Manual on the Development of Cleaner Production Policies ... - Unido

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DEVELOPMENT OF CP POLICY MODULE 4: POLICY TOOLS AND INSTRUMENTS In general terms, the following types of economic instruments can be distinguished: • Charge systems: fees and fines for pollution, environmental impacts, access, road usage; • Financial instruments: loans, grants, subsidies, revolving funds, green funds, low interest loans; • Market creation: tradable emission permits, catch quotas, water shares, land permits; • Bonds and deposit refund systems: bonds for forest management, land reclamation, waste delivery; • Property rights: ownership, use and development rights; • Fiscal instruments: taxes on inputs, exports, imports, pollution, resources, land use. It is generally accepted that market-based instruments are inherently more efficient economically than regulatory standards in achieving a desired reduction in pollution. The reasons for this include the fact that they act as incentives for the development of more cost-effective pollution control and prevention technologies, provide greater flexibility to the industry in the choice of technology or prevention strategy and are consequently more cost-effective in achieving agreed levels of pollution, and they may provide the Government with a source of revenue it could use to support environmental and/or social initiatives that in turn may contribute to enhanced sustainable development. The advantages of economic instruments include the following: (a) They do not prescribe specific technologies or solutions, but leave it to the target groups to decide whether they would prefer to control their output of emissions, to change their input of raw materials and energy, or perform a mixture of both; (b) They are better suited to deal with non-point sources of pollution that cannot be controlled by permits, but where there are proxies to be taxed; (c) They ensure that pollution control takes place where the marginal costs are lowest, thus ensuring substantial cost savings, probably by a factor of two to three; (d) Contrary to a fixed licence, they offer a constant incentive to reduce emissions, and are as such a far more dynamic instrument; (e) Because of these dynamics, they encourage greater innovation and stimulate the development of new and cleaner technologies; (f) Finally, economic instruments will generate revenue—sometimes in substantial amounts—that can be used for environmental or other purposes. Economists tend to advocate economic instruments as a more or less pure alternative to command-andcontrol regulations. In practice, economic instruments are used within a broader mix of regulatory instruments, although this can prove complex in an institutional setting. One common assumption about economic instruments is that they offer a handy substitute for outdated or inefficient command-and-control regulatory procedures. However, market-based instruments also require strong institutions, adequate legislation and effective monitoring and enforcement. They are not a panacea for either a weak regulatory framework or the lack of political will. PAGE 94
DEVELOPMENT OF CP POLICY MODULE 4: POLICY TOOLS AND INSTRUMENTS EXAMPLE Market-based instruments in Latin America There has been substantial experimentation with market-based instruments in Latin America, and a wide range of mechanisms have been developed and applied. In most countries of the region, the environmental sector is largely subsidized by government funds, with resources drawn from national budgets, donations, grants, transferable compensatory certificates, fees, loans, contribution legacies, fines and other resources determined by legislation. Brazil, Chile, Colombia and Mexico seem to have experimented most with economic instruments. The use of economic incentives has been directed mainly at controlling pollution and access to certain natural resources. The major impetus behind many of the economic instruments in Latin America has been to raise revenue. Other potential objectives, such as reduction of environmental impacts or improving the costeffectiveness of regulations, have been underemphasized or not achieved. Most Latin American countries have existing legislation that established environmental institutions and provided for the use of economic incentives in environmental management. In reality, however, institutional weaknesses, such as underfunding, inexperience, unclear jurisdiction, or the lack of political will, limit the effective implementation of market-based instruments (MBIs). The administrative intensity of market-based instruments remains high. Monitoring requirements, legal design requirements, public consultation needs and enforcement or collection needs of MBIs are not always noticeably different from strict command-and-control approaches. Economic instruments are, therefore, not a substitute for weak institutions or for direct regulation; the need for some regulatory elements is inevitable and a strong institutional base is a prerequisite to implementation. Finally, economic instruments are not decided by a single policy maker, but have to be approved by a political system where the negotiating processes can dilute what is theoretically the most efficient type of mechanisms. In fact, there are often significant political constraints that act against the effective introduction of market-based instruments. In some cases, a failure to make economic instruments and direct regulations complementary has had negative environmental effects. Command-and-control economic instruments are likely to remain in application in the future, but the use of penalties, taxes, fees, tax deductions and subsidies will probably be intensified as more prevention-oriented environmental policies come into being. There is, however, a tendency to expect too much from regulatory programmes based on economic instruments. Direct regulation is still necessary for several environmental problems and a mix of direct regulations and economic instruments is likely to be needed. http://www.rec.org/REC/Programs/SofiaInitiatives/EcoInstruments/sourcebook.html Emission fees and non-compliance fines Environmental charges and taxes are direct payments from polluters and represent a clear application of the “polluter-pays” principle. Environmental charges include fees or taxes that are collected for the “use of environment” or the “right to pollute” within the accepted standards, and they tend to be tied to the conditions stipulated in operating permits. Another form of environmental charges are fines for PAGE 95
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Manual on the Development of Cleaner Production Policies ... - Unido

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