Governance by green taxes: making pollution prevention pay

Abstract

Fiscal measures are being used increasingly by governments to secure environmental policy objectives. This book examines how "green taxes" have worked in practice. The author uses his 20 years of environmental policy experience to test the effectiveness of economic instruments. Through a comparative study of the water policies of Denmark, France, Germany and the Netherlands, he shows how, in contrast to administrative regulation, green taxes have made pollution prevention pay and promoted the "ecological modernization" of industry. He goes on, however, to challenge the prevailing orthodoxy on green taxes, arguing that environmental problems are caused by a delicate interplay of "market failures" and "state failures", and that there are significant constraints on the market mechanism. Andersen, returning to the work of Pigou and Coase, the originators of economic instruments, shows how the partial equilibrium theory of contemporary economists has missed essential points of their reasoning. Earmarked taxes present a sophisticated and cost-effective policy instrument, virtually unexplored by economics.

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