In every economic activity, both positive and negative implications compound such activities. The positive implications include employment increase, supply of goods and market, supply of public goods, environmental control above others. However, every economic activity is as well a compound of negative implications. These are called negative externalities. They include pollution, environmental degrading, increase in crime, and social evils above others. Emission reduction like any other negative externality calls for a very dynamic tools of control.
Generally, the basic control of negative externalities by corporations in the economy is through the government taxation imposition. The government would impose a corporate tax levy which is substantially equivalent to the cost of the emission to the environment. Through such levy, the government uses passive methods of compensation to the community over such impacts of the emission. Through the tax levy, the cost of operation to the plant is increased. (Prencipe, Davies, Hoboday, 2003)
Economically, taxation provides two cost related variables with which the plant should choose from. Firstly, through higher cost of production which may perhaps outweigh its level of market profits, the plant may be forced out in the market. This is because high tax levy is synonymous to an increase in the cost of production. With high cost of production the plant is at a competitive disadvantage in the highly competitive market. It may then opt to choose an alternative method of investment. (Prencipe, Davies, Hoboday, 2003)
Elsewhere, such tax is a disincentive in the choice of production method. From the broad alternative of energy production e. g. use of electric turbines to generate power. Use of environmental friendly method would then call up such tax levied formerly. The basic purpose of higher taxes by the government towards negative externalities is to provide a disincentive in specific lines and methods of operation which are harmful to the environment. It is a tool for choosing alternative methods of production.