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Various instruments used in environmental economics to address pollution, including institutional approaches, economic incentives, and their evaluative criteria. Topics covered include command and control, cost effectiveness, dynamic efficiency, and ancillary benefits. The document also discusses flexibility, static and dynamic concerns, political dimensions, and facilitation of bargaining.
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Institutional approaches
Command and Control
Economic incentive (Market-based)
Cost effectiveness Long-run effects Dynamic efficiency Ancillary benefits Equity Flexibility Costs of use under uncertainty Information Requirements
Flexibility
Agency flexibility
Farm or firm flexibility
Processor and contractor flexibility
Tradeoffs
Minimize the environmental costs of the residuals
Minimize the abatement costs to regulated parties
Minimize the administrative costs of monitoring and enforcement
Additional Criteria
(Russell and Powell)
Static efficiency: heavy institutional demands
Low political problems and institutional demands: not cost effective
Political Dimensions
Distributional implications
Perceived ethical message
Perceived fairness
Perceived a priori risks
To agency: failure to achieve goals, freezing current technology too long
To regulated parties: false convictions, ratcheting down of requirements
Institutional Approaches
Facilitate the market
Facilitation of bargaining
Specification of liability
Development of Social Responsibility (Moral Suasion; Provision of Information)
Facilitation of Bargaining— Disclosure of Information Strategies
Establish mechanisms for discovering environmental risks
Assure the reliability of the information
Publicize the information
Act on the information
Examples
The Toxic Release Inventory
Drinking Water Consumer Confidence Reports
Indonesia’s Public Disclosure Program
Facilitation of Bargaining
Change Property Rights
Bundle of Sticks analogy
Selling conservation easements, water markets, change PR so owner can benefit from conservation
Command and Control Instruments
Replace the Market Input Restrictions Technology Controls Output Quotas Emission or Residual Requirements Ambient Requirements Spatial or Vocational Requirements
Input, Restrictions
Prohibit inputs E.g., Prohibit the use of certain chemicals E.g., Prohibit the use of certain sources of water E.g., Asbestos in school construction
Technology Controls
Technology-specification ( for production, recycling, or waste treatment)
Design Standards
Best Management Practices
Best Practicable Means
Best Available Technology
Process Controls or Prohibitions
Technology Controls
Not usually cost-effective
Why?
Because least cost abaters not abating the most
Technology Controls
Tend to be favored in nonpoint source policies
Why?
Because of TC and uncertainty
Because missing science about links between individual farm/firm behavior and ambient pollution
Output Quotas
Product Prohibitions (PCBs)
Location
Zoning Relocating
Economic Incentive Instruments
Facilitate the market Emission charges (taxes) or Subsidies Idea: Raise the costs of polluting or reduce the costs of pollution control
Emission Charges (Taxes) and Subsidies
Taxes on emissions do not have the same effect as taxes on outputs or inputs Can be more expensive for firms than regulation Measurement of individual emissions at least cost is a precondition Political acceptability tends to be low in U.S.
Emission Charges (Taxes)
and Subsidies
Advocated by economists to achieve a pollution target Can lower emission to where MC= MD Minimizes aggregate costs by Internalizing the externality Gives Incentive to Develop New Technologies Encourages substitutions (e.g. natural gas for coal)
Emission Charges (Taxes)
and Subsidies
Taxes on emissions not have the same effect as taxes on outputs or inputs Measurement of individual emissions at least cost is a precondition Political acceptability tends to be low in U.S.
Emission Charges (Taxes)
and Subsidies
Tax or price = MD at the efficient level of pollution Change overtime if abatement costs change overtime Uniform over all polluters (i.e.. All have same cost at the margin Assumes damage is independent of time and place and is uniformly mixed pollutants If not, then a tax for each firm
