Tax Strategies for Industrial Pollution Abatement

Governments have at their disposal a growing arsenal of measures, such as taxes, incentives, regulations, and effluent charges, for limiting harmful industrial emissions at the source, over a region, or at the national level. Such measures may have far-reaching implications for consumers, the economy, the quality of the environment, the structure of industry, and the development of resources and technology. The nature of these implications should be assessed before specific measures are implemented. We have constructed and computerized a static model designed to assess some of the steady-state consequences of various pollution abatement strategies on an industry. This model, called "Process-Chain Evaluation Model" (PCEM), estimates the cumulative costs of various processes or steps that form "chains" leading from a set of raw material inputs to a marketable output such as semi-finished or consumer products. It then evaluates the added cost of sales due to specific environmental control measures. Often several alternate processes or chains of processes are feasible, leading to the same end product. In that case, the model helps identify those chains which are most economical and environmentally least harmful under various assumed policies. Presumably the most economical chains will, with time, come to dominate the industry making the end product in question, unless the imposed policies put this industry at a competitive disadvantage with respect to others. In that case, the end product may, in time, be displaced by substitutes. The dynamic effects of process or product substitution are quite important and can also be modeled.