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CORVALLIS -Taxing polluters to encourage clean industry and raise money makes sound economic sense after all, according to an Oregon State University economist and Extension agriculture and resource policy specialist.

William Jaeger, a faculty member in OSU's Department of Agricultural and Resource Economics, presented his views in an article published by the University of Wisconsin Press in the third quarter edition of Land Economics, a 77-year-old journal of environment and natural resource economics.

In his article, "Carbon Taxation When Climate Affects Productivity," Jaeger challenges the prevailing economic thinking that taxing polluting industries and businesses - so-called "green taxation - can do more economic harm than environmental good, even leading to job losses.

"If we use the revenue from pollution taxes to fund other government programs, rather than taxing incomes, we can do more for the environment with less harm to economy than we thought," Jaeger said.

Economists first suggested green taxation in 1967 as a way to achieve two benefits - a "double dividend" - by both discouraging pollution, and making it possible to lower other taxes.

Economists recognized green taxation as an intuitively valid economic idea for nearly 30 years, Jaeger said. However, the idea has come under increased scrutiny in recent years, as global climate change has become a hot topic.

In the early 1990s, a handful of economists challenged the economic viability of green taxation. They concluded that adding pollution taxes to the mix of other government taxes would slow the economy, and possibly contribute to job losses.

Jaeger found this conclusion surprising, primarily because the logic of green taxation fit so intuitively with other well-established ideas in economics. "Despite considerable skepticism and puzzlement among (some) other economists, the idea that taxing polluters will distort and slow the economy has since become accepted as the prevailing economic thinking," Jaeger said.

Because he was among the skeptical, Jaeger reexamined the economic formulas, definitions, and assumptions in the analyses that led to rejection of the theory that green taxation was economically sound.

Jaeger said his study found that the economists who disputed the validity of green taxation made a technical error in the mathematical way they defined the social cost of pollution.

The effect of this error could have gone unnoticed in a standard analysis of pollution taxes that ignored any other taxes in the economy. However, when those other taxes were added to the analysis, it compounded the error and distorted their analysis, Jaeger wrote in his article.

"Rather than finding a harmful distortion in the economy caused by pollution taxes," Jaeger said, "what (the economists who discounted green taxation) noticed was the effect of a distortion that they themselves had introduced, due to an invalid mathematical definition."

Jaeger said he recalculated the mathematics of environmental damage, and concluded that the original 1967 idea of green taxation remained economically sound. "The difference between my findings and those coming out of the more recent prevailing economic view has implications amounting to billions of dollars per year worldwide," Jaeger said, referring to the estimated benefit to society from pursuing green taxation.

Interest in green taxation has increased ever since the 1997 Kyoto Protocol, the international agreement to reduce the greenhouse gas emissions believed to contribute to global warming.

One of the possible responses to global warming endorsed at the Kyoto meeting is to tax carbon emissions that come primarily from burning fossil fuels to discourage their use, thus promoting use of cleaner energy sources.

In June, the federal Environmental Protection Agency awarded Jaeger a $100,000 grant to continue his research into the economic implications of green taxation.

"The next step is to do some additional analysis to make clear to other academic economists that my results are valid, and then to write these findings up in a way that will be easy to understand for policymakers and the general public," Jaeger said.