive to use a different, untaxed harmful substance; and (7) pollution taxes could be phased in, beginning with low levels, to give substance users time to adapt to the taxes and avoid unnecessary costs and to allow regulators time to determine the appropriate level of taxes.