Taxing pollution Versus Selling Permits for Transferrable Pollution Permits
Pollution taxes and transferrable pollution permits are the two main strategies that policy makers are using to check emission levels by firms and countries. Pollution taxes refer to direct payments to the government for emission bypassing a set limit. Such an intervention forces the firms to minimize the amount of pollutants that they release into the surroundings such that they restrict emissions to the most efficient ones. On the other hand, transferable permit strategy operates in a market structure such that the level of pollution by a particular firm is controlled by forces of demand and supply of the permits. In other words, a company can only emit to the extent that it can purchase permits for the emissions. Hence, the cost implications of permits compel organizations to adapt pollution policies that reduce pollution in a way that is least costly to them and the society.
The benefits of pollution taxes are many. Firstly, they involve less transaction costs compared to transferrable permits. Secondly, they generate income for the home country which can be recycled in other investments, such as upgrading infrastructural amenities, to the benefit of the local businesses. Perhaps the greatest benefit of taxes is that firms cannot manipulate the system to their advantage since taxes are not subject to market forces like permits are.
Similarly, transferrable permits have several merits. First, they enable reduction of emission where it is cheapest to do so, across international borders. This is beneficial since the effects of pollution such as climate change are experienced globally. Second, unlike taxes, permits adjust automatically to inflation thus ensuring that firms are not disfranchised. Besides, players in the private sector prefer this system over the tax system because it enables them earn revenue from sale of permits.
From the discussion, sale of transferrable permits is a more economical way of reducing pollution globally. Companies are more likely to check their emission levels under the Permit system as opposed to the tax system. Besides, permits accrue economical benefits to the firms.