Carrots And Sticks

Well, when I got interested in environmental taxes, one of the things that was particularly interesting to me and my colleague Zite Hutton, who started the work with me, was incentives and in the United States we use a lot of tax incentives, it’s fairly common. Your real estate tax deduction, your mortgage tax deduction, those are tax incentives that are kind of embedded in our system. We were curious about how the tax system can be used to create incentives for people to do the right thing for the environment and through the Commerce Clearing House tax service, which we subscribe to, we started looking up what was going on at the state level. And across the country, various sates have done interesting things with environmental tax credits that, you know, we looked at and I think it’s important to get some of those things into the public eye, to the people that make policy decisions, to the people that are talking about environmental taxation, and there is an international conversation about environmental taxation that is going on. Some of the credits are particularly interesting because they’re so unique and they’re so targeted at a particular environmental issue and California, for example, doesn't have this tax credit anymore, but for a while they were giving corporations a small tax credit if they restored the streams for salmon and steelhead habit and, you know, to me that’s an interesting way to encourage environmental behavior. And I like, it’s kind of the carrot or the stick, and I like the idea of a carrot. The stick is the polluter pays principle, and there’s a lot of conversation, most of the conversation in the environmental tax area is on the stick, the idea that polluters should pay and it’s not that I don’t believe that, I do, I believe polluters should pay for what they’re doing, but I also believe that sometimes there’s behavioral differences in how people respond to incentives. So it’s kind of the twist on how people might behave if they see that there’s an incentive. Most of the incentives aren’t large enough, necessarily, to change behavior and a really good example is the federal tax credit for purchasing a hybrid car. Really that incentive isn’t large enough to make a difference in the price, and yet, I think it’s something that can make a difference in somebody’s decision making process, and so they might be more willing to make that choice when they’re thinking about buying a new vehicle. So, the reason that the state level environmental tax policy became more interesting to us, is because there was a lot more creativity across the country on what people were doing. In management accounting, we have this mantra; my interpretation or my words about the mantra are: ‘You get what you measure,’ or ‘What gets measured gets done.’ And I think it’s really important how you create incentives within an organization and, from the environmental perspective, if you want to have a strategy that includes sustainability, you have to have some measures, you have to be able to measure performance, and you have to know, you have to kind of guess, how people are going to behave around that, and there’s always surprises because people will behave in ways that you wouldn’t necessarily expect or think about ahead of time when you create a measurement system or a performance metric.