Environmental taxes also have other important features:
Transparency. Well-designed taxes are highly transparent in terms of their coverage and costs. It is generally clear what is taxed, which polluters are exempt, and what the cost to polluters will be per unit of pollution generated. By contrast, the impact of regulations on different firms is typically more difficult to discern, and preferential policies for particular industries or constituencies can be harder to identify.
Cost certainty vs. environmental certainty. Environmental taxes increase the cost of particular products and activities in a fairly direct and generally predictable way. This makes it easier to judge the first order financial impact on consumers and firms. It is somewhat more difficult, however, to predict how they will react to such price changes, and thus to determine the quantum of the environmental impact. By contrast, with regulatory approaches such as technology prescriptions, emissions standards and renewable portfolio standards, the first order impact on emissions may be easier to ascertain, but there tends to be less clarity about financial impacts. Second-order effects, however, increase the complexity of determining longer-term results in both cases, reducing the dichotomy.