What can the government do to reduce pollution (negative externality from market failure) within the community?

In order to go about a question like this, the foundations of the question must be laid out through definitions and diagrams so we can develop our analysis and evaluation.Market failure occurs because of the lack of divergence between the marginal social benefit and the marginal social cost. An externality is the cost that affects a third party who did not choose to incur that cost or benefit. Negative externalities refer to the social cost of production exceeding the private cost and pollution would be an example of that. Naturally, if we leave the free market to work by itself, there will be a divergence between marginal private cost and marginal social benefit. This generates a price and quantity in the economy whilst bringing about negative externalities (namely pollution in this case). As a result, government intervention is used to reduce the negative externality and this could include taxes (for example, the London congestion charge). The tax will ensure that the externality is internalised and reflected within the pricing system. As a result of this, the economy will be at the socially optimum level (i.e. when marginal social benefit is equal to marginal social cost). The tax will increase the price of polluting which would subsequently reduce the quantity of polluters because it is more expensive. The tax reduces the cost to society that would arise without government intervention. The cost to society (due to market inefficiency) that is lost (because of the tax) can be visually shown through the deadweight welfare loss triangle.However, the tax may not always be effective in reaching the socially optimum level. This is because there may be time lags between the times when the tax is put into play and when the government can see the effect of the tax – we may not see the impact immediately which impedes the effectiveness of the tax. Likewise, there will be enforcement and administrative costs which are needed to ensure the tax is being paid properly to actually reduce pollution. This could be costly and take time for the government and may even be a strain; potentially depriving other areas of the public sector. If the tax is too high or the government regulations are too strict, there could be unprecedented results such as: riots, dissent, demonstrations and protests which would constitute as government failure. Lastly, if majority of the people causing the pollution are affluent then imposing a tax on them would not discourage them from polluting. This is because they can just use their disposable income to pay it off and still pollute – this does not lead to a reduction in the negative externality of pollution in this case.