Robert Goodin (1992), a philosopher at the Australian National University, says that economic instruments can have two different objectives. One is to provide a disincentive for environmentally damaging behaviour. The other, of more interest to economists, is to achieve optimal levels of damage by internalising environmental costs. The idea of this second objective is that, if a company pays the full price of environmental damage, it will clean up its pollution until any further incremental reduction in pollution would cost more than the environmental cost of the additional pollution.

Many economists argue that, if every company pays the full equivalent costs for the environmental damage caused by its remaining pollution, the community is not any worse off and the polluter is better off, since otherwise it would have cost it more to eliminate that pollution. The payment can be used to correct the damage. The problem is that there is some doubt about whether money payments can correct environmental damage in many circumstances; as well, money from pollution charges is seldom used to correct environmental damage. Alternatively, the money can be spent on something equally worthwhile. However, Goodin suggests that environmental quality is not something that can be swapped for other goods without a loss of welfare.

Rather than set payments to reflect actual environmental costs, which it is extremely difficult to do, it is more common for regulators to set environmental standards first and use charges to achieve those standards. Regulators may then raise or lower the charges until the standards are met. This means that polluters are not paying the actual costs of the damage they cause. Accordingly, the second objective of the economic instrument&emdash;to internalise environmental costs so as to obtain the optimal level of pollution is not achieved.

Goodin (1992) has likened economic instruments, such as charges and taxes, to religious indulgences. Indulgences were sold by the church in the Dark Ages to reduce the time a sinner would have to spend in hell. He suggests that 'green taxes' amount to 'selling rights to destroy nature', and can be objected to on similar grounds to those used against religious indulgences:

Selling what is not yours to sell

Just as the church had no right to sell God's forgiveness, governments have no right to permit people to destroy something that does not belong to them. For those who hold a spiritual view of nature, this can be considered as violating the integrity of Nature. Those who prefer to consider humans as stewards of nature for its own sake, or for the sake of future generations, would see it as irresponsible for those granted such stewardship to permit degradation.

Selling that which cannot be sold

While there may be some good reasons for permitting pollution and environmental degradation, profit should not be one of them, and permission to pollute should not be auctioned to the highest bidder. Goodin points out that some people 'might be reluctant to let one person's environmental quality be determined, in part, by another's unwarranted riches'.

Rendering wrongs right

The fact that someone can pay to get a pollution permit appears to remove the blame from them. Unlike a fine that is imposed for doing something wrong, a charge or a tax seems to indicate that the activity is official and done with approval. What is more, the permission granted to go on doing that activity on a continuing basis also reinforces the perception that the activity cannot be wrong.

Indulging some but not all

Green taxes are based on the assumption that it will not cause too much damage to the environment for a few people to pollute it, although it would if everyone did the same. The capacity of the environment to absorb some pollution without suffering too much harm is therefore allocated through the imposition of charges or taxes; that is, people pay for the right to use that capacity.

The unspoken assumption behind all such models is that the capacity of the environment to tolerate a certain number of renegades is something that we ought, collectively, take advantage of. We ought to make sure that all those slots are taken, we ought allow just as many renegades as nature itself will tolerate. (Goodin 1992, p. 16)

Grounds for indulgence

If one views environmental degradation as a wrong done to nature, it cannot be corrected by paying money to other people. However, if, as environmental economists tend to do, one views environmental degradation as a wrong done to other people, because the damage is done to a commonly owned resource, paying for the right to inflict the damage may make sense in terms of recompensing the community for its loss. However, even people who take a human-centred view of the environment believe that money cannot compensate a community for environmental losses. This is often because environmental quality adds a dimension to one's life that purchased goods and services cannot replace.

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