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Environmental Policy Instruments

The document discusses the necessity of environmental policy due to market and policy failures, including externalities, public goods, common pool resources, and non-competitive markets. It outlines various policy instruments, classified into economic, legal, and informative categories, that governments can use to achieve desired environmental outcomes. Additionally, it highlights the importance of market-based instruments that leverage economic signals to encourage environmentally friendly behavior.

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2 views11 pages

Environmental Policy Instruments

The document discusses the necessity of environmental policy due to market and policy failures, including externalities, public goods, common pool resources, and non-competitive markets. It outlines various policy instruments, classified into economic, legal, and informative categories, that governments can use to achieve desired environmental outcomes. Additionally, it highlights the importance of market-based instruments that leverage economic signals to encourage environmentally friendly behavior.

Uploaded by

sambamulopa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Environmental Policy

Instruments
We need first to understand why
environmental policy is needed
 market and policy failures that are linked to the evolution of
property rights.
Among the market failures we have
 external effects,
 public goods,
 common pool resources,
 non-competitive markets and
 imperfect information
Externalities

 Externalities are non-market side effects of consumption or production


such as soil erosion.
 The silting of dams and Lakes are real costs but not carried by those
who cause them.
 This can be seen as a consequence of incomplete property rights.
 If the rivers had owners with the right to clean water, they could sue the
farmers thereby forcing them to consider the effects of erosion.
 The effects would be internalized.
 In Malawi, Lake Chilwa has dried up. In our life time we have seen the
effects of externalities on the environment by experiencing the entire
lake drying right in front of our eyes due to siltation.
Public goods

 Public goods are ‘goods’ or services that we enjoy in common such as


defence, and clean air.
The market tends to undersupply these goods since it is hard to exclude
those who do not pay.
Instead, political processes are needed such as the election of governments
that collect taxes and finance public goods.
Common pool resources

Common pool resources are resources we own in common but the goods
produced with these resources are consumed individually (as private
goods).
Examples may include firewood, building materials, medicinal herbs, fruit
or fodder when the resource they come from is managed as common
property.
The free-riding that can lead to the under-supply of public goods may also
lead to the over-utilization of common pool resources unless institutions are
strong enough to limit access and utilisation.
This is often loosely (or in fact erroneously) referred to as the ‘tragedy of
the commons’.
Non competitive markets

 Non-competitive markets, monopolies or oligopolies are often obstacles


to
the optimal supply of goods. For instance too little may be sold at too high
a price.
 Economics of demand and supply. When you have more goods on the
market what happens to price? When the amount of goods reduces what
happens to the price?
Policy Instruments

 Tools used by government to pursue desired outcomes


 Policy instruments are often classified as Market Based vs Command and
Control ( Turner,2003)
 Others have categorized policy instruments into three
 Economic instruments
 Legal instruments
 Informative instruments
 All nicknamed “carrots, sticks and sermons”
Classification of instruments in the
policy matrix ( World Bank 1997)
Using Markets Creating Environmental Engaging the
markets regulations public
Subsidy Property standards Public
reduction rights/decentralisat participation
ion
Environmental Tradable Bans Information
charges permits/rights disclosure
User charges International offset Permits/quotas auditing
systems
Deposit –refund zoning Labelling
systems
Targeted Voluntary Certification
subsidies agreements
Economic Instruments
 Provide incentives for particular actions without removing individual choice
 Can be both efficient and equitable
 Generally need to be supported by regulatory and technological
instruments
 They can be used to deter environmentally damaging activities, improve
social equity, raise revenue or recover public sector costs
 Instruments for controlling environmental damage include:
 Environmental damage taxes, charges and levies such as emission charges,
environmental protection charges, development taxes
 Input taxes
 Environmental damage rights and credits such as emission rights
 Public spending in form of environmental improvement Subsidies
 Tax refunds/concessions and tax breaks such as capital allowances for enviro
investments, tax rebates, grants for enviro invests
 Tradable permits
 Deposit/refund schemes that provide people with disincentives to dump used
Legal instruments

 Regulatory instruments are often chosen over economic instruments


where a higher level of certainty of outcome is required
 Controls of emissions, activities use of resources and toxic substances
through bans, permits and quotas and licensing
 control on the choice of technology or standard for environmental
performance
 Extended producer responsibility where producers are made liable for
the environmental effects of their products
 Mandatory enviro. Management standards and audits
 Mandatory enviro. Labelling or product standards
 Mandatory training
 Operate licencing
Market based Instruments

 These are instruments that encourage behavior through use market


signals rather than explicit directives. Use prices and other economic
variables to provide incentives for polluters to reduce or eliminate
negative environmental externalities
 Tradable permits or pollution charges

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