International Review of Waste Management Policy - Department of ...

33
agencies), and occasionally under the threat of the application of one of the
above. The OECD differentiates between four types of initiative: 42
• Unilateral commitments made by polluters / producers;
• Private agreements between polluters and pollutees (essentially,
victims);
• Environmental agreements negotiated between industry and public
authorities (or their agents);
• Voluntary programmes developed by public authorities, to which
individual firms are invited to participate.
Whatever the configuration of policy, it is important to note three things:
1) None of the policies act in isolation;
2) The distinction between categories is far from clear cut. For example, tradable
allowances operate in either ‘cap-and-trade’ form or ‘baseline-and-credit’ form. In
either case, the economic incentive is established through the magnitude of the
cap, or the required change from baseline. In other words, there is a regulatory
(target) component to the instrument as well as a economic / market based
incentive (in the form of trading); and
3) Importantly, when new policies are introduced, they essentially alter the economic
calculus confronting actors in the economy. The calculus in terms of the potential
benefits associated with evasion / illegal behaviour essentially change.
Consequently, incentive / target based instruments need to be supported by
adequate enforcement mechanisms, preferably anticipating the nature of illegal,
quasi-legal and evasive behaviour to ensure that perverse consequences are kept
to a minimum. It is not surprising, therefore, that the list of economic instruments
elaborated by the OECD includes a growing number related to compliance,
enforcement and liability.
2.2 What is the Right Policy Mix?
Attempts to elicit ‘the best’ policy mix have tended to focus on theoretical
considerations. In addition, the evaluations tend to be dominated, not without some
reasonable justification, by economic concerns. In essence, it is generally accepted
that, in perfect markets, a first best solution is to apply taxes on all externalities so
that the market internalises, within market prices, the costs of environmental
damages. Three clear problems arise:
a) From the economic perspective, markets are not all perfect (the problem of
market failure); 43
42 OECD (2003) Voluntary Approaches for Environmental Policy: Effectiveness, Efficiency and Usage in
Policy Mixes, Paris: OECD.
43 The issue of market failure is frequently treated, in what one might call economic orthodoxy, as
though it provides a framework for analysis accepted by all economists. This is not entirely true. From
International Review of Waste Policy: Annexes