The increase in the rate of environmental pollution in the United Kingdom has moved the government to encourage the move for the low emissions vehicles which will help in reduction of air pollution. In a move to actualise this initiative, the government has introduced an $800 pollution on the sale of any new diesel car where the proceeds accumulated from the tax would be used for the scrapper scheme for the older vehicles using diesel. The imposition of the $800 pollution tax ion the diesel vehicles would mean that the diesel vehicles would be more expensive than before. Due to the high price of the diesel cars, the consumers will not find any incentive of purchasing vehicles that use diesel since they are more expensive as compared to those that use other types of fuels such as petrol. The market forces of demand and supply will play a part in the motor vehicle sector in the United Kingdom where the demand for the diesel vehicles will be lower.
Given the scrapper scheme that will be rolled by the United Kingdom government, where the government uses the proceeds to subsidise the low emission vehicles for those consumers that return the high emission diesel cars, the number of the diesel vehicle in the market will decrease significantly. In this case, the consumers will be motivated by the incentives given by the government to subsidise any low emission unit for the exchange of the high emission vehicle. Given the high number of the consumers that will be interested in purchasing the low emission vehicles, the demand for the vehicles will be high.
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"Commentary On “Call For Pollution Tax On Sales Of New Diesel Cars In Britain”".
From the graph, when there is consumption related to the diesel cars, the marginal private benefit does not show the social benefits. Users of the diesel cars have a demand curve , however, when they excessive use the cars, they cause an external costs for the adjacent residents making the MSB curve to lie under the MPB curve. In this regard, the difference between the two curves represents the external costs. Because MSC is not the same as MSB, the transaction of such cars results to the inefficiency in allocation.
This kind of regulation has been used to tackle negative externalities. Given its simplicity in implementations, some corporations may not be able to comply with the social optimum level of output which causes the government to excessively allocate resources to enforce and monitor the regulations. This will results to government failure since it does not process adequate information regarding the exact level of externality to assist them in making sound decisions about the effective way of allocating resources to address the externality of consumption.
The challenge with the tax policy is the exact computation of the external costs to find the right tax, in this regard, if $800 does not reflect the external cost, the overconsumption of the diesel cars will remain high which is shown by the variation between Qtax-Qopt.
Depending on the number of the available substitutes, MPB of the diesel cars might be inelastic showing that the government might require to impose larger tax more than the proposed $800 to completely accommodate the externality. However, there is advantage over this since the possible tax of $500m could be used to fund the scrappage scheme for the older diesel cars. Nonetheless, this would entail opportunity cost since tax revenue could be used on other projects that could effectively deal with the pollution in the long run such as investing on research that advocates for teh use of the green energy.
The overall effect that will be presented due to the tax policy on the diesel cars is that the number of the diesel cars in the roads of United Kingdom will decrease significantly since the consumers will be limited by the budget line to purchase more units of the diesel cars due to increased prices. However, due to the subsidy by the government on the low emission cars in the United Kingdom, the number of the low emission cars will be high in the streets hence the level of pollution will decline significantly. This, therefore, will help in mitigating the problem of air pollution which had increased the level of NO2 emission to the unbearable levels hence causing deaths of innocent citizens. in the short run, the banning of the diesel cars in the CBD and imposing tax on the diesel cars will lower the rate of air pollution in the united kingdom, however, with the increased number of the low emission vehicles in the streets of united kingdom, the level of emission will accumulate to intolerable levels in future which causes further environmental pollution.
