Selecting Environmental Policy Instruments (factors to be considered)
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1.0 Introduction
Various alternate environmental policy instruments are usually considered in an endeavour to get rid of an environmental problem. According to Perman et al, (2003), the best instrument would be the one which meets the target with greatest reliability. The criterion implemented in order to come with such an instrument will depend on a number of factors such as cost effectiveness, long run effects, dynamic efficiency, ancillary benefits and equity among others (Perman et al, 2003). This paper serves to examine how environmental policy instruments are selected when trying to get rid of or at least minimise pollution of both air and water by companies and individuals.
2.0 Keywords
Environmental policy instrument generally involves measures put in place especially by the authorities in order to minimise or completely eradicate an environmental problem. Examples of environmental problems include, inter alia, pollution of water, contamination of land, deforestation, degradation of wet lands and conservation of bio diversity. Environmental policy instruments include, among other things, market based instruments such as tax on emission and premiums, regulative instruments such as mandatory targets and technical prescriptions as well as persuasive instruments such as moral suasion and training (Schmitt and Shulze, 2011). In practice, a mix of various instruments is implemented to tackle a given environmental problem since it is usually as a result of more than one factor.
3.0 Selection of Environmental Policy Instruments
When selecting a policy instrument one should consider cost effectiveness. A policy instrument that achieves the required target of water or air pollution at least cost should be selected. The costs involved include both the cost of abating pollution as well as the cost monitoring by the Environmental Agency to mention but a few. A thorough cost benefit analysis should be carried out so as to ascertain the feasibility of an instrument. However, the cost effectiveness of an instrument though very important should not be considered in isolation as there are other factors to be considered as well, such as the long run effects of an instrument.
In addition, the long run effects of an instrument should also be considered. There is need to ask the question: “Does the influence of the instrument strengthen, weaken or remain constant over time?” (Perman et al, 2003). A fixed pollution tax levied on a company can only be effective in the short-run when the company is at the same level of operation, in the long run however the same company would have expanded and probably making higher profits thereby rendering the tax less deterrent or weaker.
In such a case, requirements to use advanced, cleaner technology (technological prescriptions) as well as progressive taxing on quantity of effluent disposed will be more effective in the long run. Water effluent charges have been effective in countries such as German, Netherlands and Malaysia whereas air pollution charges have been successfully implemented in Sweden, France and Japan (Perman et al, 2003).
Furthermore, equity objective will also be considered when coming up with an instrument. . The changes to the net social benefits as well as the corresponding distributional effects of implementing a given policy instrument is a very important consideration (Treasury Board of Canada Secretariat, 2007). Assuming several alternative instruments which yield the same target of water or air pollution, a rational policy maker has to adopt a policy which does not promote inequality in wealth distribution.
An example of such is the imposition of a pollution tax on the production of a good whose demand curve is relatively inelastic such as tobacco cigarettes. The producer will simply transfer the cost to the consumers by increasing the price and hence the consumers become the ultimate bearers of the cost of pollution emitted by cigarettes producing firms. The same argument holds for an increase in the carbon tax for public transport operators.
The diagram below summarises the point above:
Though the pollution tax T resulted in a small decrease in the quantity of good x produced, it also resulted in a more than proportionate increase in price of good x by factor T. Therefore consumers will be worse off than before in this scenario.
Spill over effects accruing from a given policy instrument should be clearly analysed before adopting an instrument. Policy instruments that generate positive spill over effects are more desirable than those with negative spill over effects. Advocacy for the use of advanced cleaner, technologies also results in quality products being produced efficiently thus benefiting the environment, the producers and the consumers.
The flexibility of a given environmental policy instrument is also an important factor. The easiness of adjusting the policy instrument as and when new information arises or conditions or the target is altered is crucial (Perman et al, 2003). According to the Treasury Board of Canada Secretariat, (2007), improving the flexibility of a policy instrument reduces the costs associated with the implementation of the instrument.
Legality of the policy instrument is also to be considered. In implementing a given instrument, the Environmental Agency has to ensure that the rights of both individuals and corporates are not infringed. Usually policy instruments constrain polluter from polluting and hence due legal processes have to be observed in imposing such instruments, otherwise the affected parties may challenge them in the courts of law. Moreover, there are some conventions set by the international bodies which should also be observed. Example of such international conventions include, inter alia, the Convention on International Trade in Endangered Species (CITES) of Wild Fauna and Flora of 1963, the Ramsar Convention of 1971 as well as Kyoto Protocol of 1997 (Environmental Management Agency).
Selected instruments are often accompanied by varying degrees of uncertainty. Due to the fact that no one can predict the future effects associated with an instrument with certainty, policy makers have to gather and analyse as much information as possible to avoid the unforeseen risks. Instruments whose outcomes can be predicted and modelled will less likely pose problems and are favourable. The choice of an instrument affects both the type of uncertainty that emerges and the efficiency gains which are generated (Goulder and Perry, 2008).
When faced with little information on a given instrument or any empirical evidence of its applicability for a given country, policy makers can resort to traditional ways of combating pollution such as imposing production quotas as well as banning of the use of substances that are harmful to the community. Under emissions taxes, the price of emissions is established from the onset. Uncertainty comes in on the aggregate emissions quantity that will result after firms respond to the tax (Goulder and Perry, 2008). Thus such an instrument will highly probably result in unforeseen outcomes.
4.0 Conclusion
In conclusion, it is important to note that each instrument has specific attributes and may score differently on a given criteria. A list of instruments vis-a-vis their respective attributes should be compiled with the weight being placed on each attribute. The highest scoring instrument will be the one to be adopted.
References
Environmental Management Agency Website: http://www.ema.co.zw/index.php/144-environmental-conventions.html
Goulder L.H., and Parry I.W.H. (2008)- Review of Environmental Economics and Policy. Issue. 2. Vol. 2. [Online] http://reep.oxfordjournals.org/content/2/2/152.full Accessed on 22/03/16
Perman R., Ma Y., McGilvary J. and Common M, (1999) Natural Resource and Environmental Economics, (3rd ed) Edinbrg, Longman.
Schmitt S. and Schulze K., (2011). Choosing Environmental Policy Instruments: An Assessment of the ‘Environmental Dimension’ of EU Energy Policy. European Integration online Papers Issue 1, Vol. 15, Article 9 [Online] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2006422 Accessed on 22/03/15
Treasury Board of Canada Secretariat, (2007) Assessing, Selecting and Implementing instruments for Government Action. Catalogue No. BT58-2/2007 ISBN 978-0-662-05036-0 [Online] http://www.tbs-sct.gc.ca. accessed on 22/03/16
1.0 Introduction
2.0 Keywords
Environmental policy instrument generally involves measures put in place especially by the authorities in order to minimise or completely eradicate an environmental problem. Examples of environmental problems include, inter alia, pollution of water, contamination of land, deforestation, degradation of wet lands and conservation of bio diversity. Environmental policy instruments include, among other things, market based instruments such as tax on emission and premiums, regulative instruments such as mandatory targets and technical prescriptions as well as persuasive instruments such as moral suasion and training (Schmitt and Shulze, 2011). In practice, a mix of various instruments is implemented to tackle a given environmental problem since it is usually as a result of more than one factor.
3.0 Selection of Environmental Policy Instruments
When selecting a policy instrument one should consider cost effectiveness. A policy instrument that achieves the required target of water or air pollution at least cost should be selected. The costs involved include both the cost of abating pollution as well as the cost monitoring by the Environmental Agency to mention but a few. A thorough cost benefit analysis should be carried out so as to ascertain the feasibility of an instrument. However, the cost effectiveness of an instrument though very important should not be considered in isolation as there are other factors to be considered as well, such as the long run effects of an instrument.
In addition, the long run effects of an instrument should also be considered. There is need to ask the question: “Does the influence of the instrument strengthen, weaken or remain constant over time?” (Perman et al, 2003). A fixed pollution tax levied on a company can only be effective in the short-run when the company is at the same level of operation, in the long run however the same company would have expanded and probably making higher profits thereby rendering the tax less deterrent or weaker.
In such a case, requirements to use advanced, cleaner technology (technological prescriptions) as well as progressive taxing on quantity of effluent disposed will be more effective in the long run. Water effluent charges have been effective in countries such as German, Netherlands and Malaysia whereas air pollution charges have been successfully implemented in Sweden, France and Japan (Perman et al, 2003).
Furthermore, equity objective will also be considered when coming up with an instrument. . The changes to the net social benefits as well as the corresponding distributional effects of implementing a given policy instrument is a very important consideration (Treasury Board of Canada Secretariat, 2007). Assuming several alternative instruments which yield the same target of water or air pollution, a rational policy maker has to adopt a policy which does not promote inequality in wealth distribution.
An example of such is the imposition of a pollution tax on the production of a good whose demand curve is relatively inelastic such as tobacco cigarettes. The producer will simply transfer the cost to the consumers by increasing the price and hence the consumers become the ultimate bearers of the cost of pollution emitted by cigarettes producing firms. The same argument holds for an increase in the carbon tax for public transport operators.
The diagram below summarises the point above:
Spill over effects accruing from a given policy instrument should be clearly analysed before adopting an instrument. Policy instruments that generate positive spill over effects are more desirable than those with negative spill over effects. Advocacy for the use of advanced cleaner, technologies also results in quality products being produced efficiently thus benefiting the environment, the producers and the consumers.
The flexibility of a given environmental policy instrument is also an important factor. The easiness of adjusting the policy instrument as and when new information arises or conditions or the target is altered is crucial (Perman et al, 2003). According to the Treasury Board of Canada Secretariat, (2007), improving the flexibility of a policy instrument reduces the costs associated with the implementation of the instrument.
Legality of the policy instrument is also to be considered. In implementing a given instrument, the Environmental Agency has to ensure that the rights of both individuals and corporates are not infringed. Usually policy instruments constrain polluter from polluting and hence due legal processes have to be observed in imposing such instruments, otherwise the affected parties may challenge them in the courts of law. Moreover, there are some conventions set by the international bodies which should also be observed. Example of such international conventions include, inter alia, the Convention on International Trade in Endangered Species (CITES) of Wild Fauna and Flora of 1963, the Ramsar Convention of 1971 as well as Kyoto Protocol of 1997 (Environmental Management Agency).
Selected instruments are often accompanied by varying degrees of uncertainty. Due to the fact that no one can predict the future effects associated with an instrument with certainty, policy makers have to gather and analyse as much information as possible to avoid the unforeseen risks. Instruments whose outcomes can be predicted and modelled will less likely pose problems and are favourable. The choice of an instrument affects both the type of uncertainty that emerges and the efficiency gains which are generated (Goulder and Perry, 2008).
When faced with little information on a given instrument or any empirical evidence of its applicability for a given country, policy makers can resort to traditional ways of combating pollution such as imposing production quotas as well as banning of the use of substances that are harmful to the community. Under emissions taxes, the price of emissions is established from the onset. Uncertainty comes in on the aggregate emissions quantity that will result after firms respond to the tax (Goulder and Perry, 2008). Thus such an instrument will highly probably result in unforeseen outcomes.
4.0 Conclusion
In conclusion, it is important to note that each instrument has specific attributes and may score differently on a given criteria. A list of instruments vis-a-vis their respective attributes should be compiled with the weight being placed on each attribute. The highest scoring instrument will be the one to be adopted.
References
Environmental Management Agency Website: http://www.ema.co.zw/index.php/144-environmental-conventions.html
Goulder L.H., and Parry I.W.H. (2008)- Review of Environmental Economics and Policy. Issue. 2. Vol. 2. [Online] http://reep.oxfordjournals.org/content/2/2/152.full Accessed on 22/03/16
Perman R., Ma Y., McGilvary J. and Common M, (1999) Natural Resource and Environmental Economics, (3rd ed) Edinbrg, Longman.
Schmitt S. and Schulze K., (2011). Choosing Environmental Policy Instruments: An Assessment of the ‘Environmental Dimension’ of EU Energy Policy. European Integration online Papers Issue 1, Vol. 15, Article 9 [Online] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2006422 Accessed on 22/03/15
Treasury Board of Canada Secretariat, (2007) Assessing, Selecting and Implementing instruments for Government Action. Catalogue No. BT58-2/2007 ISBN 978-0-662-05036-0 [Online] http://www.tbs-sct.gc.ca. accessed on 22/03/16
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