What is a key feature of the Pigouvian Tax?

A key feature of the Pigouvian Tax is that it is imposed on companies that pollute as a means of internalizing the external costs associated with their environmental impact. The concept is rooted in economic theory, which suggests that externalities—costs or benefits that affect parties who did not choose to incur those costs or benefits—should be reflected in market prices. By taxing companies based on the amount of pollution they generate, the Pigouvian Tax aims to encourage businesses to reduce their emissions and invest in cleaner technologies.

This tax serves as a financial incentive for companies to limit their pollution, aligning their practices with societal goals of reducing environmental harm. The revenue generated from the tax can then be used to fund sustainability initiatives or to support communities affected by pollution. While the other options touch upon different policies or concepts, they do not represent the primary aim of the Pigouvian Tax, which focuses specifically on penalties for pollution to mitigate negative environmental impacts.