Question

To induce a polluter to emit its socially optimal pollution level, are emission taxes or emission standards more efficient if there is uncertainty about the extent of the relevant benefits and costs of polluting?

Answer 1

The ultimate aim of the emission tax or emission standard is to bring the pollution emission level to come down up to the socially optimal level. In this regard, it is important to build an awareness and education among the firms regarding the losses due to the pollution along-with the issue of the permits that are tradable in nature. It will help the authorities to fix the overall emission of the pollution by the industry. Afterwards, the emission standards should be set by the authorities over a period of time.
With the application of emission tax, firms capable of paying taxes, will continue to operate and they will not reduce the emission of the pollution. It will make the smaller firms to suffer, not efficient for the economy. Application of emission standards, will also lead to the closure of the firms, discouraging to the private property ownership. It will also make economy to suffer.
Thus, the implementation of programs focussed upon control of pollution emission, should start with the awareness and tradable permits. Afterwards, the emission standard should be set in progressively and finally, the tax should be applied to control the emission.