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Free «Regulatory Economics» Essay Sample


In the contemporary world there has been competition in every field which includes industrial productions. The competition has proportionally affected the environment through pollution. The sample case is the pollution of Lake Bonney in South East of South Australia that has been polluted by sprouting paper mills around this region to take advantage of the forest or abundant wood in this region. This paper evaluates the measures that have been put in place to curb further pollution of the Lake. However the main focus is the use of pogouvian tax.

Use of Pigouvian Tax

There have been several approaches that have been initiated to prevent the pollution that has been going in Lake Bonney since the British landed in Australia and built paper mills and practiced farming around the Lake. All these factories emitted their effluent to Lake Bonney causing harm to the ecosystem. The pollution also interfered with the activities of the indigenous people depended on the lake for their food for instance fish. From 1950s, conservation groups and the government of Australia realized the importance of controlling the pollution of this lake. They therefore devised many ways to do it. Among the ways were continued improvements of quality of wastewater discharged by the paper milling factories and monitoring the measures that are successful in preventing further pollution of Lake Bonney.


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One of the most important ways that has proved to be effective is the imposing of the pigouvian tax on the pulp produced by the Kimberly-Clerk Mills. The pigouvian tax is expected to achieve the goals set by the environmental conscious groups and the government itself. The pigouvian tax will limit the excess production of effluent by the factory by reducing their paper production. Another possibility is that the factory management will identify major ways to prevent pollution through building check-off ponds where the emissions are treated before getting into the Lake i.e. by improving the quality of the waste liquid. The other component of the pigouvian tax is that the more or the higher the emissions, the higher the taxes, hence the Kimberly-Clerk Mills will consider maintaining a certain level of emission to avoid higher taxes which may automatically impact their profit margins. David and Sinclair-Desgagne (2005) acknowledges this situation that, “Pigou’s framework found that an optimal emission tax set higher than the marginal cost of pollution encounter the extent of pollution”. Diagrammatically, the higher the taxes, the lower the pollution i.e. if taxes are increased in proportionality with the extent of pollution, the Kimberly-Clerk Mills will drastically reduce their emissions.


Pollution on Lake Bonney has been a concern now for a long time. Methods have been formulated to successful prevent the pollution and the Lake to revert back to its original state a fresh water lake in this region of South East of southern Australia. However, Pigouvian tax has been the best method which has made Kimberly-Clerk Mills to reduce their emissions sufficiently.  The estimation of pollutants has enabled environmental agencies to estimate the value of damage hence the rate of tax to be imposed on factories in particular the Kimberly-Clerk Mills that is emitting wastewater and other effluents to Lake Bonney.


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