(Graph of the trend in greenhouse gas emissions - Courtesy Colin Read and Palgrave-MacMillan-Springer in "Understanding Sustainability Principles and ESG Policies," 2023.)

Last week we looked at Vermont’s efforts to create a wealth tax as a more progressive version of the partial wealth tax that is universally used to fund local government. The widely-accepted current wealth tax extracts revenue from the value of most Americans’ most sizeable asset - our homes. This wealth tax imposes a smaller penalty on the wealthiest because their home costs represent a smaller share of their assets than lower income households. Renters bear an even larger burden because hidden in a rent that is often a very sizeable share of their income are taxes landlords pass on to them. 

Vermont is not pushing the envelope only there, though. The second initiative is equally unconventional, but is also a natural and logical extension of what we already accept as common and appropriate. 

As far back as the onset of the Industrial Revolution, concentrated use of coal to power factories and transportation created a backlash from residents who lived near these dangerous nuisances. At first, police were employed to force industrialists to clean up their act. These entrepreneurs devised a better solution. They offered to compensate those damaged by their emissions into the atmosphere. The industry itself established the Polluter Pays Principle. 

In doing so, economists were content. An essential element of an efficient economy is that entities pay all the costs of their decisions rather than impose these costs on others. If a polluter can profit by polluting the air, it will pollute and profit more than it should. This applies for any factor of production. If producers get valuable factors for free or at a reduced cost, they will use more such factors and produce and profit more. Their ability to consume the carrying capacity of the atmosphere is no different than the employment of any other factor of production, except, of course, it is often difficult to detect or internalize their use of atmospheric resources we all share. 

By the 1970s, the Polluter Pay Principle became standard in the U.S. with the passing of the Clean Air Act and the Clean Water Act. However, well before these statutory innovations, the courts had accepted the tort principle that those who do harm must compensate those harmed. 

Even international disputes were resolved along the lines of the Polluter Pays Principle. Trail, British Columbia was prominent in establishing this principle, and prominent for my family. My father was born there and my grandfather was its mayor. I was naturally fascinated when I discovered that the Cominco Smelter in Trail was front and center in establishing one of the most significant precedents in the history of international environmental law. 

The smelter began in 1895 to process lead and zinc ore from the nearby Rossland LeRoi mine. Following World War I, it was processing 10,000 tons of ore monthly and spewing out 4.700 tons of sulfur. The smelter employed most working males in the city, and emissions from its smokestacks were viewed as the price of prosperity. However, local farmers were less enamored with the emissions, and obtained compensation for smoke damage to crops through fines levied on the firm. 

Another of Cominco’s responses was to raise the height of the smokestacks. This pushed sulfur emissions farther up into the atmosphere, which resulted in greater drift across the nearby border into Washington State. They demanded compensation, but Cominco refused to pay their American neighbors, despite the fact Cominco was a U.S. owned company. Canada was pressured to form a tribunal by 1935 that would analyze the problem and recommend appropriate compensation. It ultimately established for the first time the notion that a nation must bear responsibility for its damage to the environment on an adjoining nation. This innovation was immortalized in the Draft Articles on Prevention of Transboundary Harm from Hazardous Activities as adopted by the International Law Commission. 

In the U.S. and other nations, polluters have been required to set aside funds to compensate innocent bystanders from the nuisances they create. In cases in which pollution fines cannot be easily or directly imposed, the Superfund Trust Fund pools money from petroleum and chemical excise taxes on industry, environmental income taxes, and fees and penalties. Either directly or indirectly, industry is held accountable for correcting the harm they cause through degradation of the atmosphere, soil, or water. 

The notion of the Polluter Pays Principle is now broadly established, except in the case of greenhouse gasses. Scientists widely accept the conclusion that the release of greenhouse gasses through the combustion of hydrocarbons imposes damages today and especially upon generations in the future. But, while polluters generally pay, and markets have even been created to charge a fee for emission of such harmful gasses as sulfur dioxide, carbon dioxide and methane emission have broadly escaped taxation to remedy the damage they cause. 

Economists almost universally agree that a carbon dioxide tax, commonly called a carbon tax, is the best method to internalize the costs of such emissions. The U.S. Federal Government, and most states, have been reluctant to impose such a tax because it would about double the cost of gasoline, diesel, and fuel oil. Obviously, whether such a tax is imposed on producers or on consumers at the gas pumps, consumers will pay, and consumers vote. New taxes at the pump or oil tank are not popular. 

Instead, Vermont proposes to create an excise tax on companies who profit from petroleum sales. This tax is designed to pool revenue for the equivalent of a carbon superfund. The fund would then be used to help pay for remediation of the flooding that has been occurring more frequently as more severe and moisture-laden storms make their way into Vermont. 

Such a solution makes some logical sense, especially if we acknowledge that carbon dioxide emissions are no less damaging than other emissions we regularly fine or otherwise discourage. In fact, while sulfur dioxide is cleansed from the atmosphere in a matter of days, greenhouse gasses persist for decades or centuries. Permanent funds then make sense to remedy the long term damage of greenhouse gas emissions. 

The problem is that those in Vermont who profit from the sale of petroleum products, and the residents who use them, are not harming Vermont. They may be harming their neighbors in New Hampshire and Maine, and then worldwide as Vermont’s air blows eastward by the prevailing winds. But, Vermont cannot tax greenhouse gas producers worldwide. All they can do is induce those large oil companies who choose to do business in Vermont to pay a share of damages Vermont voters suffer. 

Perhaps Vermont is trying to set an example for other states to follow, and goad the federal government into the actions that other nations and states are already doing. There is a logic in Vermont’s Bill S.259 - “An act relating to climate change cost recovery.” The proposed Vermont Climate Superfund will certainly be challenged by oil companies. In the end, Vermont may end up establishing a new legal principle in the U.S. as it attempts to recover part of the billion dollar bill for recent and increasingly frequent floods. 

But, they must expect corporations will be willing to pay legal fees approaching the fines they fear rather than invest in a transition toward a sustainable economy that would inevitably leave trillions of dollars of hydrocarbon reserves in the ground rather than in the atmosphere.