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The 21st Century Environmental Revolution: A Structural Strategy for Global Warming, Resource Conservation, Toxic Contaminants, and the Environment / The Fourth Wave by Mark C. Henderson.
See also Book II of the Waves of the Future Series
Commitment to the environment has picked up recently but still falls short of what we need. We have to shift gear, or we will leave behind a devastated world to future generations. We need fundamental change.
The only strategies powerful enough to turn things around for the environment are those targeting the very structure of economies. Patching up after disasters or dealing with symptoms has not worked so far and will likely continue to fail us in the future.
We need to use markets to our advantage and make them work for us. This could be achieved by changing the incentive structure of the marketplace in order to create an economic environment in which environmental practices would be more profitable than their opposites. The new structure would make green goods cheaper than others, prompting a shift in consumption patterns and industrial practices.
The first principle of a comprehensive environmental strategy is the recognition that a significant part of environmental contamination and degradation is directly related to the amount of non-renewable resources we dig out of the ground. Decreasing our consumption of these resources is key to both conserving them for future generations and reducing environmental degradation.
Many environmentalists campaign hard when it comes to global warming and pollution, but few call for action on the conservation of non-renewable metallic resources. Yet, these issues are intimately connected, one being a significant part of the solution to the other.
One of today's generally accepted principles in science is that nothing is created nor destroyed. Antoine Lavoisier (1743-1794) and Mikhail Lomonosov (1711-1765) are credited with its development and formulation. The law of mass/matter conservation, as it is known, pertains to the fact that things in the physical world are not destroyed when they burn or decompose. They are simply transformed into something else.
As a kid, you saw a log burn and assumed that the combustion process destroyed it almost completely, that most of its matter simply disappeared. In fact, it was only transformed. Some of it was released into the atmosphere as water vapor, gas, or smoke. Certain elements burned down to ashes, and the energy that was captured from the sun through photosynthesis was radiated back into the environment.
According to the Lomonosov-Lavoisier law, the tons of ore that we mine every year are not magically destroyed after we are finished with them. They end up in the environment. Some of what we extract from the ground becomes refuse at mining sites, and some is emitted into the air or discharged into toxic lagoons. Jared Diamond, an American evolutionary biologist and UCLA professor, describes the hardrock (metals) mining industry as “currently the leading toxic polluter in the U.S., responsible for nearly half of reported industrial pollution” (Diamond, 2005, p. 452).
The rest of what is extracted in the mining process is made into goods that eventually end up in landfill sites. But the story does not end there. As Annegrete Bruvoll, the Head of Research at the Unit for Energy and Environmental Economics (Statistics Norway) reports, ”End treatment, i.e. waste disposal and incineration, results in emissions of toxic pollutants and greenhouse gases, and seepage from waste disposal sites pollutes ground water and watercourses” (Bruvoll, 1998, p. 16).
The total amount of minerals we extract every year is exactly equal to the amount of wastes we generate (refuse, emissions, fluid discharges, garbage, gases and solids from incineration, etc.). One ton of extracted minerals today means one ton of waste added to the environment tomorrow. We dig out ore annually by the millions of tons. Therefore, by the same millions of tons, we create wastes and pollutants every year!
Reusing and recycling are the closest thing we have come to so far in terms of a solution to the problem. Unfortunately, our best efforts only minimally delay environmental degradation. Most things can only be reused or recycled so many times.
In the long term, our two most prominent achievements, reusing and recycling, will only give us a bit more time as everything will sooner or later end up in the environment. Although their impact is very significant in the short term, they cannot bring change on the scale needed and are only part of the solution.
Conservation, on the other hand, achieves two goals at the same time. It preserves resources for future generations and massively reduces wastes and pollution: one ton for every ton of minerals not mined or extracted.
The second principle of a comprehensive environmental strategy is that cutting down on the extraction of minerals would not only preserve resources and massively reduce pollution but also achieve a third goal: decrease our use of the battery of invisible toxic compounds produced in the processing of ores and manufacturing of goods.
Many of the toxic chemicals that are released into the environment today result from the transformation of the minerals we mine and their manufacturing into finished goods. A range of compounds—intermediate chemicals—are produced for those purposes or are by-products of manufacturing. This is also true of certain toxic metals. As such, they often end up in lagoons, waterways, and the atmosphere just like intermediate chemicals.
For example, mercury is at times used in the extraction of gold. It is also contained in the ores of other minerals, the smelting of which releases the volatile metal into the atmosphere. The burning of coal for electricity or other purposes also results in the emission of mercury into the air in addition to all the other pollutants its combustion produces.
By virtue of the fact that nothing is created nor destroyed, intermediate chemicals and some toxic metals also end up in the environment, in their original forms or as byproducts.
The third principle of a comprehensive environmental strategy is that we have to reduce world population. Even the greenest measures and initiatives will not be able to compensate for the devastation that billions of people can wreak upon the earth. The greater it is, the more resources are consumed at any given point in time.
For example, if the total number of people on the planet were reduced by 30% and everything else remained the same, we would theoretically consume 30% fewer goods and use up approximately 30% fewer resources. We would need to extract 30% less mineral, burn 30% less fossil fuels. We would create 30% less waste, pollution, and degradation. Industrialized countries consume far more than their fair share of resources. Reducing their population would have a much larger impact on mineral reserves and the health of the planet.
Today's efforts towards the environment only skim the surface of problems and have no hope of ever catching up to the current rate of destruction. There is just too much being dumped into the environment, from the billions of tons of minerals extracted every year, to the millions of gallons of intermediate chemicals, to the multitudes of soaps, detergents, solvents, and cosmetics flushed down rivers on a daily basis.
Funding has always been the stumbling block of the environmental movement. Fixing problems costs money. This is why our efforts are still only skimming the surface of problems.
People often complain of giving too much of their hard-earned cash to governments. Doubling taxes to raise the trillions needed for the environment is not going to happen. The countries that do tax for the environment have only been able to raise minimal amounts for that purpose. There is no particular support, either on the part of politicians or voters, for any large amount of additional taxation. Even the most charismatic environmentalists already have enormous difficulties raising money to support their own work.
As it stands, additional taxation can only have a minimal impact for the environment because of its hopelessly insufficient fundraising capability.
When governments give grants or tax breaks to corporations, they have to make up for the shortfall in revenue through additional income tax, cuts in services, or other similar actions. Subsidies and tax breaks are not as free as many would think; taxpayers ultimately foot the bill. As such, these approaches to resolving environmental problems are nearly as limited as additional taxation is.
Regulations have scored a number of victories for the environment, for example, outlawing PCBs in open systems and chlorofluorocarbons (CFCs), the chemicals responsible for the depletion of the ozone layer of the atmosphere. However, they are also ultimately limited by the availability of funds. PCBs, for example, are still widely used today in closed systems. CFCs will only be totally phased out in 2030 despite being the object of significant restrictions and bans since the late 1980s. Why is that?
Regulations do cost money either in the form of higher prices for substitutes or because of conversion expenses. These are usually passed on to consumers. Once again we pay the bill, this time in the form of more expensive retail products. This is why regulations are often much weaker than needed, assuming they make it to the political agenda and are enforced.
Short of people dying, there is a limited amount of social commitment to seriously address environmental problems and even less with respect to long-term preemptive planning. Regulations will remain an important tool for the environment, but alone they have no hope of ever solving our problems. We may be willing to pay a little more for greener alternatives but not what would be required for an environmental turnaround or revolution.
Resource conservation has generally failed to make it to the social and political agendas. Most often, the only resources targeted with our efforts towards sustainability are forestry and fisheries. This is no great achievement as both are actually renewable. Despite that fact, we still managed to fail. The collapse of the cod fishery on the Grand Banks on the eastern coast of Canada and the U.S. is but a striking example of our lack of resolve.
We have made no significant progress on the issue of non-renewable resources, which is by far much more critical. The world hopes that OPEC increase production to lower gasoline prices, not decrease it to save reserves. Nothing is done to conserve metals. On the contrary, calls are being made to increase production in order to create jobs.
Sustainable development runs over and over again into the same brick wall. The very incentive structure of the system in which we live directly pushes us to deplete non-renewable resources to keep prices down or create jobs. Similarly, it makes it cheaper to pollute, use toxic compounds in the manufacturing of goods, and flush hazardous waste into waterways than opt for cleaner alternatives.
Today's reality is that the more we pollute and decimate resources, and the less we leave for our children, the greater our economic growth. Two things are needed to address environmental problems. Firstly, the solutions have to be on the scale of the problems. Secondly, the current economic structure has to change. No matter how hard we fight for the environment, if capital runs counter to our efforts, little will be achieved. How do we change that? Let us first look at what has been proposed before.
The idea of environmental taxes is not new. In 1989, David Pearce produced for the Department of the Environment in Britain a document which recommended a comprehensive green taxation program in the UK (Dryzek, 2005, p. 130-132). The U.S., Canada, and many European countries have already implemented some form of environmental levies, albeit very minimally. The global warming debate has also led to talks of carbon taxes in several countries.
Could trillions of dollars in additional taxation for the environment solve our problems? Probably. The scale would be appropriate, but the idea would not be politically viable. Could we find trillions' worth of spare change within the existing taxation system? The answer is also very likely no. But...
Many countries have deterrence or punitive taxes such as levies on cigarettes and alcohol. These are meant to do two things: deter usage and generate income for the government. They are dual-purpose levies. When governments tax income, they bring in revenue but nothing is specifically being deterred. Because this is a single-purpose type of levy, society derives from it only one benefit when it could have had two.
Shifting taxation to the environment would double the social dividends we get from our tax dollars. This would create synergies that could achieve a lot while not costing us a cent. There might not be trillions of dollars of spare change available within the current taxation system, but there certainly is that amount of wasted incentive or social benefit.
Considering that Americans and Canadians alone are paying about US$ 2 trillion annually in income tax, the benefits of such a strategy could be massive and result in a complete turnaround for the environment in as little as a decade. Let's take a closer look.
There is no doubt that levies have to be collected to fill governments' coffers and fund social services, healthcare, education, roads, the police, the army, etc. But, who is to say that income has to be taxed in order to raise the money for the above? Canadian taxation represents over 30% of national income. In the U.S., the figure is somewhat lower but remains a massive component of the country's revenue. Those represent staggering amounts.
Let me illustrate with a concrete example what a shift in taxation could do. For the purpose of the exercise, $1 of deterrence is considered $1 of benefits although it is not clear how much direct savings the deterrence would translate into for society. It could be less but also more.
Income tax is a single-purpose levy designed to raise revenue for governments: $100 of it produces $100 worth of services. With deterrence taxes, governments collect revenues to provide services as well as deter the use of products which are generally considered unhealthy: $100 of those provides not only $100 worth of services but also $100 of deterrence. In the case of cigarettes, the latter could translate, for example, into lower healthcare costs from decreased cancer rates.
In North America, when you tax income—as opposed to goods like cigarettes—you get US$ 2 trillion into the government coffers, but you lose another US$ 2 trillion worth of deterrence effect. That alone could radically turn things around for the environment without costing the taxpayer a cent, i.e. without additional taxation!
Most environmental issues are ones of deterrence. We want to deter the emission of greenhouse gases, the use of pollutants, and the depletion of non-renewable resources. Shifting the single-purpose tax on income to an environmental deterrence system would double the social benefits we get from every dollar of tax paid without increasing taxation. The US$ 2 trillion of deterrence that this would generate for North America alone would be a massive engine of change for the environment.
Our lifestyles would change, but that is unavoidable. As expressed earlier, the transition to a greener world will occur one way or the other, either destructively or constructively. However, with the strategy proposed in this book, our standard of living would not go down. Disposable incomes would essentially remain the same as the total amount of taxes paid before and after the shift to dual taxation would essentially be equal.
We already know that there is no social commitment to any significant increase in taxation and that current spending for the environment is far from adequate. The shift to deterrence taxation would allow us to get a second bang for free from the tax system. If you currently pay $10,000 in income tax, you will still be paying about the same amount under a dual taxation system. However, a significant portion of it would then come from deterrence levies, for example on fossil fuels, contaminants, and non-renewable resources, instead of income. $10,000 worth of revenue would still be generated for the government, but the punitive effect would reduce greenhouse gases and contaminants, and foster resource conservation without your paying any more taxes than before.
In 2000, Canada collected on incomes about CAD$ 127 billion (Revenue Canada, 2002). Americans paid US$ 2,098 billion in taxes in total during the same year. Assuming that the currencies are at par (CAD$ 1.00 = US$ 1.00), this would amount to about US$ 2,225 billion (or $2.225 trillion).
In comparison, the U.S. gross national product (GNP)—a measure of the total value of goods and services produced by a country—for 2000 was about US$ 10 trillion. The actual annual environmental deterrence budget—the green firepower—for the U.S. alone would be about 20% of its entire national production.
Internationally, the story would be similar. The rest of the developed world would have a comparable share of its total production available for environmental deterrence. Developing countries, which have been able to afford environmental standards only with difficulty up until now, would have less but still enormous amounts of deterrence at their disposals. By any standards, we are talking about massive and unprecedented firepower for the environment in both rich and poor countries.
The GNP is very effective in giving us a good idea of the actual size of the new potential environmental deterrence budget. But, a much more interesting comparison is with the American military budget. It stood at US$ 379 billion for 2003 (Council for a Livable World), in the midst of the Afghan and Iraq Wars. At $2,225 billion, the new budget for the environment would not only beat but actually dwarf the war chest of the most powerful military on the planet.
With this kind of budget, an environmental revolution becomes more than a mere possibility. It is right in our hands, just waiting to happen.
Turning things around for the environment would imply change on a large-scale. At first sight, it may seem impossible to achieve. However, if certain principles are respected, it can happen. There is a science to massive change.
The first premise of a meaningful environmental strategy is that needs are massive. Therefore, the solution should be of appropriate scale, powerful enough to address all issues. There is an urgency to deal with global warming and environmental degradation. There is also a dire need to reverse the current trend of rapid resource depletion so that future generations can have enough for themselves. The sad reality is that the earth does not come with a warranty stating that because its life expectancy is five billion years, its resources should last that long.
The small step by small step incremental solutions proposed so far will not do the job.
The second premise is that environmental change on the scale needed would require massive voter support. For any solution to be implemented, it must first make it to the political agenda and receive support. To that purpose, the strategy explored in this book is revenue neutral, making it as voter friendly and as politically viable as possible given the ambitious task at hand.
Because society's support for the environment is ultimately limited, large-scale change would have to be achieved with virtually no additional amount of social commitment. This brings us to the next premise.
The third premise is that to be voter friendly and get massive support, strategies for large-scale environmental change have to be able to be implemented essentially without additional social commitment.
Current solutions always run into the same obstacle: voters do not want any additional taxes, at least not on the scale required. Designing strategies based on a massive increase in support is unrealistic. We need solutions that are able to address most environmental problems with roughly the same amount of social commitment as we have today. The revenue-neutral approach proposed in this book does provide for this.
The fourth premise is that large-scale environmental change calls for practical and implementable solutions. Remember Keynes' famous quote, “Foul is useful and fair is not”? Rather than an attempt at cynicism, it was an acknowledgment of the basic reality of economics. Theories and principles are not very useful if they are not applicable. If he had spoken about the environment, he might have said, “What does not make it to the political agenda and sway the voter has very little use.”
Some of the money spent on research every year does not benefit society for a number of reasons. Studies might not result in practical applications, they might not have been brought to the general public's attention, or the solutions proposed are just too unfriendly to voters to be politically viable. Of course, not all research is meant to produce solutions. Some types are supportive in nature.
The 21st Century Environmental Revolution was written strictly from an implementability point of view. What is implementable and politically viable is useful; what is not, is not. The strategy described in the next chapters is intended to be as practical and voter friendly as it can be, considering the fact that we are contemplating massive change.
The fifth premise is that, to maximize implementability and political support—especially given the magnitude of change being considered—environmental solutions should make use of the most efficient mechanisms available. Let's review the options at our disposition.
Current research divides approaches into two main categories, regulations (command-and-control) and taxation. Regulations can be very effective in specific cases and have their place on the environmental agenda. However, they generally lack efficiency on several counts.
Ian Bailey (Senior Lecturer in the School of Geography department, University of Plymouth, UK) reports that they are viewed as economically inefficient because they are imposed uniformly on polluters who have different abilities to adapt to better practices (Bailey, 2002, p. 235). For example, big corporations can more easily invest in cleaner technologies than smaller businesses.
Annegrete Bruvoll (1998) further argues:
The required control costs under regulations can be considerable and the administrative costs are usually higher than under taxes. Also, price incentives offer free cost information, while mandated recycling is often accompanied by expensive education and motivation programs. (p. 19)
In other words, regulations often have a number of costs associated with them—administrative, implementational, educational, etc. The same author also reports that studies had consistently shown regulatory programs to be poorly designed and have costs exceeding benefits.
Another problem is that, unlike taxation—which promotes continued improvement—regulations are not dynamically efficient. That is, they offer little incentive for polluters to exceed minimum requirements and do better year after year. In addition, without international agreements to back them up, regulations are further limited as they tend to impede the competitiveness of countries which implement them.
For these reasons, the focus of policy has recently been shifting to market-based solutions. These new approaches are increasingly viewed as the best ways to address environmental issues. Bailey (2002) states that “both theoretical and empirical studies suggest that market-based mechanisms remain the most efficient method for pursuing many environmental goals, so that countries pursuing such strategies generally perform better economically than those that rely on legislative standards” (p. 237).
Note that the Kyoto Accord sets caps or limits on emissions. As such, it is a regulatory system, not a market-based solution. The cap part of cap-and-trade refers to its targets. The trade component refers to an exchange system that would need to be set up and that would make use of markets. However, it is only a flexibility component allowing companies that find it cheaper to pollute to continue to do so and buy emission credits instead.
As demonstrated further down, the trading system itself would not lead to a reduction of greenhouse gases. Shocked? As such, it is not an environmental strategy per se. What would bring down carbon emissions are the caps negotiated under the Kyoto Accord. The system does not help businesses or countries—whether through information, funding, research, strategic planning, or technology—to reduce carbon emissions. Under a cap-and-trade initiative, it is really up to the industry to figure out how the Kyoto Accord target are going to be achieved. Such an approach does not take too much thinking on the part of governments!
Bailey (2002) describes three main market-based options, incentive taxes, cost-covering charges, and revenue-raising taxes. Incentive taxes are designed to increase the costs of polluting in order to bring about positive environmental behaviors. For example, toxic chemical compounds or fossil fuels can be taxed to reduce their use.
Cost-covering charges are usually levied from users of a particular resource and used to manage it or mitigate its degradation. For example, entrance fees to national parks may be used for their maintenance. Pollutants might be taxed to raise funds to undo the damage they cause.
There are two types of revenue-raising taxes. The first, additional taxation, involves for example environmental charges on plastic soft drink bottles or residential tipping fees on garbage. The revenue generated through these go directly to general government tax coffers rather than being targeted for specific purposes. They are additional charges to consumers and businesses (which pass those on to us) just like the first two types of market-based approaches discussed above.
As such, all three options are limited by the current level of social commitment—nobody wants to face new user fees or pay more taxes, at least not on the scale required—and are therefore bound to only skimming the surface of environmental problems. This brings us to the last option.
The second type of revenue-raising options is revenue-neutral taxation. Environmental levies are collected and offset by lowering other taxes, for example, on income or retail sales. They do not increase the general level of taxation for people in a country. They are only a shift from one form of levies to another.
For example, if a government were to raise $1 billion in new environmental taxes, it would decrease income or retail taxes for taxpayers by the same amount. A government would take with one hand and give back with the other. In other words, because environmental taxation is offset by a drop in other taxes, it would be revenue neutral. The levies would result in a deterrence of unenvironmental behaviors—progressively making economies greener—without increasing total taxation for individuals.
This essentially gives us not only an efficient mechanism but also a politically-viable one. It is the basis for structural changes that would be powerful enough to bring about an environmental revolution.
The sixth premise is that resource conservation should be at the core of environmental policy as it attacks the problem at the source through prevention.
As discussed earlier, a ton of mineral not extracted represents one less ton of garbage produced and a reduction of intermediate chemical use and environmental degradation from waste disposal. In addition, making conservation a primary focus of policy forces us to address the issue of non-renewable resource depletion. Current economic planning leads us to give little or no attention to preserving resources for future generations. In fact, it does the very opposite.
Another important reason for putting conservation at the core of environmental policy is that pollution and contamination are in most cases easier and cheaper to prevent than clean up. To what extent can gases from industrial processes or the incineration of garbage be cleaned up? Bruvoll (1998) writes, “Most [waste] materials are dispersed and hard to collect after use at the emission stage, and designing and operating a tax system that tracks all environmental effects is out of reach” (p. 16).
The seventh premise is that there is a limited supply of suitable sites to dispose of our garbage. Because of the toxicity of some materials and concerns about seepage of contaminants into water tables, not all locations are geologically suitable for waste disposal.
For economic efficiency, landfill sites are often located in close proximity to towns, threatening the contamination of drinking water sources. Current recycling efforts only partly reduce the continued demand for landfill space. They do not eliminate it.
Under normal circumstances, you would expect governments, and certainly more so an economic system, to reward good behaviors and deter bad ones. Not doing so would lead to a very dysfunctional society and have harmful consequences. This is exactly what is happening with the environment.
The way the current economic system is set up makes it more profitable to consume carbon-intensive fossil fuels than renewable energy, to use cheaper toxic compounds in manufacturing processes, and to mine greater quantities of metals as it creates jobs and increases profits. In other words, current economics actually rewards the production of greenhouse gases and the wanton destruction of resources and the environment. Why is it so surprising that the planet is in a total mess? It is just the direct result of the current incentive structure of the economy.
The market system on which the entire world economy currently depends is configured into a destructive mode. It is setup to do exactly what it is doing now!
The only approach capable of bringing change on the scale that is needed to turn things around for the environment would have to involve the economic system. One way to do this is to change the incentive structure that drives it, and the easiest and most obvious means to make that happen is to modify taxation to create a green economic environment in which non-polluting and conservational behaviors would be rewarded and their opposites, deterred.
This could easily be achieved by shifting the income and retail taxes that governments collect to environmental levies on non-renewable resources, pollutants, and fossil fuels. The changes would be done in such a way as to not increase overall taxation, hence, be revenue neutral. This strategy will be referred to as the Green Economic Environment (GEE). For the sake of clarity, the acronym “GEE” will apply specifically to the approach as opposed to a or any green economic environment.
Our current taxation system can be characterized as a politically-driven shotgun approach to filling the tax coffers. It is dysfunctional economically and disastrous for the environment. At this point, not much thought is being given to the fact that taxation is the very incentive structure that shapes our lives and the economy of our countries.
The lack of emphasis on the environmental component of taxation leads to behaviors that make us pollute the planet and deplete and waste non-renewable resources as if there were no tomorrow. Current environmental problems are in large part caused by the improper structuring of the economic system in which we live.
That can be changed by altering the tax incentive structure of economies to reward environmental and conservational behaviors and punish their opposites. Under such a system, a significant part of government revenues would come from taxes on non-renewable resources, contaminants, and fossil fuels.
The GEE strategy proposed in this book would be revenue neutral. As such, a government would collect the same total amount of taxes after its implementation, but it would come from different sources. For example, if 60% of taxes came from income, 38% from retail sales, and 2% from environmental levies, the implementation of the GEE could result in a new distribution looking like this: 40% coming from income, 10% from sales (a total of 48% reduction for the two), and 50% from the environment (a 48% increase).
The new incentive structure would create a green economic environment and a new consumer landscape in which the price of non-renewable resources, pollutants, and all the products made with them would increase. The goods made with renewable and non-toxic materials would become cheaper and gain a competitive advantage.
As a result, consumption would naturally and effortlessly shift to greener products and sectors of the economy. Good citizenship would be rewarded rather than punished as it is now, and the destruction of the planet would be deterred rather than encouraged as is currently the case. The GEE would create a greening effect that would conserve resources, reduce contaminants, and decrease greenhouse gas emissions.
As a general rule, the GEE would involve taxing non-renewable resources—such as metals—at the source to promote conservation and create natural markets for recyclables. These would replace or make profitable the municipal recycling programs that are currently funded by taxpayers. Simple higher input costs would be more easily understood and managed by businesses compared to a haphazard collection of regulations.
Substances that are damaging to the environment (toxic compounds, carcinogens, etc.) would be taxed, whether they are inputs in manufacturing processes or consumer goods.
Oil and other fossil fuels would have levies assessed not only to decrease usage and greenhouse gases but also to create a stable and profitable renewable energy sector. This would be the simple mechanism by which countries would reduce their carbon emissions and reach their Kyoto targets. It could entirely replace the more complex and costly cap-and-trade system although both strategies could work side-by-side.
Regulations would be used in the packaging industry. In conjunction with GEE taxes, they would create natural markets for container reuse. This would serve to replace most of the existing refundable-deposit systems and result in efficiencies and a drop in costs for the consumer.
Of course, all of these new taxes would be compensated for by a drop in existing ones on income and retail sales since the system is revenue neutral.
The shift to a green economic environment would be fully scalable. That is, the GEE could be implemented as fast or as slowly as people desire. This would enable countries to make the transition to the new system as quickly as possible without creating economic havoc or unnecessary human suffering. Scalability would allow governments to start with lower taxation levels—giving consumers and the industry time to adjust—and progressively increase them over time. It would also make it possible for countries to give different weights to each of the components of the GEE according to their own goals and political imperatives.
For companies, the GEE environment would make it more profitable to preserve resources than waste them. The opposite would be true for the use of toxic materials and contaminants in the production process and the emission of greenhouse gases.
Many environmental policies are inefficient and expensive to administer. They are cumbersome to the business sector as they require that staff keep up to date on compliance and regulations. It is usually much easier for companies to make decisions based on the price of the resources needed to manufacture a product (the cost of inputs) than have to deal with a maze of government rules. It is a language readily understood and simpler for planning and decision-making. It is already part of normal business practices and expertise. This is the language that the GEE also speaks.
Environmental taxation would raise the cost of an input in a predictable way. Businesses would make decisions on that simple parameter. Current environmental policy is cumbersome to governments because regulations need to be monitored and enforced, often necessitating additional costs and bureaucracy.
A second aspect of efficiency has to do with the total number of tax collection points. That is, all of the individuals and businesses that governments collect from. Removing part of the taxes people pay on income would eliminate the need for many individuals to submit tax returns or, at least, would make those much simpler. That could mean thousands fewer or easier filings to be processed.
However, much more interesting is the effect on retail levies. Many governments currently collect retail taxes from just about every single business selling goods or providing services to consumers. This represents thousands of corporate taxpayers and means a lot of unnecessary bureaucracy.
As you go up the production chain—from primary resource extractors, to input producers, to manufacturers, to retailers—the number of individuals from whom governments have to collect taxes grows. For example, a copper mining company might sell its products to 10 part makers. Each of these in turn might sell parts to 10 manufacturers. At this level, 100 businesses would have to be collected from. Each of them might sell to 10 retailers. Collecting taxes at that level would then involve 1000 companies. In other words, the higher up you collect, the more costly it is not only for governments but also for businesses and the economy as a whole.
The GEE would collect taxes mostly at primary levels, therefore minimizing the number of players involved. Furthermore, it would do so only on target items: non-renewable resources, contaminants, fossil fuels, etc. Green sectors would generally see taxes disappear from their products.
There are two main types of planning in the environmental arena, the general (or macro) and intricate (or micro). Governments are responsible for planning at the general level. This is where they state what they want and establish plans of action to achieve certain goals. The difficulty with many environmental issues is that they are very complex to manage at the micro level. Problems are often just too intricate in the day-to-day reality of markets and business operations even for the best specialists in governments.
It is not really a matter of failure. For example, even with today's technology, we still cannot predict the weather with any degree of accuracy for more than a few days ahead of time. Currently, government regulations and programs are the main planning mechanisms used to address environmental issues. They fail to do the job. Furthermore, when they do not work, the taxpayer ends up footing the bill. A successful green strategy would need to have appropriate expertise at the micro level while retaining the ability to operate within general government guidelines.
The market has a multitude of agents—business people—each an expert in a given field. Nobody else can better estimate the effect of higher input costs on the final price of a product or the bottom line. All planning on their part is based on familiar market decisions and comes free of charge to the taxpayer. The private sector represents a massive wealth of expertise at the micro level. If unqualified for planning at the general level, the business community possesses the detailed knowledge necessary to make the best economic decisions in regard to their own markets. Governments cannot hope to emulate or even approach that kind of expertise.
The GEE would rely on governments for general directions and on the market for decisions at the micro level. Setting tax levels would enable countries to guide the economy where they want it to go and allow market expertise to make things happen in the most cost-effective way possible. This would provide perhaps the best combination of planning and a much more powerful and effective strategy for the environment.
The GEE would reduce the regulation and tax collection burden on industry. It would also provide for much simpler decision-making for businesses. The fact that the system would be highly flexible, fully scalable, and comprised of several components that could be implemented independently would allow for a smoother implementation for everybody.
A worldwide implementation of the GEE would give rise to several new mechanisms for world development. Since the 1970s, the developing world has been hit by several oil crises, preventing many countries from gaining significant ground on poverty. As renewable energies are diversified and can be produced nationally, developing countries would benefit from the GEE in terms of balance sheet and job creation.
Global resource conservation would increase the international price of most metals. Developing countries would get better prices for their commodities and could be allowed to have lower GEE tax levels to increase their international competitiveness and gain market shares, boosting their own economy and promoting their industrial development.
Environmental regulations have always been an issue of contention in international markets. The developing world has historically been perceived as having an unfair competitive advantage over developed countries because of lower environmental standards. The world cannot afford a race to the bottom.
Comprehensive GEE-based international agreements could raise standards across the board to benefit the entire world community while not affecting competitiveness. Conversely, a unilateral increase of environmental standards in the developed world could be used as a means to increase the competitive advantage of developing countries. The former would benefit from a cleaner environment while the latter would get an economic boost from a greater share of markets.
In more ways than one, the GEE would provide a simple and effective framework for international development.
To some extent, most social and economic systems are prone to fraud. The fact that the GEE would be levied at the manufacturer level would significantly decrease the number of collection points. As such, the system would be not only more efficient but also less prone to fraud than current widespread retail taxes.
Black market or undeclared work is a problem around the world. The bill for the underground economy can add up to hundreds of millions of dollars every year in a medium-size country. In Canada, for example, people do not pay income tax on their first $10,000 of income (the basic deduction). As such, black-market fraud up to that amount is mostly meaningless; no one pays income tax on it anyway. The GEE could shift up to the first tier of income tax ($30,000 in Canada) over to the environment. This would mean that $40,000 dollars of a person's income would no longer be taxable and subject to fraud. This could have a significant impact on government revenue and result in lower overall taxes.
The GEE is a strategy that could bring about the large-scale change that is needed for the environment. The new incentive structure would create an economic environment that would turn a highly destructive market system into a powerful force for positive change.
The strategy would take advantage of the dual effect of levies—one that is wasted by income and indiscriminate retail sales taxes. With no overall increase in taxation, it would transform the economic system in which we live into a mean green machine and make environmental change possible to occur at a speed so far unanticipated and not even dreamed of.
The implementation of the GEE would change the incentive structure of capitalism from a system that essentially destroys the planet and punishes people for working (income tax) and consuming (sales taxes) to one that rewards them for doing the right thing and promotes resource conservation and environmental responsibility. The new incentive structure would foster this in both the industry and consumers.
The GEE would also be highly efficient. Its administration would be much less costly than our current patchwork of regulations as it would make use of simple and well-understood systems. It would speak a universal language, one understood by workers, business people, consumers, and voters: money. Once the new rules are set, societies would progressively refashion themselves around green economics and environmental lifestyles.
The scalability of the GEE would allow for choice in speed of implementation and help soften its impact on specific economic sectors. Its various components could be implemented together or independently as desired.
This structural approach to environmental issues would not be anti-business or anti-economic. It would work in concert with the main components of the current market system. Overall, companies would not be stuck with the costs of this green transformation anymore than taxpayers. On the contrary, the GEE would make it profitable for companies to invest in green practices and environmental research and development (ER&D).
Many business opportunities would arise following the implementation of this new tax structure. The current catering to green market niches would become a stampede for opportunities in an exploding new economic frontier. Countries and corporations at the forefront of ER&D would find themselves in a race to capture the new 21st century world markets. Wasters, polluters, and those who do not care for the environment or are unable to adapt would only fall behind and see the fate of the dinosaurs.
The GEE would give rise to a new overall mechanism for world development.
Governments collect taxes from a number of sources, for example, income, retail sales, the environment (levies), and profits. In addition, specific products such as cigarettes and alcohol are often taxed for deterrence purposes.
For the sake of simplicity, the following discussion will concern mainly the first three types. Of those, income is probably the main source of revenue for most governments, with sales coming in second and environmental taxation being minimal. The GEE would progressively shift the tax burden from income and sales to the environment.
Most Western countries have a progressive taxation system. That is, people contribute according to their ability to pay. For example, in Canada the tax rate on the first $30,000 of net income is about 30%. It is the first bracket. If that were the only one, we would have a flat tax system. That is, everybody would pay the same rate, no matter the income level. This first bracket is actually a flat component in a progressive tax system.
As one's net income rises above that, a higher rate is paid. For example, Canadians are taxed at 45% in the second $30,000 bracket. For the next two tiers above that, they pay respectively 55% and 60%. In order to keep taxation progressive under a GEE system, only the flat portion of income tax would be suitable for a shift to the environment. In Canada, that would be the first bracket, or the tax on the first $30,000 of net income after the basic deduction.
In addition, we also have to be careful with respect to how we go about eliminating that bracket. Simply increasing the basic deduction (about $10,000 in Canada at the moment) to reduce the total taxable income would be regressive because it would lower taxable incomes at the top where people pay the highest tax rate. That would be regressively cutting back taxes.
If a government chose to increase the basic personal deduction as a means of implementing a GEE system, the tax bracket thresholds would need to be adjusted lower by the same amount to avoid changing the existing distribution of incomes. Alternatively, a government may simply set the tax rate in the first bracket to 0%.
The GEE would imply a large reduction in income tax for everybody. Authorities have to make sure that it is done in a way that maintains the status quo with respect to progressiveness.
Most countries have retail sales taxes. This is what people pay on top of the purchase price of items bought in stores. This type of sales levy is not progressive as the same rate is charged equally to everybody. As it is a flat tax, it would fully qualify for a shift to environmental taxation. Any state or provincial sales taxes of the kind would be equally suitable for the shift.
The increase in environmental levies would have to be compensated for in social support programs as their recipients generally do not pay tax on the financial assistance they receive and would otherwise see their real taxation increase. Lower income earners may face a similar problem because their basic deductions are large compared to their taxable income. Governments may have to look into making appropriate adjustments to the system so that their total taxation remains the same and the shift to the GEE is fair to all.
In the late 1980s, Canada went through a tax shift. The manufacturers' sales tax—a levy collected at the manufacturing level—was replaced by the GST, a retail tax. The federal government then opted to compensate lower income Canadians by issuing checks on a quarterly basis to millions of people in the country. It is still writing these to this day, some 20 years later. This is not exactly the most efficient way to do things. Adjustments need to be made directly to social support programs and the taxation system so that the benefits received and take-home pay compensate directly for the GEE.
The transition to a green economic environment needs to be as voter friendly as possible. To that purpose, the cornerstone of the GEE is its revenue neutrality. For every green dollar collected, taxpayers would see their income or sales taxes reduced by one dollar. On average, the same total amount of taxes (income, sales, and environmental) would be paid by taxpayers before and after the implementation of a GEE system.
Revenue neutrality is a fundamental aspect of the GEE and is key to its political viability and implementability. Although voters may be willing to pay taxes differently, they would not be so easily convinced to give more. To ensure proper and continued political support, governments would have to be highly transparent with respect to revenue neutrality and report on it regularly.
The next few chapters will take the GEE from general principles to specifics of implementation. Concrete examples will be looked at in order to demonstrate its feasibility and dispel misconceptions. The new system will be explored from various angles and in real situations in order to get people used to the idea of being taxed differently (but not more) and show that a transition to the GEE would be much easier than it appears.
This scenario will serve as a benchmark to assess to what extent the GEE would help achieve our goals for the environment. First, let us silence or remove the financial aspect from the green debate and see what needs to happen for the environment. Then, let us assume that we are in a perfectly planned world and that we have to draw a comprehensive plan to address environmental issues.
To conserve non-renewable resources for future generations, mineral extraction would have to be reduced. This would mean that the mining industry would decrease in size. Unfortunately, this is a necessary evil; resources cannot be conserved if we keep digging them out of the ground as fast as we currently do.
It would also mean that we would need to consume less of them. Aluminum soft drink containers would likely be phased out and replaced by glass. In many cases, tin cans for food storage would disappear from store shelves and be substituted for by more environment-friendly alternatives. Metal components in various products would be more strategically used and replaced whenever possible.
Metal-heavy sectors would see many transformations. The automobile industry would start building vehicles that are conservational, i.e. that use non-renewable resources much more sparingly. That would likely be achieved by replacing metals with substitutes wherever possible and decreasing car sizes.
Automobiles would have much longer lifespans. The used car industry would thrive as resale values would be higher and people would buy fewer new automobiles and get them fixed more extensively as a means to conserve metals. The production of new vehicles would decrease slowly in the short term as new generations of conservational, fuel-efficient, and alternative-energy cars and trucks would be needed. In the medium and long term, it would progressively grow smaller in size.
Automobiles and other vehicles would need to become more fuel efficient as well as switch to alternative energies. That has already started to happen. As time goes on, we will consume less gasoline. We will pump less oil from wells and rely more and more on biofuels and electricity.
New jobs would be created in green sectors of the economy, including renewable energy, as the demand for their products would increase. The wood and renewable resource industries would thrive and need to be properly managed to prevent their collapse as has already happened in some cases.
One of the main concerns with respect to economic changes is the uncertainty they can create. Scholars are still looking for the perfect theoretical solution to environmental problems, but there can be a huge gap between theory and practice, especially if the changes involved are of significant magnitude.
Brand new, maverick solutions usually face a lot of resistance. Many are never implemented simply because of the large amount of uncertainty they involve. This is a significant concern when searching for answers to environmental problems: the old ways have not worked; the new ones often present too many unanswered questions.
Although the GEE is new and sweeping in magnitude—as it needs to be, given the size of the problems at hand—it relies on an age old system. The strategy would only involve a shift between different components of government taxation. Environmental and deterrence levies are already in place in many countries. Along with income and retail sales taxes, they are all components of total taxation.
As expressed earlier, in the late 1980s, Canada had a major shift in taxation. It eliminated the manufacturers' sales tax and replaced it with one collected at the retail level. The new levy was about 7% and applied to most goods and services sold in the country. It was the first time that the latter were taxed in Canada. The transition went relatively smoothly despite being met by initial distrust and opposition. As such, we know that a taxation shift can be done.
A GEE strategy would be revenue neutral and should not change the overall amount of taxation collected in a country. For this reason, the shift would not put recessionary pressures on the economy. Consumer spending on goods and services would remain essentially the same.
For example, people in a typical country might pay $1 billion more in environmental taxes under a GEE system, but their income and retail taxes would be reduced by the same amount. As a result, their purchasing power would remain the same. In other words, things would generally be more expensive, but consumers would have more money to spend and come out even in the end. As long as the consumption level remains the same—which would be the case under the GEE—the shift should not result in a net loss of jobs.
Many environmentalists see consumption itself as the problem. They are correct to some extent, but there is more than one way to reduce our environmental impact: we can reduce consumption or make it greener. Opting for the former would mean a slowdown in economic growth, and few are ready to support that at the moment. Ideally, both should be done, but in the short term a greater impact can be achieved by focusing on the latter as it is much more politically viable than a reduction in consumption and the unemployment that it would imply.
The GEE would progressively make existing levels of consumption greener and greener without threatening to send economies into recession. For that reason, it is currently the best viable option we have. Under the system, growth would shift to green products. Polluting industries and the consumption of their goods would progressively change or have to shrink.
The green sector is an emerging market in which there is not a huge amount of competition at the moment. Implementing the GEE in a country would give it a significant competitive advantage in what will be a strong growth sector of the future. Export markets are likely to grow and result in a lot of job creation.
The GEE is essentially based on established and well-understood economic practices. All countries around the world have lived with the ins and outs of taxation for a long time. The strategy is readily implementable and has a relatively low level of uncertainty, given the magnitude of the changes that would result from its implementation.
The ups and downs in the price of oil over the last few decades have given us some insights on the geopolitical implications the depletion of resources can have for modern economies. The conditions created by shrinking supplies increase poverty and the cost of living and can trigger recessions as well as deadly conflicts.
A global move to resource conservation could significantly extend reserves and slow down the depletion process, easing up the pressure for potentially chaotic events in the future. Mineral resources other than oil have been less a concern to most countries because their supply has remained largely uncartelized and unpoliticized. They are also less massively used compared to energy.
However, metals are much less replaceable than oil. Alternatives to petroleum do exist and are actually plentiful. They are just more expensive. That is not the case for other mineral resources. What will happen when their supplies begin shrinking like petroleum? They are a major component of the infrastructure of most countries, and our lifestyle depends on them.
At the current rate of depletion, shortages will soon begin to occur, and the economics of metals could resemble those of oil. Power could shift to mineral-rich countries just as it did for the Middle East with respect to energy. Countries that import much of their mineral resources will see power shift away from them, their wealth quickly following suit.
That would likely be the case for the U.S. The question is, do we want to accelerate this process with high rates of depletion and precipitate economic decline and more global crises, or do we want to conserve resources worldwide and decrease the potential for problems developing as a result of scarcity?
There are only two choices available to us. We can do nothing and let the process occur haphazardly and end up with a repeat of the Middle East power shift and related human suffering, or we can make it happen within a global framework that would provide for sanity, prevent cartelization, and ensure continued supply to all countries.
The long-term self-interest of all countries lies in starting the conservation of resources immediately and in supporting international efforts in the same direction. Europe and the U.S. will be especially vulnerable to future crises because their economies and predominant lifestyles result in the use and waste of a lot of resources and they have already exhausted much of their own local supplies.
Countries will want to cut back production and use of metals by a fair amount in the medium term. Significant changes are needed. The reality of non-renewable resources is one of impending crises that can be softened and delayed, perhaps avoided, with the proper global framework.
Two of the issues regarding the conservation of non-renewable resources are how far and at what rate we should cut back their extraction. No single person can determine that. In the long term, we would have to be looking at extended sustainability levels. In the immediate future, the answer will likely come as a result of a political and social process. A couple of considerations will be useful in helping with the decision process.
The potential job losses resulting from the implementation of a new tax structure is a legitimate social issue. Large-scale unemployment is not expected to result from this as the total level of taxation would not increase and countries' money supply would not change. Overall, the same amount of consumption and investment would be around, but it would shift from one sector to another, for example, from oil to renewable energy.
Total employment should therefore remain relatively stable, but work would not transfer directly from one sector to another. If you lose your job as an oil worker, you may not get one in the new wind turbine industry or get in at the same pay rate as you had before. So, just how fast should we go?
Attrition has been used in the past as a worker-friendly approach to change and is usually one of the better alternatives whenever possible. The way it works is that rather than laying off people, companies do not hire new employees as older ones retire or quit for one reason or another. Alternatively, they offer bonuses to workers willing to take early retirement. These are undeniably the best possible options when companies can afford them.
However, neither system is perfect. When a business closes down, there is no money for early retirement and everybody gets laid off, old and young. Even when planned, a closure by attrition or early retirement leaves casualties.
How long would it take to fully implement the GEE if we did it by attrition? New entrants into the workforce may average about 20 years of age. Let's assume that most will retire at age 60. That leaves an average career span of about 40 years. Add another 10 years as a measure of security. As such, someone starting work today would technically retire in 50 years.
Consequently, at the best possible speed, we would need about 50 years to bring down production amounts of non-renewable resources from 100% (current levels) to 0% if we were to totally stop the extraction of minerals. Obviously, that is not what we are trying to do. If we were to bring them down to 50% of current levels in the medium term, it would take us about 25 years through attrition.
The above is not to suggest that we should reach that specific target in that span of time, but it is a benchmark that can help us see more clearly into the future and minimize potential socio-economic disruptions from a GEE implementation. We may choose to go faster for environmental expediency and especially at the beginning, or more slowly. Ultimately, the socio-political process will determine the exact speed of implementation of the GEE.
If half of one attrition span (25 years) is deemed both a reasonable and responsible time line to reach medium-term resource conservation targets, by 2035 we will have cut by 50% our consumption of non-renewable resources. Another half-span would take us to 25% of current consumption levels by 2060.
What targets countries will chose for the very long term is uncertain at this point. What we know for sure is that we should start early. Our current rate of use is highly harmful to the environment and severely depletes resources for future generations. The sooner we start, the better.
Environmental initiatives can pose a number of problems if not designed appropriately. Alain Verbeke (Solvay Business School, Free University Brussels, Belgium) and Chris Coeck (Faculty of Applied Economics, University Centre of Antwerp, Belgium) expressed concerns that poorly managed environmental levies may result in a backlash in the business community, a decrease of their support for environmental taxation and the general impression that environmental taxes have become “arbitrary measures to stabilize government income” (Verbeke and Coeck, 1997, p. 510). In other words, politicians could abuse the system to raise total taxation.
The GEE is specifically designed to be revenue neutral. The proposed system is a shift and not additional taxation. As such, it is meant to not be used to arbitrarily increase government income. Revenue neutrality is a large part of its political viability. Open disclosure and a high level of transparency would be part and parcel of the new system and would easily prevent abuse.
Concerns have also been raised that green taxation is often used to fund environmental programs (for example, taxing contaminants and using the proceeds to fund water improvement programs) and that the environment would get disproportionate amounts of funding while other programs would come up short.
This is not the case with the Green Economic Environment. All new levies would be directed to general revenue as is the case with current income and retail taxes. This would prevent the arbitrary financing of certain programs over others and ensure that government spending on social programs and services remains the same. The GEE is not about increasing funding for the environment at the expense of other programs. It is about creating a green incentive structure for economies.
Another concern raised in literature with respect to taxation is its dynamism. Verbeke and Coeck (1997) warn that using taxation as a source of income for governments or as funding for environmental programs may not yield the intended benefits for a number of reasons. Green taxation revenues tend to be dynamic and may not provide as stable a source of government income as desired. Let us look at an example of this.
Suppose that a government implements a carbon tax that is expected to generate a billion dollars in revenue annually. The resulting increase in gasoline prices would generate positive environmental behaviors as expected—the purchase of more energy-efficient cars, increased use of public transportation, a switch to alternative energies, etc.
Because this would result in a decrease in oil consumption, over time the tax would bring in less than the expected revenue target. Governments would then have to increase it further to generate the originally desired one billion dollars. This action would presumably lead to lower consumption yet. The environmental tax would have to be raised again. Dynamism could result in a kind of treadmill effect which would eventually create a number of problems. Let's address these issues.
The problem that Verbeke and Coeck describe is a very legitimate concern. Continuously increasing levels of environmental taxation could seriously undermine the strategy as well as a country's international competitiveness. However, the dynamism of environmental levies is a very good thing in itself. It would spur us on to continue year after year to improve on resource conservation and environmental protection. We want the economy to become more and more environmental over time. Dynamism is actually the chisel which would make society and the planet greener and greener year after year. But it needs to be controlled.
The implementation of the GEE would be progressive. This implies that initial taxation levels would be lower and need to increase in order to reach long-term target levels. As such, there would be room for raising tax rates without creating problems, and dynamism would therefore be an integral part of the implementation process.
Once desirable levels of conservation and protection are achieved, or international competitiveness ceilings have been reached, we can reverse the process and raise income tax if the government take from environmental levies falls. Of course, that would have to be done without increasing total taxation. As such, the dynamic effect of the GEE is perfectly and easily controllable. We just have to remain aware that the issue will need to be managed.
Note that under the current system, government revenue varies from year to year depending on economic cycles, profits, personal earnings, unemployment rates, national retail sales, etc. It decreases in times of recession and increases in periods of growth.
Varying revenue is not a new issue for governments; gaps in income have historically been made up by temporarily borrowing money or through budget cuts. The GEE would only continue that, not change it.
International competitiveness is probably the most difficult issue concerning the implementation of a green economic environment. Although most countries could readily initiate and gradually put in place such a system, few would be able to quickly proceed with a full-scale implementation because of the effect on their ability to compete internationally.
The GEE is not unique in this respect. Minimum wage levels, interest rates, productivity, social programs, greenhouse gas reduction targets, and a number of other factors also affect international competitiveness. The GEE would be just one of a range of variables in that respect.
Any resource tax would by necessity be collected prior to export and make a country's goods more expensive and less competitive in foreign markets. Although exceptions could be made, a rebate on exports would not be a realistic solution as a resource tax would become diffused in finished products.
For example, while a bar of steel may see a full increase in price from a given levy, a product with a 30% content of the metal would see only a partial rise in price. For that reason, it would be far too complex to try to estimate the percentage of non-renewable resources in every item to be exported and compensate for the levy with a rebate.
Individual countries would therefore be limited in their ability to tax resources past a certain level as it would overly decrease their international competitiveness. As such, most should be able to carry out the initial phase of the GEE as it involves lower tax rates, but trade-bloc or international accords would likely be needed to support a high level of implementation of the system.
That being said, even a milder variant of the Green Economic Environment would sill yield substantial benefits. There are obviously the positive effects with respect to carbon emissions, contaminants, non-renewable resources, the green energy sector, etc. However, there are other advantages to the system as well.
For example, it would mean that fewer non-renewable resources would be exported to be wasted overseas, therefore preserved for future generations. Countries would not want to conserve and tax resources in home markets but export them cheaply to places where there are no conservation efforts being made.
As well, the GEE would affect primary resources more strongly than final goods, as seen in the bar of steel example above. This would prompt countries to transform them more extensively into finished products and develop their local manufacturing industry—which would create jobs—rather than export them as raw materials.
Keep in mind that countries could choose to not fully tax the export of raw materials in order to lower the impact of the GEE on their international market shares. To soften the effect of resource levies on certain industries, governments would also have the option of initially imposing import taxes on big ticket items so as to maintain local manufacturers' competitive advantage within a country. As more and more countries get involved in conservation programs, import taxes could be progressively phased out.
Note that international competitiveness is an issue with greenhouse gases as well. The establishment of common carbon emission targets (within groups of countries) in the Kyoto Accord addresses the problem. The same solution could simply be applied to the GEE.
The Green Economic Environment strategy could work with already established emission targets and, as stated earlier, alongside cap-and-trade. It would simply act as a mechanism (which neither the latter nor Kyoto provides) to reduce greenhouse gases and enable countries to meet their carbon reduction commitments.
An emission trading system is only a flexibility component which allows companies that exceed the caps agreed under Kyoto to buy credits from businesses that have done better than their reduction limits. You do the math! Plus one thousand units minus one thousand units equals zero. As a whole, no net carbon reduction is achieved by the system. Incentives and decreases in emissions are the result of the Kyoto Accord's caps.
When you look at it closely, most countries do not have a mechanism that would foster or help the industry and consumers to reduce carbon emissions. The GEE does provide one. As discussed later on, the Green Economic Environment could replace both the Kyoto Accord and cap-and-trade and deliver a simpler, less costly but much more powerful market-based approach for carbon emission reduction whether at the local or the international level in the form of a new global environmental accord.
The long-term and most efficient solution to the problem of competitiveness differentials is the negotiation of international accords. Under such agreements, countries would see their taxation levels increase at the same agreed upon rate just as they do with carbon emission levels under the Kyoto Accord.
Because of its scalability, the GEE would be readily implementable on a national basis in most countries around the world. The first ones to implement the system would also be the first to shift their economies towards cutting-edge sectors of the future (metal substitutes, conservational techniques and designs, alternative energies, electric and fuel-cell vehicles, etc.) and would therefore gain a huge competitive advantage in wide-open emerging markets.
International agreements would remedy to competitiveness problems between countries and make it possible to shift into high gear the fight against global warming and the worldwide conservation of resources and preservation of the environment.
Throughout history, all too often the cost of social advancement, the burden of change, has been borne by those who lose their means of living as a result of economic events or industrial and social shifts. To a large extent, this is a choice. If society as a whole benefits from certain changes, why should a few be responsible for the costs associated with them? Why should we not compensate them for these?
Clearly, some of the costs of change cannot be avoided, but we, at least, can mitigate them. It is not only an issue of social justice; the absence of compensation is often counter-productive. The higher the unmitigated costs, the more reluctance to change is created in a society.
In a constant race for economic positioning, a nation which resists change loses its edge and quickly falls behind. Tomorrow's innovative societies are those which will be best able to quickly adapt to new and changing environments. Removing blocks to change is becoming an increasingly important factor in this rapidly evolving world.
Unemployment in particular sectors or for specific people is often a direct cost of change. Improving the way we deal with this problem would ensure that certain individuals do not unduly bear the burden for changes that benefit an entire country. In fact, it is the responsibility of a fair society to make certain that they do not. It would also help remove resistance to change, making a country much more innovative and successful in a competitive world environment.
Most countries already have unemployment insurance programs or other types of support systems along that line. If we are serious about environmental change—we know that the needs are massive—these social safety nets have to be given a second look so that they act more in concert with the changes that need to happen in society and target more closely the sectors that may be affected by new policies.
Better support would make the implementation of a green economic environment easier and benefit countries in the long run.
Copyright Waves of the Future, ©2010
More information: The Nature Conservancy OECD Sustainable Development NRDC Global Warming Cap-and-Trade