Green pollution taxes are based on the ‘polluter pays’ principle, the commonly accepted practice that those who produce pollution must bear the costs of managing it to avoid harm to human health or the environment. For example, a factory that produces a potentially poisonous substance as a by-product of its activities is often responsible for its safe disposal.The polluter pays principle is part of a broader set of principles to guide sustainable development around the world (known formally as the Rio Declaration of 1992) .
The principle underpins most of the regulation of pollution affecting land, water and air. Pollution is defined as the contamination of land, water or air by harmful or potentially harmful substances.
Green pollution taxes levy the emission of pollutants into the atmosphere, calculating the value of the tax on emissions in excess of the maximum permitted limits. Then, only those companies whose emissions exceed the amount for emissions that they are allowed will have to pay.
In Nuevo León they question the use of green taxes for pollution
A year after it was announced by Governor Samuel Garcia at the 2021 climate summit in Glasgow, Scotland, organizations questioned the lack of evidence that green pollution taxes are applied against polluting companies, nor is it used in any environmental program .
The green taxes for pollution until today only work as a permit for the quarries and industries to continue operating without measurement of emissions. Green taxes for pollution were announced by Samuel García on November 2, 2021, during his participation in COP 27. In 2022 several companies, including refiners, have already protected themselves against green taxes for pollution.
Where is the money raised by green pollution taxes? In the case of the quarries, the green tax is charged on what is invoiced, and that suits the State since the more you produce, the more you pay. Until now, the State has not detailed what the proceeds have been invested in, and even the State Treasurer, Carlos Garza, acknowledged before the local Congress that the collection of green taxes for pollution was not labeled.
For green taxes, the State has already collected $732 million pesos as of September 2022.
How are green taxes collected for pollution in Nuevo León? The green tax initially established a charge of 1.5 Measurement and Updating Units (UMAs) per cubic meter. $134.00 pesos per cubic meter. This tax is 248% higher than the highest tax of its kind in Mexico. Given the negative impact on the price increase, it was agreed in negotiations to correct the formula to lower it to a fee of 0.31 UMAs ($28 pesos per cubic meter).
According to estimates by the farmers, this level of taxes caused a rise of up to 300% in the production cost of the regrind, which in turn generated increases of between 15 and 30% in construction materials (blocks, plaster, cement and concrete, for example)
In addition, this cascade of increases impacted the cost of housing construction by around 20%, hitting the purchasing power of Monterrey residents, particularly those who have the least.
Despite the reduction in the tax rate of green taxes for pollution, Nuevo León would remain as the second highest entity in the country, after Coahuila, which applies a fee of $43 pesos per cubic meter.
Green pollution taxes are applied to environmental pollution in the extraction of stone materials (the quarries) and by emission of pollutants into the atmosphere, water, soil and subsoil.
green taxes for pollution
According to the State, the collection of green taxes for pollution is determined based on the reports of emissions and extractions carried out by companies in NL, according to the State Inventory of Atmospheric Emissions.
Why should the principle apply to greenhouse gas emissions?
Greenhouse gas emissions are considered a form of pollution because they cause potential damages through impacts on the climate and also contribute to outdoor or ambient air pollution, which the World Health Organization estimates to be associated with 4.2 million deaths per year.
But because society has been slow to recognize the link between how human activities have increased greenhouse gas emission rates that can cause changes in the climate, emitters are generally not responsible for controlling this form of pollution.
When the cost of pollution from the release of greenhouse gases is not imposed on emitters, these costs are “externalized” to society, representing what economists describe as a “market failure”.
These costs are borne by society as greenhouse gases are emitted into the atmosphere, which is described as a ‘global common good’ as everyone shares and is entitled to ‘use’ it.
Apply the principle through Green taxes for pollution or an emissions trading system
The principle of who pollutes pays it can be applied to emitters of greenhouse gases through the so-called ‘carbon price’.
This imposes a charge on greenhouse gas emissions equal to the corresponding potential cost caused by future climate change, forcing emitters to bear or internalize the cost of pollution. This is called the Social Cost of Carbon (SCC), which is considered by many mainstream economists to be the best method of pricing carbon. Alternatively, the price of carbon can be based on the desired results.
In other words, it can be calibrated to reach a certain emissions target by a specific date, such as net zero by 2050. This is commonly known as a ‘target consistency’ approach. Under both approaches, a financial incentive is created for a polluting entity (such as a factory) to reduce its emissions.
Carbon pricing can make the polluter pay through two different policy instruments:
- The first is a simple price-based mechanism in the form of carbon tax in which the price of pollution is determined by the tax rate for each ton of greenhouse gas emitted.
- The second is through a quota-based system, often referred to as a cap-and-trade system or emissions trading. It sets a cap, or limit, on the maximum level of emissions for a given period of time and distributes permits or allowances for each unit of greenhouse gas among the companies that produce emissions. Some companies find it easier or cheaper to reduce emissions than others and therefore may sell permits to companies for which the cost of reducing emissions is much higher. Thus, emissions trading takes place between high-cost and low-cost polluters, which determines the price of a polluting permit. Polluters have ‘paid’ by ensuring they have enough permits to cover their total emissions for a given year.
Could a uniform carbon price be effective?
Regardless of the type of instrument used, many economists argue that the price of carbon must be global and uniform across countries and sectors so that polluters do not relocate their operations to so-called “pollution havens”, countries where the lack of environmental regulation allows them to continue polluting without restrictions.
The Report of the High Level Commission on Carbon Prices (2017) estimated that the appropriate price for carbon worldwide should be between 40 and 80 USD/tCO two e by 2020 and from 50 to 100 USD/tCO two e by 2030, to be consistent with meeting the objectives of the Paris Agreement.
For jurisdictions that use a carbon tax (green pollution taxes), this would require setting the rate directly at the appropriate carbon price. However, green pollution taxes have often been politically difficult to impose.
For jurisdictions that have an emissions trading system, a stricter cap can be imposed to restrict the supply of permits and thus indirectly increase the price of carbon to a level that is in line with the Paris Agreement.
