Pigouvian Taxes, Permits, Renewables, and Recyclables

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Ed. Note: We are happy to share this reader response, which is part of a series submitted by undergraduate students at Loyola University Chicago from a course called ENVS 363: Sustainable Business Management.

There is a conflict between our current free-market capitalist economy and the limited resources that run it. The economy relies on an unlimited amount of resources as fuel for growth and production. However, we are approaching a critical point at which the Earth’s supplies of vital resources will be irreparably depleted. The linear nature of our currently employed economic model is largely responsible. Businesses consume natural resources without consideration of responsible limitations in regard to the Earth’s ability to replenish and restore them. If we were able to transition to a circular economy based closely upon the natural ecosystems and resource cycles that exist all around us, we would not face the looming threat of irreversibly depleting the natural resources upon which we depend.

There are several steps that can be taken to encourage a more circular economy through business measures.  First involves the implementation of Pigouvian taxes. These taxes, first conceived by 1920’s British economist Arthur Pigou, would charge businesses for the negative externalities of their actions. The financial, environmental, and health care costs of business actions would be directed back to the businesses responsible for any damages. This would represent an internalization of costs currently levied upon the public. Although these taxes would be difficult to quantify and assign, even broad and generalized Pigouvian taxes would hold businesses responsible for harmful inefficiencies in their production systems as well as the costs of any damages caused to future generations. While these taxes are often viewed solely as a penalty, in fact they would function as an incentive for sustainable innovation. In forcing businesses to fix the problem of negative externalities, the Pigouvian tax would give sustainable and restorative companies a competitive edge.

Secondly, implementing pollution permits would bring business closer to fostering a restorative economy. The government would issue industries a set amount of credits for their discharge and emissions. Credits would be auctioned off or granted to the polluting businesses within the industry. The number of permits issued would decrease at a controlled rate, moving the industry toward sustainable emissions goals. Over time pollution permits would make it increasingly expensive for businesses to pollute therefore causing industries to reduce or eliminate pollution.  

Third, traditional energy consumption methods of fossil fuels are not sustainable. They are responsible for a significant amount of harm that has been done to our environment. Renewable energy technologies like solar and wind have very few negative byproducts, unlike the fossil fuels that continue to insulate and overheat our Earth. Renewable energies can create a more reliable and resilient energy system because they are less prone to large-scale extraction and production failure, as well as market price fluctuations. The main issue with implementing more renewable energy standards is that the technology remains relatively expensive.  However, operational costs are minimal and once established most renewable energy plants do become profitable in the long term. Renewable energy will serve as the fuel for a circular economy.

Finally, businesses would implement what Paul Hawken has deemed “intelligent product systems.” This would reorganize industry and waste management. Intelligent product systems would make the economy cyclical by completely eliminating waste. In such a system, manufacturers design products to be easily disassembled for the reuse, refurbishment, and recycling of every component. All the byproducts of production would be sold to other companies as resource streams for new products and services. In an intelligent product design system, outputs would become inputs in a perpetual and cyclical ecosystem of industry.  

In order for the economy to undergo such a monumental shift, the successful implementation of all four of these proposals simply wouldn’t cut it. The deeply imbedded root of our current environmental plight remains the ideology of consumerism. Global strategies to increase levels of consumption in the pursuit of a brighter and more prosperous future have pushed the world to its natural limitations. Consumer ideals must change. As evidence that indicates large-scale environmental degradation, mass poverty, and global catastrophe flows in, people are beginning to seek solutions. Many are looking for the largest agents of change, and with government seemingly unable to help it is time to turn attention to the entities responsible for many of our current environmental issues.

Just as supply depends on demand, change in our current economic practices depends on consumer demand. Corporations and businesses ultimately answer to the consumer. With consumer trends being a known cause for change in the business world, consumers hold the power to direct industry in whichever direction is needed. Conscious action and demand from the public will ultimately function as the main motivator for economic and social change. An economy that does not rely upon endless growth is within our reach.

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