Economic Instruments for Air Pollution Control

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The main categories of MBI, and their variants, are described below.

Air pollution and economic development

MBIs are designed to influence the behaviour of resource users to ensure that resources are used more efficiently — that is, to ensure that the welfare associated with resource use is increased. A plethora of MBIs have been developed see Box 2. A third class of MBI can also be added. This class is often used to capture a range of policy actions and approaches that operate on existing markets to help them work more efficiently, and deliver outcomes that maximise the benefits generated by resource consumption.

This group of three is a handy categorisation of the wide range of market-based instruments and approaches that can be observed in use, and in development, across a range of public policy areas. There are numerous examples of market-based instruments employed by policymakers as tools for resource and environmental management.

Many of these have common characteristics and can be grouped accordingly.

Solvents and Air Quality

Instruments and approaches in common practice include:. Source: National marine Office Australia www. For the purposes of this report, and the key objectives of marine resource management some key options and approaches can be recognised. These are:. On a practical level while charges and taxes operate in a similar manner, there is a distinction between the two. Charges are payments for which a good or service is rendered in return, while taxes are payments on the basis of, for example, the level of pollution for which no direct return in terms of goods or services is given Industry Commission , p If it is possible to introduce an appropriately designed tax on those causing the externality, then a socially optimal distribution of resource use could be attained at the least cost to society ABARE , p The objective of the tax and the rate that is decided upon is to drive pollution output down to a level that equates the social and environmental cost of the pollution with the economic cost of further reductions.

In effect, imposing pollution costs on the polluter gives an incentive to cut back pollution output to the level where social and environmental effects can be compensated through tax payments , and the economic benefits of further production exceed the environmental costs associated with it.

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Rather than taxing activity levels or particular behaviours, they often involve a fixed charge for the use of environmental services, and can be reflected as an access or license fee. Product charges or taxes could be introduced on products that could have a harmful effect on the environment — either in the manufacturing or consumption phase. They can be based on a product, such as the use of petroleum, or on a product characteristic, such as the carbon content in petroleum.

A subsidy is a payment by government directly or through another body to those who undertake certain activities the government wishes to promote.

A tax concession, on the other hand, reduces the amount of tax owed to the government by those undertaking such activities. Ideally, the size of a subsidy or tax concession should not exceed the overall benefits derived from the action or activity for which the subsidy or concession is given Industry Commission , p Such measures tend to reduce costs and have an expansionary effect on the activities targeted — working in a broadly similar way but opposite direction to the Pigouvian tax described above.

Such measures, in theory, can provide incentives to address environmental problems. In practice, however, many subsidies promote economically inefficient and environmentally unsound practices because they have a tendency to promote over-consumption and additional production Stavins , pp Pollution reduction aims tend to be served more efficiently by tax, rather than subsidy, approaches. A variant on this is the deposit—refund system. Buyers of products that are potentially damaging to the environment pay a surcharge that is refunded to them when they return the product or container to an approved centre for recycling or disposal.

Well-defined property rights are fundamental prerequisites for a market to function. According to Van Bueren , p 5 , the rights must be:. Properly defined property rights provide the owner with an incentive to improve or preserve the resource beyond the time they expect to make use of it. Under these circumstances potential buyers of the resource would be willing to pay up to an amount equivalent to the benefits they receive for the right to use the resource.

If property rights are well defined, then any further government intervention could be relegated to simply facilitating the exercise of these rights. Lack of information is a common source of failure in a range of markets. Public provision of information is a powerful means by which governments can facilitate the operation of markets and improve decision making by their participants ABARE , p It can also entail governments undertaking or funding scientific and economic research aimed at understanding the dynamics and interrelationships in ecological and economic systems.

Such information can be very important to determining values and risks for natural resource management purposes, and reflecting these in public policy processes. Substantial gains can be made in environmental protection simply by reducing existing market imperfections.

Account Options

An example is the introduction of liability rules that encourage firms to consider the potential environmental damages of their decisions. This limit or quota is allocated amongst market participants, who are then free to trade permits which represent a defined quantity of their individual quota allocation.

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  8. This system promotes economic efficiency by allowing scarce assets to flow to those who can extract the greatest value from them, and promoting constraint among those who reduce their usage most cheaply. Most tradable permit experiences link government regulations with markets. However, implementing an MBI also commonly requires some form of regulation. Market based instruments can be implemented in a systematic manner, across an economy or region, across economic sectors, or by environmental medium e.

    Individual MBIs are instances of environmental pricing reform. According to Kete , "policymaking appears to be in transition towards more market-oriented instruments, but it remains an open-ended experiment whether we shall successfully execute a long-term s ocial transition that involves the private sector and the state in new relationships implied by the pollution prevention and economic instruments rhetoric. For example, although the use of new environmental policy instruments only grew significantly in Britain in the s, David Lloyd George may have introduced the first market-based instrument of environmental policy in the UK when a Fuel tax was levied in during his ministry.

    Economic instruments for air pollution control - Google книги

    A market-based transferable permit sets a maximum level of pollution a 'cap' , but is likely to achieve that level at a lower cost than other means, and, importantly, may reduce below that level due to technological innovation. When using a transferable-permit system, it is very important to accurately measure the initial problem and also how it changes over time. This is because it can be expensive to make adjustments either in terms of compensation or through undermining the property rights of the permits.

    Permits' effectiveness can also be affected by things like market liquidity , the quality of the property right, and existing market power. An argument against permits is that formalising emission rights is effectively giving people a license to pollute, which is believed to be socially unacceptable. However, although valuing adverse environmental impacts may be controversial, the acceptable cost of preventing these impacts is implicit in all regulatory decisions. A market-based tax approach determines a maximum cost for control measures.

    Economic instruments work best for the environment

    This gives polluters an incentive to reduce pollution at a lower cost than the tax rate. There is no cap; the quantity of pollution reduced depends on the chosen tax rate. A tax approach is more flexible than permits, as the tax rate can be adjusted until it creates the most effective incentive. Taxes also have lower compliance costs than permits. However, taxes are less effective at achieving reductions in target quantities than permits. Using a tax potentially enables a double dividend , by using the revenue generated by the tax to reduce other distortionary taxes through revenue recycling.

    An alternate approach to environmental regulation is a command and control approach. This is much more prescriptive than market-based instruments. Command and control approaches have been criticised for restricting technology, as there is no incentive for firms to innovate. Market-based instruments do not prescribe that firms use specific technologies, or that all firms reduce their emissions by the same amount, which allows firms greater flexibility in their approaches to pollution management.

    However, command and control approaches may be beneficial as a starting point, when regulators are faced with a significant problem yet have too little information to support a market-based instrument.

    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control
    Economic Instruments for Air Pollution Control Economic Instruments for Air Pollution Control

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