Still another pricing instrument is a tax on an input, produced goods, or service associated
with emissions. Taxes on gasoline, electricity, or air travel are examples. These taxes may be
an attractive option when it is difficult to monitor emissions directly (see below). However,
because these taxes do not focus sharply on the externality, they do not engage all of the pollution
reduction channels described above, implying a loss of cost-effectiveness. For example,
a tax on electricity lowers emissions by raising electricity prices, which lowers equilibrium
demand and output; but it provides no incentives for clean fuel substitution in power generation
or for the adoption of electrostatic emissions scrubbers (a form of postproduction
or “end-of-pipe” treatment). Similarly, although a gasoline tax might encourage motorists
to drive hybrid or more fuel-efficient vehicles, it provides no incentives for them to drive
cars that burn gasoline more cleanly, or for refiners to change the refinery mix to produce a
motor fuel that generates less pollution when combusted.