Pigouvian tax

A Pigouvian tax charges an activity an amount equal to its marginal external cost, bringing private incentives closer to the social cost of that activity.

Negative externality: A cost imposed by an activity on people who are not parties to it. A Pigouvian tax targets this unpriced spillover.
Carbon tax: A tax on carbon dioxide emissions or the carbon content of fuels. It applies Pigouvian reasoning to climate-related emissions.
Command-and-control regulation: Rules that directly require or prohibit specified actions, technologies, or pollution levels. Unlike a Pigouvian tax, it sets obligations rather than a price per unit of harm.
Arthur Cecil Pigou: A British economist whose work established welfare economics as a distinct field. His analysis of divergences between private and social costs gave the tax its name.
Marginal abatement cost: The additional cost of reducing pollution by one more unit. Comparing abatement costs with marginal damage helps identify efficient pollution control.
Marginal external cost: The additional harm imposed on others by one more unit of an activity. Its value determines the efficient per-unit tax.
Congestion pricing: A charge for using crowded roads, designed to account for delay imposed on others. Road charges can make drivers face the congestion costs their trips create.
Cap-and-trade: A system that limits total emissions and allows permits to be traded. It fixes the quantity of emissions, while a tax fixes their marginal price.
The Economics of Welfare: Arthur Cecil Pigou's 1920 book on welfare economics and divergences between private and social net products. Pigou developed the case for corrective taxes in this work.
Environmental valuation: Methods for estimating the economic value of environmental goods, services, and damages. A tax rate requires valuing harms that often lack market prices.

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