Beer Cans, Gas Guzzlers and Green Taxes: How Using Tax Instead of Law May Affect Environmental Policy
Macdonald, Doug, Alternatives Journal
IN THE SPRING OF 1992 the Ontario government made two contrary decisions. It refused to implement its own Fair Tax Commission's recommendation for an increase in the "gas guzzler
tax" to promote motor vehicle fuel efficiency, but it did impose a "beer can levy" with the stated purpose of giving consumers an incentive to purchase beer in reusable alcohol containers. Environmentalists, who now increasingly call for greater use of the economic instrument of green taxation,(1) might well wonder why Ontario was willing to impose a green tax in one case but not in the other.
On both issues, the government was subject to strong lobbying pressures from industry, labour and environmentalists. Motor vehicle manufacturers and elements of labour opposed the gas guzzler tax, while in the case of the non-refillable container tax, industry was split -- the domestic brewers were in support and can manufacturers (and labour) in opposition. These differences in lobbying pressures help to explain the contradictory policy outcomes. But there is another factor, which to date, has been largely ignored in green taxation deliberations.
Choosing to use a tax instead of relying on the usual regulatory approach changes policy making by bringing a new actor into the community of participants.2 When tax is used as an environmental policy instrument, finance department officials gain a larger role relative to their environment department colleagues than is the case when standard regulations are used. This change in the policy community is likely to affect both the character and the potential effectiveness of the resulting action.
The "policy communities" approach to analysis of public sector decision making recognizes that governments do not develop policy by simply following a rational, technical process of identifying a problem, setting objectives and then selecting an instrument such as law or tax to achieve those objectives. Policy makers are also influenced by the various pressures brought to bear by interested groups. Governments are not, however, completely in the thrall of such groups. In environmental policy making, state actors such as the Ontario Ministry of Environment and Energy have at least some autonomy. But they develop policy through a dynamic of interaction both with other state actors (within their own government and at the federal and municipal level) and with nonstate actors such as business interests and environmental groups, all of whom possess sufficient technical expertise to engage in the relevant policy discussion. Together they constitute the policy community", which within the broad parameters of general societal objectives such as wealth creation and human rights, negotiate policy positions and determine how the policies will be applied.
Accordingly, the policy process is influenced more than anything else by the political strength of the relevant state and non-state actors. The regulated industry is by far the most significant non-state actor. Since they may be asked to change behaviour and internalize cost, business firms have a powerful incentive to attempt to influence environmental policy makers. Typically, the firm is motivated primarily by a desire to maximize profit by expanding the potential market and maximizing market share and by minimizing costs, both through internal efficiencies and through externalization of costs.
Despite their rhetoric, firms in the environmental policy field generally prefer command regulation (or its latest variant -- voluntary agreements) over economic instruments. Judith Rees, arguing that firms can evade command regulations more easily than taxes, has put the case clearly:
It is interesting to note that the industrial lobby, so convinced
of the value of market mechanisms and freedom
from government interference, has been implacable in its
opposition to environmental quality markets, preferring
direct regulation! …