ENVIRONMENTAL TAXATION SERIES
Ecosystem Service Tax for Addressing Environmental Problems
High eco-taxation is the most effective policy for ushering structural changes across all sectors toward sustainable development
We are living in an unprecedented climate — no pun intended. Our climate has never been as warmer, and the environment as vulnerable since the rise of Homo Sapiens. These environmental problems are causing many social, economic, and political problems. These problems include but are not limited to wealth inequality, social injustice, political polarization, mental and physical health problems, etc. There is no single cause and, therefore, no single solution to address the problems. But I strongly believe that taxation policies (individual as well as corporate) based on the consumption of ecosystem services are necessary to accelerate the transition toward a cleaner and greener world.
What are ecosystem services?
Before we go into taxation, it is important to learn the basics of the idea I am trying to communicate. Ecosystem services refer to anything and everything we get from nature, including climate stability, waste assimilation and purification, water filtration, soil, food production, greenery, and the list goes on. The world uses or rather relies on — for free — $145 trillion worth of ecosystem services every year, which is almost double the world’s gross domestic product (GDP), a ratio that has been consistent for nearly 25 years. At the same time, it is well known that the rise of global GDP growth has been almost irreversibly destroying these ecosystem services for centuries, not just decades. Currently, the annual destruction is estimated to be worth $4–20 trillion.
Ecosystem taxation and benefits
There is no single and uniform definition, but it broadly refers to taxing the use of ecosystem services that are used or destroyed by individuals or companies. It indirectly covers the idea of payment for ecosystem services, compensation, and incentive to landowners for preserving their land’s environmental vigour. A pollution or carbon tax is also a subset of such an eco-taxation regime. Imposing high levels of eco-taxes can do wonders. It will embed environmental sustainability in the prices of goods and reduce consumption and waste generation to a minimal level. And depending on the levels of taxes, it will also force everyone to live within their ecological means.
It can be argued that such policies will affect the poor as the rich can pay off all high prices and could exacerbate income/wealth inequalities. However, I believe that the long-term benefits of this proposal exceed the short-term pain. First, it will affect lower-income people the most, but aren’t all policies doing that already? Climate change is already disproportionately affecting the poor. The impact of additional short-term pain will be marginal, however condescending or unethical that may sound.
I also support redistributing all the money from such taxes among all citizens equally, as initially proposed by James Hansen in his book in the late 2000s. So, the more you burden the ecosystem, the more you pay. And if you live sustainably, you effectively receive compensation from the people living an eco-intensive lifestyle. This way, the poor will be better off while the wealthy will pay their fair share. Further, such high taxes will ensure that the wealthy will stop accumulating wealth in the first place. The wealth that they already have will shrink over time as the economy experiences degrowth and becomes more localized. The question we should be asking is not why sustainability is expensive, but rather why unsustainability has been cheaper.
The question we should be asking ourselves is not why sustainability is expensive but rather why unsustainability has been cheaper.
The eco-taxation can fix that problem. The beauty of such a policy is that everyone will only have to check the price of goods or services rather than worrying about reading information labels. Or, it will also help people avoid doing some complex assessment in their mind to find what the most sustainable product is. Such a policy will guarantee that the cheapest one is always the environmentally most superior product.
A way forward
Nature provides far too many services that we take for granted and consume the ecosystem services for free, but now we are finally paying the price in terms of environmental disasters in a warming world. Also, climate change is only one of at least nine global environmental problems. We have taken plenty of initiatives. While the current solutions (green technologies, regulatory and financial incentives, etc.) mainly rebalance the monetary scale in favour of green technologies, they fail to usher in structural changes in our society that are necessary to achieve global ecosystem sustainability on a war footing.
I believe that taxing the use of ecosystem services across all countries will provide a uniform and simple mechanism for the green transition. Taxing people and corporations based on how much ecosystem services they consume will disincentivize environmentally unsustainable practices and gradually lead to a wealth transfer from people with eco-intensive (say top 20%) lifestyles to people with relatively sustainable lifestyles — bottom 30–50%. Over a period of time, it might also restrict how wealthy an individual can be or how big a corporation can grow.
