The author is convinced that most people feel that something is not right with our relationship with the earth, but despite this widespread awareness, nobody is really acting. Many people fear that solving environmental problems will cost too much. Societies are paralyzed by a paradox: we cannot afford to protect the environment - but neither we can afford not to. To end the paralysis that blocks environmental progress, governments need to close the gap between real and false prices. When people begin paying the full costs for using various resources, environmental protection becomes not just a cost, but a profit opportunity: Environment-friendly activities, technology, services and goods will become competitive and profitable.

In most countries the government puts high taxes on work and investment and low taxes on using the environment, which means they are heavily penalizing what they want to encourage (people to work and companies to expand) and barely tax what they want to discourage (polluting and over-using the environment). A green tax reform, meaning shifting away taxes from work towards activities that harm the environment, would be a good solution to solve this problem. David M. Roodman explains the concept of green tax reform not in a theoretical, scientific way, but by means of many practical examples and experiences in different countries.

For assessing taxes as opposed to regulations the author thinks one should not look at this in a puritanical attitude. The two different policy approaches should not be seen as rivals but as complements. Regulations are so far the best measure to protect endangered species, manage nuclear waste, ban highly toxic pollutants, which are not acceptable in any amount. However, regulations tend to discourage innovation and often become too complex to handle efficiently. So whenever environmental goals can be expressed in a single number - how many tons of benzene should be permitted into an airshed each year, or how much water pumped from an aquifer - and whenever actual pollution or depletion can be estimated, market mechanisms offer an alternative. They have the advantage to exploit humanity's greatest resource: its creativity in solving problems. They allow governments to do what they do best - setting targets for reducing environmental damage - while letting the market do what it does best - finding the cheapest ways to get there. Tax and permit systems are promising medicine, but applied on their own, they are neither cure-alls nor side-effect-free. Drivers don't respond well to a gasoline tax unless there are zoning laws and mass transit budgets support independence from the car. And pensioners struggling to keep up with rising heating oil prices will take little solace in sacrificing for society as a whole. The author pleads to not apply permit and tax systems puritanically. Market-based policies will work best if the signals they send are orchestrated with policies across the entire apparatus of government. They are best implemented gradually and with assistance for those least able to adapt.

Policy-makers have to be aware of the side effects of environmental tax shifting, because for sure some people, such as low-income families, can have particular difficulty adapting to environmental tax hikes. They usually spend disproportionately high shares of their income on energy, water and resource-intensive products, whose prices would likely be lifted by environmental taxes. There are different tools to mitigate environmental taxes regressively. For example taxes can be "terraced": the amount of drinking water to meet the basic needs is tax-free, but above that a tax is levied, rising in different stages. Or governments can cut heating bills by putting insulation and efficient heaters into their homes, and expand bus service in low-income neighborhoods. Also some type of industries will suffer during the transition period. There is an unavoidable tension between the need to make major changes and the desire to minimize the pain of adjustment. In the long run, the best solution would be to avoid competitiveness concerns between trading partners by harmonizing environmental tax and permit systems, especially when they address international problems such as acid rain and global warming. But for the author one is clear: A handful of industries may need to disappear altogether. Roodman says for example, "for every declining coal industry, there will be a rising solar industry".

One important task for the green budget reformers before and during the reform process is, to build alliances with the winning majority. Environmental tax shifting creates more winners than losers, since every tax cut in one person's taxes is a rise in someone else's, if the tax shift is carried out revenue-neutral, and everyone would gain from a healthier environment. But unfortunately businesses and people on the loosing side of a green budget reform are generally better financed, informed and organized than those who will win from a reform such as sellers of environment protecting goods and services, minimally polluting service businesses, labor unions and the general public. Especially the general public is badly informed which creates a formidable impediment on the way to a green tax reform, which not necessarily needs to be the case. Polls in the European Union and the United States have found that 70 percent of respondents support the idea of "green tax reform" once it is explained. So the main task for reformers is to change the public perception of taxes. The public has to decide for what they want to be taxed for: For working or for polluting and using the environment?

Roodman, David Malin: Getting the Signals Right: Tax Reform to Protect the Environment and the Economy, Worldwatch Paper 134, Worldwatch Institute 1997, 66 pages, price US$5. Worldwatch Institute, 1776 Massachusetts Avenue, N.W., Washington D.C. 20036-1904, USA. Tel: +1-202-4521999, Fax: +1-202-2967365, E-mail: wwpub@worldwatch.org, Internet: http://www.worldwatch.org.