Prices

Commodities are essentially (transformed) natural resources with a rent attached. From a welfare perspective it is optimal to tax this rent, even though the tax base could be rather difficult to define in practice. Another argument for taxation of material consumption is the environmental problems this consumption causes. According to economic theory a cost-effective way to deal with such problems is through different forms of taxation. See, for instance, Pearce and Turner (1990), Repetto et al. (1992) and Lesser et al. (1997). The studies by Bruvoll (1998), Bruvoll and Ibenholt (1998) and Dellink and Kandelaars (2000) are all based on the idea of pricing materials in accordance with the environmental problems they incur, and they all show that this might be a rather cost-effective way to reduce environmental pressure.

The price mechanism is an important tool for steering technological development.

Increased prices on natural resources and materials will most certainly spur technological development towards less material-intensive products and production processes, while at the same time dampening the rebound effects of this development. Keeping real prices of the physical resources constant, or even letting them rise, would modify the demand-increasing (rebound) effect of technological progress. As mentioned above, ordinary AGE models do not fully capture the effect the price mechanism would have on technological development. This, in context, must be considered a severe weakness.

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