ABSTRACT
Chapter 2 contained a discussion of the ‘polluter pays principle’ (PPP) and the concept of a tax or charge to refl ect the external health and environmental costs of pollution. By putting a price on polluting activities and technologies, pollution charges give producers or consumers incentives to change to cleaner alternatives. This improves the effi ciency of the tax system, by accounting for the external costs of pollution, and can lead to savings over the cost of traditional regulation. Ideally a Pollution Charge should be based on the amount of pollution and other externalities generated. Strictly, a transport pollution charge should be on the amount of transport pollutants produced, for example on emissions such as sulphur, particulates, or carbon dioxide plus health costs, congestion, and all the externalities of transport discussed in Chapter 1. There are transport examples of pollution charge taxation measures, such as the UK’s annual Vehicle Excise Duty, which is based upon CO2 emissions. However it is often diffi cult to determine the true costs of pollution and thus the proper levels for pollution charges. For example, the UK Vehicle Excise Duty does not attempt to cost CO2 emissions; it simply involves the redistribution of the tax yield of the old system. There are thus a whole range of practical issues that lead to approximations (rather than detailed cost-based data) being used to inform pollution charges (USEPA, 1999).
