The Greening of the Taxman

“It is difficult to imagine a tax that actually improves our lives,” says Paul Hawken. “We are so battered by the insults of the existing system that we fail to see how creative are the alternatives.”

Hawken is a notable author, businessman and environmentalist who cuts to the heart of issues by framing them in a novel way. In The Ecology of Commerce, he argues that the problem with taxes is a design problem. Our tax system isn't designed to recognize the true costs of human activities – so it punishes things we should encourage, and leads us to disregard the real environmental and social costs of our actions.

For example, we tax incomes, profits, sales, payrolls and savings – which suppresses jobs, savings, new investment and business formation. The tax system encourages everyone to cheat, and it is ferociously inefficient. The cost of accounting, administration, paperwork and waste may amount to 65 cents for every dollar collected.

But, says Hawken, look what would happen if we shifted our focus to products and processes, and placed heavy taxes on pollution, waste, energy consumption and the use of non-renewable resources. Instead of taxing things we value, like initiative and entrepreneurship, we would be taxing things we wanted to discourage. The tax would induce people and companies to make environmentally-sound choices.

In truth, green taxes simply send the correct signals about what things cost. Oil is unique, finite and irreplaceable. We should be using it as sparingly as possible. If it is priced appropriately – as a resource far too valuable to be burned, and also a fuel which pollutes and poisons – then people will use it carefully. Where possible, they'll choose renewable energy sources instead.

Green fees could also help to conserve minerals, old-growth forests, clean air, clean water and many other vital resources. A carefully-designed green-tax regime would support business in doing what it does best – adapting, inventing and innovating, searching for lower costs and greater efficiencies. Every success would lower the corporate tax bill – and reduce environmental damage.

To succeed, green taxes need to be substantial. If the price of gasoline rises by 10 cents, not much will happen, because we're used to small fluctuations. If it doubles or trebles, people will start looking for alternatives.

But surely the last thing we need is more taxation? Hawken agrees, arguing that the new green taxes should not be added to the existing system, but should replace it. As green taxes are phased in, taxes on incomes, profits, sales and the like should be phased out. The shift should be “revenue-neutral,”meaning that at the end of the process government would be collecting exactly the same amount, but from different sources.

Hawken's example is a person earning $30,000 a year and paying $5600 in income taxes plus $1100 in energy costs. If we double his energy costs to $2200, but cut his income tax to $4500, his total bill is no higher – but now he has a powerful incentive to conserve energy and thus increase his net income.

Does a shift to green taxes represent an intolerable intrusion into the free market? Hardly. Markets are never free. They require a framework of legislation and regulation to ensure the fair and orderly conduct of business. Green taxes are essentially just a regulatory change, though a dramatic one.

Paul Hawken's fundamental theme is that business has become the dominant institution on the planet, and is largely responsible for the ecological crisis – but business is also the only force with enough dynamism, creativity and energy to turn things around. The key to the whole human future is “restorative” business, the evolution of an economy which does not merely cease despoiling the world but finds a mission in repairing the damage.

Is he dreaming? Maybe not. Odd though it seems, corporate leaders are actually human. Like the rest of us, they have children and grandchildren. They drink the poisoned water, eat the pesticide-laced food and breathe the brown air. They too are beginning to see that radical change is our only hope.

Last week, incredibly, the pin-striped paleolithics of the Canadian Council of Chief Executives announced an “unprecedented consensus” that climate change is our “most pressing and daunting issue.” Furthermore, the CCCE members recognized that government should bring in emissions trading, and also institute green taxes to raise energy prices.

Ye gods. And three cheers.

So perhaps Hawken's hopeful expectation of a leadership role for business will prove justified. He is, incidentally, one of the thinkers interviewed in The Eleventh Hour, Leonardo DiCaprio's jet-propelled environmental documentary – and his message there is delightful.

“What a great time to be born!” he says. “What a great time to be alive! Because this generation gets to, essentially, completely change this world.”