Means and methods of environmental regulation

Transcription

1 Part four Means and methods of environmental regulation George Horváth Department of Environmental Economics Building Q, room A-235. Means of environmental regulation Indirect (economic means) Allocation of entitlements and property rights (including the right to pollute) Delegating liabilities and responsibilities (for compensation of damages) Direct means (Command & Control) Indirect (economic) means Command: a directly applicable, technical or technological regulation, provided by the regulatory authority by means of laws or standards. Control: the authority in charge controls the execution of the commands, and enforces their application. Putting a price tag on the environment The State determines the price of using the environment and the means of payment The State may also order the transfer (payment) to be made between market actors.

2 Allocation of property rights Delegating liability and It is generally in the proprietor s interest to maximise the value of their property Should anyone attempt to reduce the value of that property, they would be entitled to take legal action to protect their interest The value of an environmental resource may be preserved if property rights and the rights of use/management are clear. Nobel Prize laureate Elinor Ostrom conducted research into the practical implications of this. The users of the environment are responsible for the consequences of their activities. Liability under civil law (entitlement to compensation) Liability under administrative law Liability under penal law (criminal negligence) It is up to the courts to establish responsibilities in each particular case Moral incentives Direct means: why are they popular? These rely on the moral and ethics of citizens: influence on their actions is done by referring to morality and ethics and citizen. These may also rely on some activities becoming fashionable. These generally consist of voluntary action taken for the improvement of the environment Command & control is clear, straight-forward, directly applicable It reflects very clear environmental goals and targets It conveys the message that pollution is bad The general public perceives that the government has taken effective steps towards a better quality of the environment

3 Types of direct means: permits e.g.: Environmental Impact Assessments Use of the environment requires a permit from an authority Before the permit is issued, the authority makes sure that the future activity would not threaten or overburden the environment Types of direct means: technical requirements i.e. compulsory installment of catalytic converters on motor vehicles, banning the use of certain substances (e.g.: DDT or freons) They can be positive (proscribing, naming the technologies that may be used), and negative (banning, listing technologies that may not be used) They may be targetting substances, chemicals, technologies and procedures. Types of direct means: performance criteria e.g. emission targets/limits and immission limits This establishes an acceptable maximum to the level of pollution, and the extraction and use of resources The user of the environment (polluter) may use any technology they wish to, as long as they do not exceed the limits on the use of the environment (e.g. emissions) How do direct means work? The regulator determines a legally binding level of performance, by controlling procedures, activities and performance. This regulation reduces the freedom of choice of the environmental user, and as they need to comply with targets, they need to adapt their behaviour accordingly. The pollution is essentially divided into two parts: a legal and an illegal part. Compliance with the legal provisions must be monitored and verified.

4 Economic means Emissions charges Emissions charges Product charges Deposits Environmental liability insurances Differentiation of service charges Environmental taxes Differentiation of existing taxes Subsidies System of Tradeable Permits (quotas) The amount that has to be paid depends on the quantity of polluters emitted, in natural units (tonnes, m3, mg/m3) Charge due = quantity price per quantity These are based on Pigou s theorem It is fully compliant with the polluter pays principle We need to be capable of establishing or measuring the quantity of pollutants emitted. Product charges Which one to choose? A charge is due for the manufacture or consumption of a polluting product This is essentially what Pigou s theorem in its original form is all about Advantage: it is frequently easier to administer the quantities of products rather than the amount of pollution Disadvantage: this may not be fair, as the same product may be manufactured with technologies of different pollution. Less polluting technologies will be punished. In choosing between emissions charges and product charges, we must weigh up two conflicting factors The question of fairness: how different are the pollution potentials of the various technologies used in manufacturing? In other words: how well is the polluter pays principle upheld? Transaction costs: what costs do we incur in measuring and controlling the basis of the charge (i.e. either the emissions, or the products)

5 An example: car exhausts Deposits We would have to determine the pollution of every single vehicle, and each driver/owner would have to declare their pollution. This would be ridiculously costly. Though how much fuel cars burn varies because of several factors (speed, engine size, number of people carried, etc.), however, how much pollutants are produced by burning a volume of fuel varies very little. The problem of fairness may be considered negligible in this case, and therefore, we re better off charging a product charge. These are practical when it isn t the normal operations that cause concern, but possible emergencies, deviation from the normal technology or unforeseeable events (e.g. nuclear reactor malfunction) At the commencement of the activities, the operator places a deposit in an account designated by the State (or other authority). If no pollution is caused, the deposit is returned when the activities are ceised If pollution is caused, recovery and reparations will be paid from the deposit Environmental liability insurances Differentiation of service charges These can be applied in the same cases as a deposit could be. The state determines which activities must be covered by an insurance, but not the amount of the insurance. The insurers assess the risks and possible damages, and they determine what insurance fee will be required. If an accident or emergency happens, it is the insurer s to pay for the damages. Service charge: the amount to be paid for the operation of a technology and the connected services, for environmental protection, the reduction of environmental stress. (This in itself is not an environmental measure) As these charges are frequently set by the state or a local council, costs of covering externalities may be incorporated into them. (e.g. selective waste collection may be offered for free to encourage use, so the costs of this collection are incorporated into the charges on regular waste colleccion

6 Environmental taxes Differentiation of existing taxes The obligation of payment is not proportional to the actual environmental pollution/stress. The basis of the tax is another property of the polluter (e.g. income). The tax is levied to raise funds for the expenses of state or local council environmental tasks/duties No new tax is levied, but an existing tax is altered whilst considering environmental aspects. E.g.: Environmentally friendly or less polluting products may be moved to a lower VAT category Some investments serving environmental protection may be written off / deducted from corporate taxes Emissions trading schemes Emissions trading schemes Command and control traits meet market logic Functioning: We determine the maximum (or net) level of pollution for a given area or an industrial sector (this is called netting) We divide the net amount of pollution between the polluters, by means of issuing emission permits (quotas). Any polluter may only pollute as much as the quotas entitle them to. Polluters are free to trade quotas between them: those with a surplus will want to sell them, whilst those with a shortage will want to buy them. The driving force behind the emissions trading schemes is the difference in Marginal Abatement Costs of the various polluters. For some polluters it will be cheaper to cut their pollution and they will sell their surplus quotas. Those polluters who find it more expensive to cut back than to buy quotas will buy quotas instead.

7 Property rights and entitlements Motivating powers of property rights According to Wesley N. Hohfeld there are several different kinds of property rights: The right to manage a resource, i.e. the right to decide on the use and means of use of a resource The right to exclude: the proprietor decides what rights may be exercised by others The right to transfer: the right to manage and to exclude may be transferred to others. An entitlement is may not necessarily mean ownership: the right to develop (or easement) does not include ownership, only the right to decide on how to modify an asset. Dynamic motivating effects: the returns on an investment will undoubtedly belong to the holder of the entitlement; those who have not invested will not be able to reap benefits. Static motivating effects: the future benefits will also belong to the holder of the entitlement, therefore he will be encouraged to preserve his capital rather than to convert it to materials flow quickly. Let us remind ourselves: the Tragedy of the Commons was caused precisely by these two factors. Limits to allocating property rights Where is this useful? As a condition, stakeholders must be able to negotiate deals. However, if there are too many polluters, or too many stakeholders are getting polluted, these deals will probably fail because of high transaction (negotiation) costs. In some particular cases other platforms of exchange exist (e.g. bourses), which may reduce these transaction costs. It is a useful means of regulating common pool resources, for use by smaller communities Nature Conservancy protects endangered habitats by purchasing them. Tradeable permits systems in the EU and the US Development rights (easement) globally

8 The motivating powers of liability How can determining liabilities and responsibilities have a motivating effect if they are determined after the damage has been done? To those in the same line of business, any legal case on reparations will serve as a precedent: they face the same punishment in a similar case. Potential polluters will weigh up the risks of damages, the costs of preventative measures, and will take decisions accordingly. Costs associated with the damage will depend on the probability of the damage and the magnitude of the damage. Polluters will carry out all such preventative measures which cost less than the probable damages caused by not doing so The limits to establishing liabilities Courts capacities are limited: each and every case of pollution can t end up in court. Courts capacities in information gathering and processing are also limited, while the associated costs of information are high. Therefore, courts cannot always decide effectively. If a long time passes between the act and the punishment, it is possible that the perpetrator can no longer be held accountable (and thus, a moral hazard appears). Managing risks: insurances Where may these means be useful? To mitigate the negative effects of environmental damages, insurances may be taken out by the affected parties. Possible victims of pollution may take out an insurance on probable damages Polluters may take out a liability insurance, mitigating the risk assumed by the polluter. Severe and wilfully caused environmental damages are penalised by the criminal code in several countries. Even the causers of unintentional environmental damages are to pay reparations in most countries.

9 Moral incentives These depend on the ethics and morals of members of society People have a basic knowledge about what may be done and may not, i.e. what society would accept. A clear indication of the values is necessary, so people may behave accordingly. These rely on what is right and what is wrong Examples: Corporate Social Responsibility: this will depend on giving back something to society and caring about the environment Voluntary agreements: contracting parties mutally incur a comparative disadvantage Club rules, etc.