By Lucas Ribeiro Cunha (CFC-GS/UFPA)
The history of environmental economic thought cannot be told without mentioning Arthur Cecil Pigou, economist and author of “The Economics of Welfare” (1920), who was the first to systematize the idea that the state should intervene in the economy to correct market failures, especially those that generate negative externalities.
His theoretical contribution became the foundation of the economic instrument known as the carbon market, since Pigou’s studies revealed that certain economic activities impose costs (externalities) on the community, which are not internalized throughout the production process.
To illustrate, imagine a mining industry responsible for dumping toxic waste into a river, which obtains private profit but transfers the cost of pollution to the community, generating a negative externality.
Thus, to correct this distortion, Pigou (1920) proposed that the state should impose corrective taxes—known as Pigouvian taxes—capable of equalizing the social cost with the private cost of production. The environmental tax would be a form of “price” for the pollution generated, inducing the economic agent to reduce its emissions or seek cleaner alternatives.
By proposing environmental taxation as a tool for correcting externalities, Pigou broke with the classical paradigm that preached fiscal neutrality. For the author, taxation was not only a means of revenue collection, but also a public policy tool that would enable the state to direct the behavior of economic agents in favor of social and environmental objectives (Gutinieki; Mendonça; Janini, 2021).
By proposing fiscal policies that internalized the social costs of externalities, Pigou anticipated the notion that the well-being of future generations depends on the preservation of natural resources by current generations, which was absorbed by the concept of Sustainable Development presented in the Brundtland Report (CMMAD, 1987).
In addition, this logic inspired public policies and regulatory models with global reach, and from the second half of the 20th century onwards, with the advancement of environmental discussions at United Nations conferences, Pigouvian ideas gained renewed importance.
The emergence of the Kyoto Protocol (1997) and, more recently, the Paris Agreement (2015), consolidated the understanding that greenhouse gas (GHG) emissions should have a cost internalized by the emitting agents themselves, paving the way for the creation of economic mechanisms aimed at this purpose—such as the Carbon Market, conceived as a climate mitigation instrument (Duarte; Tupiassu; Nobre, 2020).
However, the Pigouvian model has been criticized by economists such as Ronald Coase, the theorist responsible for the main theoretical basis of the carbon market, who argued that the state does not always need to intervene, as externalities could be resolved through private agreements. This debate—between state taxation and private market agreements—is at the heart of the theoretical development of the carbon market (Reato; Cabeda, 2017).
Although Pigou’s ideas did not directly underpin the formation of the carbon market, it is necessary to recognize that their relevance lies in demonstrating that sustainability requires the economic internalization of environmental externalities.
In fact, in the Brazilian context, the recent Constitutional Amendment No. 132/2024 expressly included the “Principle of Environmental Protection” in the National Tax System, reaffirming the relevance of Pigou’s thinking (Brazil, 2024).
Therefore, Pigou’s influence transcends his time, since his ideas inspired the theoretical structure that allowed the carbon market to emerge as a mechanism for reconciling the economy and the environment, transforming pollution into an economic variable that can be controlled and regulated.
REFERENCES
BRASIL. Emenda Constitucional nº 132, de 20 de dezembro de 2024. Altera o Sistema Tributário Nacional. Disponível em: https://www.planalto.gov.br/ccivil_03/constituicao/emendas/emc/emc132.htm. Acesso em: 07 nov. 2025.
COMISSÃO MUNDIAL SOBRE MEIO AMBIENTE E DESENVOLVIMENTO – (CMMAD). Nosso Futuro Comum. 1987.
DUARTE, Beatriz Bergamim; TUPIASSU, Lise; CRUZ, Simone Nobre. O Mercado de Carbono na Política de Mitigação das Mudanças Climáticas. Revista de Direito Ambiental e Socioambientalismo, v. 6, n. 2, p. 93-108, 23 dez. 2020. Disponível em: https://www.indexlaw.org/index.php/Socioambientalismo/article/view/7203/pdf. Acesso em 07 nov. 2025.
GUTINIEKI, João Otávio Bacchi; MENDONÇA, Rafael de Souza; JANINI, Tiago Cappi. Tributação ambiental no Brasil: concretização de políticas públicas ambientais e desenvolvimento sustentável. Revista da Faculdade de Direito do Sul de Minas, v. 37, n. 1, p. 377-394, 2021. Disponível em: https://revista.fdsm.edu.br/index.php/revistafdsm/article/view/333. Acesso em: 07 nov. 2025.
PIGOU, Arthur Cecil. The economics of welfare. London: Macmilan, 1920.
REATO, Talissa Truccolo; CABEDA, Taísa. A relação entre o imposto de Pigou e o Teorema de Coase em uma análise econômica do processo civil brasileiro. Revista Eletrônica Direito e Política, Itajaí, v. 12, n. 1, 2017.
