What is the purpose of a Pigouvian Tax?

The purpose of a Pigouvian tax is to address negative externalities, particularly in the context of pollution. By imposing a tax on companies that pollute, the government aims to internalize the external costs associated with their activities, making the cost of pollution reflected in the market price. This financial penalty encourages companies to reduce their emissions and adopt cleaner practices, thus leading to a more efficient allocation of resources and ultimately benefiting society by reducing harmful environmental impacts.

In the context of the options, the other choices discuss actions that can be taken to encourage positive environmental practices, such as promoting renewable energy or subsidizing technologies. However, the specific mechanism of a Pigouvian tax focuses on penalizing polluters to account for the social costs of their actions, making option C the most accurate representation of its purpose.