Manual on the Development of Cleaner Production Policies ... - Unido
Manual on the Development of Cleaner Production Policies ... - Unido
Manual on the Development of Cleaner Production Policies ... - Unido
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DEVELOPMENT OF CP POLICY<br />
MODULE 4: POLICY TOOLS AND INSTRUMENTS<br />
SLIDE: Market-based instruments<br />
• Emissi<strong>on</strong> fees and n<strong>on</strong>-compliance fines (Mexico: waste water fees<br />
depending <strong>on</strong> <strong>the</strong> locati<strong>on</strong> and polluti<strong>on</strong> load, similar regulati<strong>on</strong>s in<br />
Uruguay and Colombia);<br />
• Grants, subsidies and financial assistance for CP (Nati<strong>on</strong>al<br />
Envir<strong>on</strong>mental Fund in Colombia, Subsidy for Technological<br />
C<strong>on</strong>versi<strong>on</strong> to avoid <strong>the</strong> use <strong>of</strong> CFCs in Chile).<br />
<br />
Market-based instruments (also known as ec<strong>on</strong>omic instruments) are<br />
increasingly used in envir<strong>on</strong>mental protecti<strong>on</strong>. You may want to note that<br />
market-based instruments tend to support <strong>Cleaner</strong> Producti<strong>on</strong>, as <strong>the</strong>y are<br />
based <strong>on</strong> <strong>the</strong> “polluter-pays” principle, and provide str<strong>on</strong>g financial incentives<br />
to implement CP.<br />
Background<br />
The term “market-based instruments”, also called “ec<strong>on</strong>omic instruments”, is used to describe a<br />
mechanism that changes <strong>the</strong> financial and ec<strong>on</strong>omic c<strong>on</strong>diti<strong>on</strong>s faced by enterprises when dealing with<br />
envir<strong>on</strong>mental polluti<strong>on</strong>. Ec<strong>on</strong>omic instruments are based <strong>on</strong> <strong>the</strong> “polluter-pays” principle, which<br />
states that polluters must bear full financial resp<strong>on</strong>sibility for polluti<strong>on</strong> reducti<strong>on</strong> or clean-up. The<br />
polluti<strong>on</strong> preventi<strong>on</strong> principle allows <strong>the</strong> internalizati<strong>on</strong> <strong>of</strong> costs that would not normally be incurred<br />
by <strong>the</strong> producer or <strong>the</strong> user (externalities).<br />
Market-based instruments can be divided into three main categories based <strong>on</strong> how <strong>the</strong>y affect a<br />
government’s budget:<br />
1. Public expenditure instruments take <strong>the</strong> form <strong>of</strong> subsidies, grants and tax allowances and are <strong>the</strong><br />
most familiar tool <strong>of</strong> interventi<strong>on</strong>. Their functi<strong>on</strong> is to provide a financial incentive for<br />
individuals or companies to undertake an activity <strong>the</strong>y would not o<strong>the</strong>rwise engage in. Examples<br />
include grants for developing envir<strong>on</strong>mentally friendly technology, price supports for recycling<br />
industries and tax allowances for energy c<strong>on</strong>servati<strong>on</strong>;<br />
2. Revenue-generating instruments include taxes, charges and fees. These, to some extent, can be<br />
viewed as <strong>the</strong> price to be paid for polluting, and have both an incentive impact and a revenue<br />
impact. However, taxes, charges and fees are generally too low to have any effect <strong>on</strong><br />
envir<strong>on</strong>mentally damaging behaviour and so <strong>the</strong>y serve mainly as a revenue generator. Effluent<br />
charges, tax differentiati<strong>on</strong> between leaded and unleaded petrol, user charges for public waste<br />
disposal and depleti<strong>on</strong> taxes <strong>on</strong> mineral exploitati<strong>on</strong> serve to dem<strong>on</strong>strate how <strong>the</strong>se instruments<br />
are used;<br />
3. Budget neutral instruments represent a relatively new class <strong>of</strong> instruments within <strong>the</strong> policy<br />
arena, <strong>the</strong> most comm<strong>on</strong> <strong>of</strong> which is <strong>the</strong> deposit/refund system. They are designed to collect a<br />
surcharge <strong>on</strong> a potentially harmful substances or activities, and <strong>the</strong>n refund that surcharge if <strong>the</strong><br />
substance is recycled or restored, or use is avoided.<br />
Envir<strong>on</strong>mental ec<strong>on</strong>omists <strong>of</strong>ten list literally hundreds <strong>of</strong> individual instruments. At <strong>on</strong>e extreme, <strong>the</strong>y<br />
comprise fines or sancti<strong>on</strong>s that are linked to traditi<strong>on</strong>al command-and-c<strong>on</strong>trol regulati<strong>on</strong>s. At <strong>the</strong><br />
o<strong>the</strong>r extreme, <strong>the</strong>y include approaches that depend <strong>on</strong> c<strong>on</strong>sumer advocacy or private litigati<strong>on</strong> to<br />
provide incentives for improving envir<strong>on</strong>mental management. Between <strong>the</strong>se extremes are <strong>the</strong> more<br />
familiar tax-and-subsidy approaches as well as less comm<strong>on</strong>ly used mechanisms that rely <strong>on</strong> traded<br />
property rights.<br />
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