Equal Rights or Nobody Worse Off?

When we constrain pollution using market instruments such as taxes, the revenue generated to the central authority can have many purposes. The changes in relative prices can also affect the value of assets - for example, houses or coal power stations, and change the relative costs of entrenched ways of behaving -e.g. entrenched commuting patterns.

There are a few possible principles that we might use to allocate the revenues, in the case that they do not go into general taxation. (We are only considering principles here):
  1. "Revenues are the equal right of all"
  2. "Make nobody worse off"
  3. Give revenues to the rich and powerful
  4. Give revenues to the poor
The first principle has been argued for extensively. The third and fourth principles have been used often. The second principle has not been used very often and is often neglected.

It should be noted that principles one and two are in conflict. If we give pollution rights equally, this will make some people better off and some people worse off. However, if we make sure that nobody is worse off, we may not make a change that respects 'equal rights'.

It is an interesting question which of these principles is best; and one which I will return to in future. I lay open the possibility that one of the reasons that many people resist environmental taxation is that principle two is not respected.

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