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Negative price incentives

Taxes, penalties and charges are negative (disincentive) price instruments; they negatively affect the price of an undesirable activity.[1] This happens through an additional charge in which a fee is imposed on each unit of undesirable activity with the purpose to internalise the negative externalities overall technologies and practices. By transferring the cost of pollution to the polluter, the cost of desirable activities is equalised, which incites further action and investment in these areas, as well as raises additional revenue for the levying body.[2] These taxes and penalties can both be enacted on individual elements, and in harmony with others, through the shifting of taxation from one element to another within the fiscal framework. Note: Although most commonly applied to product waste disposal and Extended Producer Responsibility programmes, This instrument is also present in deposit-refund systems that combine up-front fees or taxes that are levied on the production or consumption of a particular product, with a subsidy or rebate that partially or fully refunds the initial levy when the product is properly disposed of.[3]

 

[1] EJOLT. 2012. Policy Instruments for Sustainability. Environmental Justice Organisations, Liability and Trade. Available online via http://www.ejolt.org/2012/11/policy-instruments-for-sustainability/

[2] OECD. 2011. Environmental Taxation: A Guide for Policy Makers. Organisation for Economic Co-operation and Development. Available online via: https://www.oecd.org/env/tools-evaluation/48164926.pdf

[3] OECD. 2016a. OECD Policy Instrument for the Environment: Database documentation. OECD. Available online via: http://www.oecd.org/environment/tools-evaluation/PINE_Metadata_Definitions_2016.pdf

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