James_littlefair 18/6/09 08:44 Page 12
James Littlefair
The Perse Upper School
Hills Road, Cambridge, CB2 8QF
James Littlefair
There is no doubt that in the next few hundred years the planet’s to have a real impact on world pollution they would have to be
supplies of coal, oil and natural gas will run out if their usage implemented in as many countries as possible, particularly in the
continues at its current rate of increase. Optimistic reserve estimates main polluting countries such as China and the US. There may be an
from the Oil and Gas Journal in 2006 suggested that coal would run incentive for countries to impose these taxes as, although no causal
out in 417 years, gas in 167 years and oil in 43 years. effect has been proved, studies show significant positive correlations
between green tax rates and gross domestic product (GDP) and
Hotelling’s rule shows that efficient exploitation of a non-renewable market index (MI) growth. The trend is particularly prevalent in
and non-augmentable resource would, under stable economic Sweden, Norway and The Netherlands. This could be caused by the
conditions, lead to the depletion of the resource, and the net price governments recycling the revenue from the green tax.
of the resource would rise annually at a rate equal to the rate of
interest, which reflects the increasing scarcity of the resource. The Despite the limits to the amount of pollution created by non-
only way to make such resources available to future generations is renewable resources and the restrictions on their use, they are still
to manage these resources using more sustainable methods. To non-renewable and so are still liable to run out. There are plenty of
manage them means to derive a system that reduces the demand for alternative solutions that have proved to be ‘environmentally
the non-renewable resources while causing minimal decline to the friendly’, such as wind, solar, geothermal and tidal power. These can
standard of living, which people are generally unwilling to curtail. To all produce electricity without releasing any waste products that are
achieve this, declining stocks of non-renewable resources must be harmful to the environment. Also, most of the expenses are initial
offset by investment in produced capital. Therefore, distribution of set-up costs, as there are no major maintenance costs and the only
non-renewable resources could be more allocatively efficient so inputs are the resources themselves, which are free.
there is less waste produced and they are sustainable for a longer
period of time. Across the planet there are a variety of phenomena that suit
themselves to various methods of transferring energy. The mouth of
It would also be possible to implement a Pigouvian tax in order to the River Severn would be an economically ideal site for a tidal
correct the negative externality of the market activity, which, in this power station as the tidal range reaches 14m, making it the second
case, is pollution. Pollution is considered a negative externality as it highest in the world. The Severn Tidal Power Group estimates that if
is linked to global warming and the greenhouse effect, as well as this were harnessed it would produce as much energy as three
having other negative effects on health and the environment. It is nuclear power plants and 6% of the electricity needed in England
difficult to determine at exactly what rate such a tax should be set and Wales. The North Pacific ‘Ring of Fire’ runs through California,
as it is impossible to measure current and future environmental costs making geothermal energy a viable option in the state. The Sonoran
and therefore no-one can be sure at what level of consumption the Desert in Arizona and the Sahara Desert in Northern Africa are both
social optimum lies. There is also an issue as to the extent to which areas that receive a high concentration of sunlight for long hours all
a government should be allowed to interfere with an individual’s year round due to the pressure systems in those areas. This makes
choice and whether such choices would still be made in the forms of them ideal locations for fields of solar panels. In fact, the deserts in
smuggling and black markets encouraged by the taxes. An increase the south-western US could produce sufficient electricity to fulfil all
in crime levels brought on by attempts to decrease energy the electrical needs of the country, and could electrolyse enough
consumption is unlikely to be popular. However, in order to protect water into hydrogen and oxygen to power the entire US land fleet.
the environment, such problems must be set aside and a prediction There are many locations around the world where there are
must be made about a suitable tax rate to offset environmental consistently strong winds, while some areas hardly get any wind at
damages and general social costs. As the cost to the consumer is all. In the US, for example, the states of North Dakota, South
therefore higher, it reduces the demand for the resource, meaning Dakota, Texas and Kansas have much higher wind potential than
that pollution decreases. As Pigouvian taxes respond automatically other states, at 4,500TW/h (17% higher than America’s current
to changes in the market such as pollution mitigation, they give the electricity demand).
polluting company an incentive to reduce pollution, whereas with an
alternative, such as regulation, the company has no incentive to Very few of these renewable options are being used to their full
pollute any less than the maximum permitted. For Pigouvian taxes potential. This is mainly due to a lack of investment and to pressure
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© TOUCH BRIEFINGS 2009
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