Taxes on environmental goods - is it apocalypse now?

Year-end thoughts by Georg Riegel - on a year marked by environmental policy.

2019 was particularly interesting - with fascinating technological advances on the one hand and increasingly drastic environmental problems on the other hand:

  • Enormous technological progress, once again - noticeable also in the deZem portfolio:
    • Exciting new sensor technologies
    • Expansion of our platform into web-based control and automation
    • LoRaWAN radio technology (see article above)
    • Use of artificial intelligence for “predictive maintenance” (more in the next Newsletter early 2020)
  • Global tensions - of which a large and growing proportion is due to environmental problems, as exemplified by:
    • Tragic record rain forrest destruction in the Amazon basin and other important natural retreats.; enormous fires in Australia, California and many other places
    • Climate emergency declaration by the EU
    • Large climate demos worldwide, and at the same time a lack of consensus on effective measures against climate change
    • Planned CO2 taxation in Germany - albeit rather timid and not "revenue-neutral"
    • Failure of the COP25 global climate conference in Madrid in reaching significant consensus

Can these great opportunities and risks be combined to give real solutions? Undoubtedly! But it takes courage and consensus on goals and methodology.

The only effective solution tool appears to be a well-thought and revenue-neutral increase in the taxation of environmentally relevant goods such as fossil carbon, heavy metals and other materials extracted from natural deposits. Furthermore, the forms of land- and water use could also be integrated into a more comprehensive system, aiming to align societal goals with broad economic incentives.

Indeed, modern technologies for real-time monitoring and data processing on IoT platforms -  such as the deZem platform - could support the processes of taxation and refunding transparently and conclusively. Tax revenue would not flow into the state budget but be redistributed with minimal bureaucracy to all citizens. If redistribution is undertaken evenly (same amount per capita) the system would even be very favourable to low-income households. The exact design is up to democratic consensus, and the key goal of such a system would be to lower tax loads overall by preventing much higher costs related to environment and health.

Of course, controversial questions regarding world trade would have to be solved. In particular, a possible necessity of trade tariffs for goods whose production costs become very different due to large differences in such environmental taxes. But a setup that manages to align societal goals with broad economic incentives should still achieve those goals much more efficiently and effectively than any alternative approach.

You may be wondering how the form of land usage (agriculture, forestry etc.) can be monitored in an automatic fashion to feed an annual tax assessment? Actually this appears doable! Two possible approaches:

  • Continuous global monitoring of the earth's surface by satellite - interesting technologies already exist!
  • On a small scale - for example in cities and their surroundings - sensors could potentially measure not only air quality, but even complex quantities such as biodiversity : the sensor would "smell" which types of plants bloom nearby, "hear" which birds are chirping and which types of insects are buzzing and "see" how ecologically diverse the environment looks. Research on this is already ongoing at University of Dortmund in Germany. It is conceivable that an “invoice-proof” indicator can be obtained from it. Automated and nationwide.

If we manage to align prices with our environmental goal exciting things could happen quickly - with enormous potential for technological innovation and the economy. Is China going to take this path and leave the West behind? Quite possible.

The public debate focusses a lot on global environmental problems and little on effective solutions. The usual state subsidy programs for electric cars, replacement of oil boilers etc. are expensive, small-scale and presumably just a drop in the ocean. What we should be looking for instead is a comprehensive environmental policy solution. And is there a more cost-effective strategy than a goal-oriented and revenue-neutral restructuring of tax revenue? Personally, I cannot think of any.

Would you like an occasional environmental exchange of ideas?

With these questions and on behalf of the entire deZem team, I wish you and your family a Merry Christmas, peaceful holidays, a happy New Year and a solution-oriented 2020!

Best wishes - Georg Riegel
(CEO deZem GmbH)