The heart of the E-VAT system is to use consumption taxes to make what is more polluting, depleting, and ecologically damaging more expensive, and what is sustainable less expensive. To do this, we need to find a way to compare the degree of pollution, depletion, and ecological damage that can be attributed to each good or service purchased. Each good or service would be assigned an E-Score from 3 to 12 (described below) that would indicate how polluting, depleting, or damaging it was.
We can start by assessing the performance of all businesses based on its Standard Industrial Code (S.I.C. code) by determining ratings or scores for their degree of pollution, depletion, and ecological damage. Scores can be based on categories such as:
• Amount of toxic or harmful emissions for scoring pollution;
• Rate of exhaustion of resource stocks for scoring depletion,
• Extent of habitat disruption for scoring ecological damage.
The following basic equation can be used to calculate the E-VAT for any particular good or service by comparing it to the average E-VAT for all goods and services:
E-VAT = [Product E- score / Average E- score] x E-VAT rate x $ Selling Price
If necessary, a further weighting factor can be added to increase the tax for high polluting items or reduce it for sustainable items.
The E-score would be based on a total of the three E-VAT tax categories ranking the amount of pollution, depletion, and ecological damage and assessing a simple numerical score for each.
Thus for pollution:
One = Sustainable
Two = Low Pollution
Three = Moderate Pollution
Four = High Pollution
If a good or service were found to be moderately polluting, depleting, and ecologically damaging it would receive an E-VAT score of 9 as the chart below demonstrates.
Product E-VAT = [9 Product E-VAT score / 6 Average E-VAT score] x 18% Ave. E-VAT = 27%
By taxing all economic activity with the E-VAT, we will not fall into the trap of just taxing the “bads” and lose our revenue source and ability to influence future conduct when pollution decreased or disappeared. The E-VAT, in action, will have quite the opposite effect. As high polluting, depleting, and ecologically damaging items are forced from the market, in order to maintain revenue, taxes on moderately polluting items will increase. Thus the E-VAT over time will exert a positively reinforcing effect progressively reducing pollution et. al. until most items are sustainable and have close to a flat tax.
There is no perfect or magic E-Scoring system. Essential is to use an E-scoring system that makes what’s polluting more expensive than it’s sustainable alternatives, and that this difference be sufficient to effect market behavior based on the degree of price elasticity. The four category rating system presented here: sustainable, low, average, and high, and the 1,2,3,4 scoring is just one possible example that is relatively simple, but robust enough to provide substantial economic nuance. Any system of ranking raises all kinds of questions that, at bottom, are matters for informed democratic judgment.
For example, does “average” refer to the mean or the median? Is the average range plus or minus 1.0 standard deviation or 1.5 standard deviations? How are the divisions between E-score categories defined? What measures are used for the scoring? Should a “high” rating result in a score of 5 or 6 instead of 4, thus weighing the tax more heavily toward taxing the more wasteful, polluting and destructive energy resources? Should the tax attempt to be high enough to equal the cost of externalities? Should pollution be weighted more heavily than the use of non-renewable materials? Should some products be exempt because they are necessities and setting higher prices for them would hurt the poor? These are all essentially political decisions that must rely upon democracy and openness. Any tax system and any political system is subject to corruption and abuse. The E-VAT can do its job to help us build sustainable prosperity but it, like everything else in a democracy, has no inherent fail-safe mechanism, and in the end must rely upon the vigorous participation of citizens in our democracy.
Pollution
Depletion
Ecological Damage
Total E-Score:
3 (moderately polluting)
3 (moderately depleting)
3 (moderately ecologically damaging.)
9