Summary: Pollution taxes would have to be carefully designed and implemented if they are to deliver the intended environmental and economic benefits. An accurate monitoring system would be needed to ensure that the tax was reducing pollution. Accurate monitoring technology exists for some smokestack emissions, but in other cases, such as those involving fugitive emissions of dust, monitoring could be very difficult. It would also be important to ensure that the tax led to an overall reduction of environmental risks. The regulator would need to be aware that taxing one pollutant might increase the use of other pollutants that are equally toxic. For example, a tax on lead alone could boost the use of cadmium in batteries. In addition, the tax rate that would be needed to reduce pollution to acceptable levels might not always be known. As a result, taxes might need to be introduced gradually and their effects monitored to determine whether pollution was being reduced to acceptable levels. The value of pollution taxes will depend on how well these issues are addressed. Pollution-tax revenues could be used to lower federal taxes that discourage economic growth or to reduce the federal budget deficit.
