AROUND the world, governments are fighting a losing battle to stop companies degrading the environment. Loggers, poachers and emissions junkies are met with stiff taxes, fines and ultimately, the threat of prison. The logic is simple 鈥� the more you pollute, the more you have to pay. Except that it isn鈥檛 working. But one man thinks he has the answer: lowering the penalties for the worst offenders.
Harsher penalties seem only to encourage corruption and bribery, and ultimately more environmental damage, argues Richard Damania at the University of Adelaide. In Thailand, for example, the government has bumped up fines for illicit behaviour. But because the chance of someone actually being caught offering a bribe or taking one is so low, all the draconian policy has done is drive up the asking-price for bribes. To afford them, companies simply pollute more by stepping up production to keep profits up. Likewise, raising the tax against pollution simply drives up the incentive to give out bribes and under-report emissions.
鈥淚ncentive structures are often perverse. It satisfies people on the international level because something is seen to be done. But in reality nothing鈥檚 happening,鈥� Damania says. Since corruption is a difficult, and dangerous, subject to research, little has been done to integrate it into an economic model of environmental policy.
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Damania has done just that with a new mathematical analysis. His solution is to have taxes rise at a decreasing rate with emissions (see Graph). This weakens the incentive for wealthy companies to participate in bribery. 鈥淗igh polluters should actually be taxed less, because the big rollers and shakers have the money to pull off large bribes. People may not like this, but it works,鈥� says Damania.
Similarly, companies should be audited less often to check their reported emissions relative to the more they produce. That鈥檚 because companies that report low emissions are more likely to be lying than those that report high ones. Most countries, like Germany for example, tax all emissions at a constant rate. That works for some, but Damania says his version would work better in the developing world, where corruption and pollution are rife (Environment and Development Economics, vol 7, p 407).
Robert Anderson, from the US National Center for Environmental Economics, says that Damania鈥檚 proposals could be dogged by political problems. For instance, charging the biggest polluters relatively less than smaller ones might be too politically unpopular for a government to countenance.
And, other economists note, money isn鈥檛 the only reason for corruption. Regulators often turn a blind eye simply because they have grown to know and like the people they regulate. That kind of behaviour may prove impossible to model in an economic analysis.
Damania agrees these effects have to be taken into account. But he says his proposal would help governments save money, even when they find it difficult to enforce the rules, by targeting their environmental policing more effectively. 鈥淭hailand has some of the most stringent regulations on pollution. But Bangkok is one of the most polluted places on Earth.鈥�