In this third installment of our blog series on Green Georgism we delve into the world of ecological tax reform, exploring the fusion of ecotaxes and green incentives to promote sustainable development. Ecotaxes, or green taxes, impose levies on activities with harmful environmental impacts, while green incentives offer financial benefits for eco-friendly practices. We will examine how ecological tax reform aligns with Henry George’s principles, emphasizing the importance of reducing taxes on productive activities and shifting the burden onto polluting practices and natural resource use. We will also explore the environmental benefits of Land Value Tax (LVT) as a green tax, the role of carbon pricing in combating climate change, and other key policies and principles that guide our work at Resource Justice.
Ecological Tax Reform
More recent narratives on the looming environmental challenges have frequently invoked ways in which the stick of ecotaxes and the carrot of green incentives can be combined into ecological tax reforms which will promote sustainable development. We explore each of these concepts in turn.
Ecotaxes, also known as green taxes, refer to any levies which are imposed on activities which have harmful environmental impacts. These can include charges on pollution, energy consumption, carbon emissions, waste production, and the use of natural resources. The aim is to discourage harmful practices and incentivize sustainable behavior. Green taxes play a crucial role in internalizing environmental externalities, ensuring that the costs of environmental degradation are borne by the polluters. They promote sustainable practices, encourage innovation, and provide a market-based mechanism for addressing environmental challenges.
Conversely, green incentives are financial benefits deployed to encourage activities which reduce environmental harms. These can include subsidies for electric vehicles, grants for renewable energy projects, and tax credits for energy-efficient buildings. Green incentives can help to stimulate the adoption of sustainable technologies, driving innovation and supporting the transition to a greener economy. However, they can risk being deployed for political graft, with representatives dishing-out subsidies to favored constituencies under the guise of environmental concern. They should therefore be subject to public scrutiny and disfavored relative to the direct pricing of environmental externalities and the capture of resource rents.
Ecological tax reform (ETR) involves shifting the tax burden away from labor and capital, and onto polluting activities and the use of natural resources. This is perfectly aligned with the core of Georgism in the emphasis on reducing taxes on productive activities like work and investment, while raising taxes on economic rent to encourage sustainable use of natural resources. Ecological tax reform aims to incentivize practices that reduce resource extraction, carbon emissions, and other environmentally harmful activities. By internalizing environmental costs, this approach promotes sustainability and supports the transition to a more equitable and environmentally conscious economy.
Land Value Tax is a Green Tax
While this article has explained the many ways in which Henry George’s principles extend to natural resources in general, land value tax specifically offers many environmental benefits. Crucially, LVT shifts cause significant improvements in sustainable urban land use: by encouraging densification in urban centers, creating forms of housing which use less energy, helping to combat sprawl, reduce commute distances, and improve the feasibility of active and public transportation methods. Indeed, Banzhaf & Lavery (2010) conclude that LVT shifts are “potentially a powerful anti-sprawl tool.” Mechanisms for land value capture can be a powerful tool for creating self-funding public transit systems. On the energy front, Borck & Brueckner (2018) show that land tax is part of “optimal energy taxation” in cities, creating a compact city with less commuting and fewer emissions per capita. Carvalho (2022) further explains that LVT can facilitate the renovation of buildings in an environmentally friendly fashion, to reduce GHG emissions. Clearly, LVT can be considered a green tax on its own merits.
Climate Change and the Carbon Sink as Land
Carbon taxes and tradable carbon permits have emerged in recent decades as a market-based approach to discourage carbon emissions and combat climate change. Under this system, governments either directly tax carbon emissions or set a cap on total emissions and issue tradable permits that give companies the right to emit a specific quantity of greenhouse gasses (GHGs). Enjoying widespread support from economists, these mechanisms put a price on the social harms of social emissions, incentivizing businesses to find less carbon-intensive production processes and encouraging households to consume goods and services with less impact on the environment. Conversely, the ability to earn carbon credits by extracting carbon from the atmosphere also creates a financial reward for efforts to mitigate climate change. As the urgency to combat climate change intensifies, carbon credits continue to be an essential tool in efforts to reduce emissions and promote a sustainable future.
Carbon pricing is wholly consistent with the Georgist worldview. Just as landowners enjoy significant financial benefits from controlling access to the land they own, companies and households benefit from the ability to freely emit carbon into the atmosphere. Both activities entail a private gain from the use of a scarce natural resource while inflicting harmful externalities on other members of society (by either displacing them to less-desirable locations or by contributing to the impending harms of climate change). Just as the land value tax serves to charge landowners a price for their exclusive use of a piece of the earth, Georgist principles point towards carbon pricing as a charge for consumption of the carbon sink. Both policies encourage private actors to use the natural world efficiently, while enabling equitable sharing of the value of these resources.
Some key policies and principles have emerged from this review and will guide future policy work at Resource Justice. We have seen that cap-auction-trade systems are effective ways to simultaneously allocate and capture the value of depletable resources such as fishery stocks and the carbon sink. Activities which harm the environment should be mitigated by pricing these negative externalities with ecotaxes, such as by pricing pollution and carbon emissions. Carbon pricing actualizes all of these principles and is a vital tool in the fight against climate change. Land value taxes likewise place a price on exclusive ownership of scarce locations and can help to promote sustainable urban form, prevent sprawl, and energy-efficient housing. These principles can be mirrored by government support for activities which create positive environmental externalities, such as subsidies for carbon sequestration or public provision of urban greenspace and nature reserves. Royalties, severance taxes, or super profits taxes should be charged on the extraction of non-renewable natural resources such as oil, gas, and other precious minerals. Ecological tax reforms require easing the burden of taxation on productive work and investment, instead shifting the tax base onto polluters and the use of natural resources. Policymakers engaging in these practices should keep a close eye on inequality and look for ways to redistribute natural resource rents, such as through carbon dividends, a common wealth dividend, or land dividend funded by LVT.
In conclusion, our exploration of Green Georgism has revealed the potential of ecological tax reform as a powerful tool to promote sustainable development and address pressing environmental challenges. By combining ecotaxes and green incentives, we can create market-based mechanisms that discourage harmful practices while incentivizing eco-friendly behavior. These approaches are aligned with Henry George’s principles, emphasizing the need to reduce taxes on productive activities and shift the burden onto polluters and natural resource use. Land Value Tax (LVT) emerges as a particularly effective green tax, with the potential to drive sustainable urban development, combat sprawl, and support energy-efficient housing. Additionally, carbon pricing, including carbon taxes and tradable permits, aligns perfectly with Georgist principles by valuing the carbon sink and promoting equitable sharing of natural resources. As we move forward, Resource Justice will continue to advocate for policies that capture the value of depletable resources, mitigate environmental harms, and foster a more sustainable and equitable future. By keeping a close eye on inequality and redistributing natural resource rents, we can work towards a world where both our planet and its inhabitants thrive harmoniously.
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Authored by Shruti Punjabi and Steve Hoskins