Green tax - the new VAT?

One of the main thrusts of Green economics is that the environmental cost of a product isn't included in its purchase price. That means that none of the 'incidental' environmental damage caused — such as the use of scarce resources, the pollution created during manufacture, transport and disposal of a product — is taken into account. The environment is treated as a free resource which manufacturers can exploit with impunity. Ultimately, the cost of cleaning up this mess is passed on to governments — and funded by the tax-payer, ie you and me.

One way of tackling this problem would be to impose a Green tax. Or, more exactly, to replace VAT with a Green tax. Instead of the current uniform 17.5% VAT, companies would be banded according to their environmental credentials. They would be required to fill in a detailed questionnaire about their activities — including the sustainability of raw materials, details of work practices, transport policy, etc — at the end of which they would be assessed and put in a tax band. The worse their environmental credentials, the more tax they would have to pay. Tax bands might range from 10% for the best performers to 25% for the worse offenders. Like VAT, it would be self-assessed with periodic spot checks. And, like VAT, there would be heavy fines for those caught cheating.

The beauty of this system is that it doesn't outlaw anything, it just provides a financial incentive for manufacturers to adopt sustainable practices. It also narrows the price gap between products that are produced cheaply and unsustainably (which would be taxed more) and those that are produced with more consideration for the environment (which would be taxed less). Which means that, for the first time, consumers would be paying a price which actually reflects some of the environmental cost of the product they are buying.