Pigouvian taxation to induce technological change and abate nonpoint pollution in the Ebro Basin, Spain

Abstract

The implementation of policies to control nonpoint pollution is a complicated task because the lack of information about the biophysical processes and the asymmetric information between social planner and polluters. The objective of this paper is to evaluate the efficiency of using an input tax instrument (water tax) with a non-uniform tax rate to abate nonpoint pollution. This water tax instrument generates a reduction in the pollution level, and induces farmers to adopt abatement practices such as better irrigation technology systems. The model presents theoretically and empirically the salinity pollution problems in the Ebro Basin (Northeast of Spain). Farmers are heterogeneous in crop types, irrigation technologies, and biophysical field characteristics. Because of this heterogeneity each farmer generates a different level of emissions, so farmers should be taxed differently. In this analysis, the social planner implements two tax rates according with farmers’ irrigation technology. Using a non-uniform tax rate, pollution emissions are reduced and farmers are induced to change their irrigation technology towards a more efficient one. The use of a more efficient irrigation technology increases social welfare and generates a cutback in the emission loads.