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