Pigouvian solutions are a tool for correction of market failures related to the non-inclusion of externalities to the price of goods. Consumers in gas stations do not pay for all the social and environmental costs generetad by the fuel they buy. As highlited by Lester Brown, the costs of climate change are not included in fossil fuel prices. Such failure is an incentive to the massive use of these fuels worldwide.
The role of the State is to correct such malfunction, taxing oil-related products and investing the revenue of this taxation in programmes to compensate the negative consequences. Governments which consider such possibility have the opportunity to increase tax revenues from products such as gasoline and diesel, and thus to relieve other sectors or products that generate welfare for the population. Additionally, some benefits of such policies are intagible. The humanization of cities, generated by reduction of the number of cars on the streets, is an example of immeasurable reflex of these actions.

The effectiveness of pigouvian solutions depends, however, on government efficiency, given that the State expands its role in resource management when such measures are adopted. It is true that Brazil does not exhibit a great performance in the management of public finance and the institutional environment, but there are signs of improvement which allow some boldness in the formulation of sustainable public policies. Anyway, it is better to lose some time due to inneficiency than moving in the wrong direction.

In the 21st century, some actions of Brazilian government contain traces of what we may call Beetle solution, in a reference to the well-know public policy to encourage production and purchase of cars that pushed the German economy just before World War II. Since then, Germany has learned many lessons and now leads efforts for sustainable innovation, including governmental activity, as shown by Iochpe, the commentator.

The Brazilian state of Rio Grande do Sul has just signed an agreement with General Motors that provides a deadline of 10 years for the first payment of 75% of the taxes generated by the expansion of the local plant of the company. GM still has 12 years, after the commencement of the payments, to remove the debt. No interests will be charged! This means that the State is taking a huge risk and a loss of tax revenues in favor of supposed economic benefits of a multinational which faces a process of reorganization (after going bankrupt) in its home country. The project is also being funded by BNDES (Brazilian Development Bank) and Banrisul (a local state-owned bank), instituting extremely favorable conditions to the corporation.

Besides investing in a business (and economic development) model which is completely outdated, the government of Rio Grande do Sul will have to deal with a conflict of interest. The administration probably expects to receive, someday, the debts of the American multinational. Therefore, government and banks may lose their willingness to invest in public transportation, sustainable urban development and intercity trains. The ideal situation now is that every local buys a car to help with the success of the factory, which has no plans to build electric or energy-efficient vehicles.

That is what I call moving in the wrong direction. What is expected of a government committed to sustainability is a clear policy to encourage the replacement of cars by other means of transportation, more compatible with the reality of the planet and cities. Taxes are only a way to express that choice. In the European Union, the current proposals for the taxation of cars is taking environmental factors into account very seriously.

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This text was originally written in Portuguese.