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I understand that taxes (Pigovian taxes) can be used to steer the economy in a certain way. For example, if you increase the taxes on things related to cigarettes, the price increase will decrease the demand. Or, if you put a carbon tax, the industry will try to produce its products in a carbon-neutral way in order to keep the prices - hence demand - on the same level, which will transform the economy in a more green one.

However, why don't we also pay money to industries that have a negative carbon footprint?

I mean, while producing your product, if you either capture some carbon or product something that can be used to capture carbon, you are directly doing a "good" to the society. Wouldn't this also incentivize companies not just to have a zero-carbon footprint but instead to have a negative footprint?

Are there any examples of such policies?

noob2
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Our
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    There are subsidies for renewable energy, carbon capture, research. –  Jun 30 '20 at 08:17
  • @KennyLJ but it is not the same. When you give subsidies, there is no competition, and (as far as know) the more you have negative footprint, the more you won't be paid. – Our Jun 30 '20 at 18:24
  • There is direct competition for getting loans and grants and even in subsidized industries businesses still compete within the industry, so if your margin is better (and it's assumed you have a negative or less positive carbon footprint, being in the subsidized industry) then you make more money for having a better carbon footprint relative to the inputs. – gormadoc Jun 30 '20 at 20:38
  • @gormadoc "if your margin is better then you make more money for having a better carbon footprint relative to the inputs": how? negative carbon footprint doesn't always lead to cheaper production cost – Our Jun 30 '20 at 20:50
  • I'm talking specifically about those subsidized industries. If a business operates on a better margin than its competitors and you assume the businesses get largely comparable subsidies for their size (like tax breaks for the biofuel industry), then it also receives more subsidies relative to the operating cost. – gormadoc Jun 30 '20 at 20:54

2 Answers2

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Are there any examples of such policies?

Yes. Under the 45Q tax credit program, the US pays

\$50 per metric ton of CO2 for projects that sequester carbon and \$35 per ton for projects where carbon is captured and then used for recovering oil underground.

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I suggest you read into Tietenberg's Environmental and Natural Resource Economics, or the Externalities chapter of Rosen's Public Finance.

The main problem with such subsidies is that they cost money to the government, that is, to the taxpayer.

  • "The main problem with such subsidies is that they cost money to the government, that is, to the taxpayer." obviously but do you realize that if the Earth becomes unliveable, there won't be anyone to pay taxes nor will there be any government to collect it, right? – Our Jun 30 '20 at 20:52
  • I do, but I also understand that the average taxpayer has no concern for such matters. This means that no government will get elected by promoting higher taxes. And the likelihood that they'll get re-elected is even smaller, if they actually move on with such matters.

    It is easy to see why Economics is called "the dismal science".

     –  Jun 30 '20 at 21:05
  • "This means that no government will get elected by promoting higher taxes": it is simply not true! – Our Jul 01 '20 at 04:27
  • People do not trust their governments more than themselves; lowers taxing revenue
  • People try systematically and illegally to avoid paying taxes; lowers taxing revenue
  • Every elected official promotes higher rates to the economic class that doesn't support them. That's not how taxation works (neither equitably nor efficiently)

    • Perhaps you'd like to consider reading the books first.

    –  Jul 01 '20 at 09:42
  • To the extent that my answer seems ignorant, please, understand that it's merely simple. –  Jul 01 '20 at 09:48