Emissions are harmful gases that are produced by industries when they undertake their production process. In Economics, emissions are termed as externalities. Externalities are things that appear as costs or benefits but are not transmitted by way of price. To reduce the total amount of emissions, Pigouvian tax method would be used. The tax involves charging some amount of money to either the consumer or the producer that is equal to the damage amount that the product causes. The government will impose a tax of a certain amount for every unit of a product that a company sells or that a consumer consumes (Organization for Economic Co-operation and Development, 2003). This will have the effect of reducing consumption of the product implies that the level of production will go down and this reduces emissions in return. No producer or consumer will be willing to bear the burden of heavy taxes on their costs and thus they will avoid producing large quantities of products that result in harmful emissions to the air.
Besides reducing emissions, the policy of introduction of Pigouvian tax will benefit the government because it will find a source of revenue to obtain funds that it uses to provide public services. Taxation is one of the ways that the government uses to get income to meet its needs in the public sector, thus these additional taxes on pollutants and emissions will add to its funds. The cost of this action would be analyzed using the amount of damage that a product causes. For instance, if a unit of the product causes $ 10 dollars, which will be the cost it. The best way to decide what the best level of emission reduction is by comparing the figures that would be raised through the imposition of Pigouvian tax. The higher the amount, the higher the levels of emission but if the amount is low, it implies that there are minimal emissions.
Organization for Economic Co-operation and Development. (2003). Voluntary approaches for environmental policy: Effectiveness, efficiency, and usage in policy mixes. Paris: Organization for Economic Co-operation and Development.