Causation of Genuinely Social Costs: Pigou Enabling Coase Through the Causation Principles Underlying Environmental Taxation

When a producer manufactures a polluting product that is demanded by a consumer, who is causing that pollution? The producer, the consumer, or both? And if the state then imposes policies to mitigate the emissions but the producer passes the abatement costs onto its customers, does this pass-through of the costs enable the true polluters to discharge their responsibility for the emissions onto agents who did not cause the harm?

And if the producer is a state in the developing world, and the consumer is a state in the developed world, how should the legal causation of emissions be handled? Is it correct for climate treaties that operate on the principle of Common But Differentiated Responsibility to attribute the causation of emissions to the exporting developing country instead of to the importing developed country even if the latter might have contributed to causing the emissions? Furthermore, when emission are released in international air or sea space, is it correct that climate law treats such emissions as having been caused by all countries to the same extent, and if not, how should those emissions be attributed between–say–countries that exported or imported the cargo from whose transport the emissions arose?

This article investigates principles of causation that underlie Pigouvian taxation, the international climate law and the economic analysis of tort law. Comparing the strengths and weaknesses of these different causation principles, we show that, with an optimally defined policy, the producers' and the consumers' real tax incidences rise in the damage that they individually caused. How much each agent efficiently pays then automatically reflects their contribution to causing the damage.