Modern tax debates often ask how to raise revenue with minimal distortion. A different starting point is to ask what fiscal architecture best supports humanity’s long-run survival and flourishing.
My recent paper takes this alternative path: it reframes production through an informational lens and proposes two complementary business taxes designed to preserve nature, drive efficiency and accelerate knowledge creation.
An informational lens on the economy
Think of nature as a vast, ordered information system, and knowledge as “transformative information”: the know-how that reliably causes physical change (from kiln recipes to gene-editing protocols). In this view, production is a sequence of tasks where knowledge guides the transformation of materials in space to produce artefacts.
If knowledge improves, we perform the same tasks with less waste and lower environmental damage. Conversely, when knowledge is suboptimal, we overuse environmental resources and generate excess disorder (entropy).
This framing leads to a simple normative aim for tax: shift the burden away from knowledge and towards the environmental resources our activities appropriate, while creating powerful incentives to innovate.
Why focus on space and entropy?
Two features of production are systematically under-priced:
- Space (and associated environmental resources): Economic activity occupies three-dimensional space and draws on flow resources (light, air and water) in and around that footprint. Crowding out ecosystems reduces information diversity in nature; information we may not yet know how to use.
- Local entropy: Transformations in factories, data centres and farms dissipate useful energy as waste heat and generate waste materials. That local increase in entropy is a practical proxy for inefficiency; the “cost” of not yet having better knowledge or constructors.
On this basis, I propose two new business taxes: a Nature Preservation Tax and an Entropy Tax. They are intended to work together: the nature preservation tax prices the physical footprint of activity; the entropy tax prices the disorder it creates.
Nature preservation tax: make “small” the default
The tax base of the nature preservation tax is the cubic metreage of a firm’s economic activity, a volumetric measure from the lowest incursion (say, foundations or subterranean works) to the tallest structure, multiplied by the site’s horizontal area. In plain terms, the bigger the operational volume, the bigger the tax bill. This base implicitly captures both physical space and the flow resources serving that space.
Jurisdictions would designate two categories of land: industrial zones and preservation zones. The same volumetric base applies everywhere, but rates in preservation zones are set higher to encourage firms to relocate or to operate as compactly as possible where relocation is impossible. Rates are fixed, not activity-specific, to place consistent pressure on spatial footprint across sectors (policymakers can still use targeted subsidies where warranted).
By making every cubic metre costly, the nature preservation tax rewards spatial efficiency (for instance, lean layouts, vertical integration where appropriate, compact process design) and discourages sprawl. Crucially, it protects the informational integrity of ecosystems by shifting activity out of preservation zones and by intensifying the “do more with less space” incentive elsewhere. Because output must then be maintained with a smaller footprint, the path to profitability runs through better knowledge, not more land.
The nature preservation tax complements area-based conservation tools (protected areas and other effective area-based measures) and aligns with Australia’s Nature Repair Market, creating a fiscal signal consistent with biodiversity objectives rather than working against them.
Entropy tax: price inefficiency directly
The entropy tax targets the increase in local entropy created by commercial activity, proxied by two measurable components:
- Waste heat: the portion of energy inputs that leaves as heat rather than useful work. In simple terms, the entropy contribution from waste heat increases with the quantity of waste heat and depends on the ambient temperature into which it is released.
- Waste materials: different wastes have different specific entropy; the tax scales with both the type and the mass of waste generated.
In practice, firms can estimate these components using energy audits, heat metreing and waste characterisation (mass and material type). The tax base is the sum of the waste-heat component and the waste-materials component.
By turning dissipated energy and disorder into a cost centre, the entropy tax pushes firms towards heat recovery, process integration, circularity, and materials substitution. As with the nature preservation tax, the least-cost path is knowledge-led: improved process design, better control systems, new materials and new constructors that perform the same tasks with less dissipation.
How this differs from traditional Pigouvian taxes
Pigouvian instruments usually target specific pollutants (for example, a carbon price for greenhouse gases). The proposed nature preservation and entropy taxes are broader: they price the space taken up by activity and the energy inefficiency of the activity itself.
In doing so, they internalise land-use change, habitat disruption and waste heat/materials – effects that often fall outside the reach of pollutant-specific taxes. The result is a coupling mechanism between markets and ecosystems: fiscal signals that transmit ecological information back into firms’ location and process choices.
Implementation: from principle to practice
Measurement and verification: For the nature preservation tax, volumetric measurement is straightforward with cadastral data, building plans and geospatial tools. Implementing the entropy tax may start with material balances, energy metres and standardised waste audits, and can be refine over time with sector-specific coefficients.
Rate-setting and phasing: We can begin with modest rates and clear multi-year trajectories. For the nature preservation tax, a larger differential between preservation and industrial zones strengthens the location signal. The entropy tax rates should be technology-neutral and stable enough to underwrite investment in efficiency and heat-recovery systems.
Revenue use: Consistent with the framework’s core aim of not taxing knowledge, revenue is recycled to reduce taxes that burden innovation (for instance, payroll taxes on R&D-intensive labour). Revenue can also be used to co-fund measurement infrastructure for small and medium enterprises (metres, audits) and seed competitive grants for process redesign and circular manufacturing.
Fairness and competitiveness: Predictable phase-ins, transitional relief for trade-exposed sectors, and credits for verified heat recovery and high-value circularity are provided. Because the nature preservation and entropy tax duo rewards efficiency rather than sheer scale, it can level the playing field for smaller, agile firms that innovate quickly.
What success looks like
In the short run, successes include denser sites, fewer low-value expansions into sensitive areas, more heat-recovery projects with positive business cases, and a marked uptick in process optimisation.
In the medium run, I anticipate a measurable decoupling of output from spatial footprint and from waste intensity, with clearer evidence that new knowledge is displacing uncompensated draws on ecosystems. In the long run, we should see preserved biodiversity and a production system whose default trajectory is towards lower entropy.
Closing thought
Tax is a powerful information channel. By pricing the space we occupy and the entropy we create, the proposed nature preservation and entropy taxes translate ecological realities into everyday business decisions while keeping the path to profit squarely aligned with discovery and invention.
In a world where the unknowns in nature may hold the keys to future breakthroughs, preserving that information store – and inventing our way to lighter footprints – is not just environmentally prudent; it is the surest route to human progress.
This post summarises arguments and proposals set out in ‘Taxation for ecological health and human progress: an informational ontology’. For full detail, including definitions, examples and policy alignment, see the original article.
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