External Costs Charge. A policy instrument for climate change mitigation

The ‘polluter-pays principle’ is a sound and effective one, but is it being applied to the most urgent form of pollution facing mankind today, greenhouse gas emissions? In most cases the answer is no. The External Costs Charge (ECC) proposed in this report targets the ultimate polluter: the consumer for whom the polluting products are made, so that economic theory is brought to bear on global warming. Those who pollute, or buy polluting products, should pay the proper price. This means a price that includes a charge sufficient to prevent or restore the damage caused by pollution, making polluting products more expensive and greener products relatively cheaper. Just like VAT, the proposed ECC would be charged at a product’s point of sale. Unlike VAT, though, the ECC taxes greenhouse gas emissions rather than added value and can in principle be designed to compensate for other external costs, too. The charge would have a fixed value per tonne CO2 equivalent. To mark the 40th anniversary of its work on the environment, CE Delft is presenting this study, which answers all the practical questions relating to the ECC. What is a suitable charge level? Where exactly should it be levied? What articles will become more expensive and by how much? The ECC is a serious proposal for comprehensively tackling the pressing problem of greenhouse gas emissions.