Environmental and Transport Policy

1
Chapter 12
Sawyer The UK Economy 16e

• Environmental and Transport Policy

2
Nature of environmental problems

• Environmental problems arise when the integrity
  of the life support systems and amenity, are
  compromised by human activity.
• A major class of environmental problems is
  pollution, the discharge of waste products into
  the atmosphere, bodies of water or to land.
• Another important class of environmental problems
  is the destruction of wildlife and its habitats.
  Wildlife losses reduce biodiversity, which is an
  important life support system.

3
Biodiversity

• Biodiversity comprises three concepts
• species diversity the diversity of plant and
  animal species present on earth
• ecosystem diversity an ecosystem is a system of
  interacting and inter-dependent plants and
  animals
• genetic diversity -- the diversity of genetic
  material that the earth contains. Biodiversity is
  important for maintaining and advancing human
  progress.

4
Sustainable development

• Debates on environmental policy has focused on
  the idea of sustainability and sustainable
  development. This debate springs from the belief
  that current levels of global economic growth is
  putting the life support systems at risk.
• Factors leading to these fears.
• The discovery of holes in the stratospheric
  ozone layer resulting from supposedly inert
  substances commonly used in refrigeration and air
  conditioning. The stratospheric ozone layer
  performs a vital function in filtering out
  harmful ultra-violet radiation.

5
Sustainable development

• The rate of destruction of tropical rain forests.
  The majority of species of plants and animals on
  earth are found in these habitats, and tropical
  forest plants have been the source of numerous
  vital pharmaceuticals and foodstuffs. The loss of
  these forests posed a serious threat to
  biodiversity and led to fears about the impacts
  on world climates.
• Global climate change, global warming, stemming
  from the emission of greenhouse gasses. The most
  important of these is CO2 from the combustion of
  hydrocarbons in electricity generation and in
  motor vehicles. Deforestation is also an
  important source of CO2.

6
Causes of environmental problems

• The traditional view of environmental economics
  is that environmental problems arise as a result
  of the presence of externalities.
• Externalities are commonly described as impacts
  on the utility, cost or production function of
  one economic agent by variables under the control
  of another economic agent and where the effect is
  not the subject of a market transaction.
• Pollution is generally a case of an externality.

7
Causes of environmental problems

• The externality view of pollution has been
  challenged on the grounds that the key problem is
  not a failure to take account of such effects but
  a failure to understand them or even to be aware
  of their existence.
• One traditional economic argument is that the
  prime cause of external effects is the inadequate
  definition and policing of property rights, since
  otherwise externalities would always be
  eliminated by market activity in the form of
  bargaining.
• Two further important criticisms of the standard
  economic view of environmental problems given so
  far which that should be mentioned.
• the assumption that government intervenes with
  the intention and ability to correct the problem
• application of this approach requires that we
  know how much compensation sufferers from
  environmental problems would need to fully
  compensate them.

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Pollution policy

• The objective of pollution control policy,
  therefore, is to prevent damage by containing
  pollution levels to the absorptive capacity of
  the environment. The authorities concerned
  achieve this by specifying pollution targets and
  controlling the activities of polluters to
  achieve them.
• The policy issues concern the method of control,
  what is known as instrument choice, and how to
  monitor the effects of that control.

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Pollution policy

• Instrument choice
• The economics of instrument choice for pollution
  control depend on the nature of the discharge
  source? Is it a point discharge or a non-point
  discharge?
• The conditions for point pollution can be
  summarised as follows
• the locations of the discharge sources are known
• they are relatively few in number so that the
  costs of targeting them are not excessive
• the discharges are fairly regular in timing, not
  sporadic and unpredictable
• they can be detected and measured with current
  technology.

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Pollution policy

• Point pollution
• There are then three basic control instruments
  that can be used
• A regulation backed by legal penalties usually
  fines.
• A pollution tax
• A tradable permit. A permit to discharge
  specified amounts of a pollutant. These may be
  bought and sold by polluters.

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Pollution policy

• The problem with a pollution tax is that to set
  it to the correct level, the control authority
  needs to know the polluters abatement cost
  curves. This information is not readily available
  to it. If it asks the polluters they will
  probably understate their real costs of abatement
  since that will reduce the tax that they pay.
• The information problem is avoided by allowing
  the gains from trade to be realised. The
  authority fixes the standard as in the regulation
  but issues it to the polluters in the form of
  entitlements to pollute, which they can trade
  with each other. This is socially efficient
  because each polluter knows its costs of
  abatement and will trade if the price is right.
  This is the third instrument, the tradable
  permit. By creating a market in pollution permits
  or entitlements the authority is able to achieve
  the socially efficient distribution of pollution
  abatement without the information needed for the
  pollution tax.

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Pollution policy

• The conclusion that permits are more efficient
  than regulation needs further examination. The
  superiority of tradable permits arises because
  permits minimise the costs to polluters of
  meeting a given specified abatement target. But
  these are only part of the social costs of
  pollution control. There are in addition the
  costs to the authority of monitoring and
  enforcing its policy. Efficiency is achieved by
  choosing the instrument that minimises social
  costs of meeting the pollution target.

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Pollution policy

• Social costs polluters costs authoritys
  costs
• There are reasons for supposing that the
  authoritys costs will be lower for regulation
  than for either taxes or tradable permits.
• With a regulation the authority is monitoring to
  answer a simple question are the emissions at or
  below the standard set? It does not need to know
  the actual level of emissions provided that they
  are within the permitted limit and further action
  is only required when a breach of regulation
  takes place. With a tax, on the other hand, the
  authority needs to determine the actual emissions
  in order to calculate the tax and in addition has
  to collect the tax. With a tradable permit system
  it has to determine the actual emissions and
  ensure that the polluters possess permits or
  entitlements for those emissions at the time they
  take place. These are more complex control
  problems that will require more sophisticated
  measurement and a more elaborate administration.

14
Pollution policy Water

• The responsible body in England and Wales is the
  Environment Agency. The starting point for the
  system is a set of targets for the water quality
  for controlled waters rivers, estuaries and
  large lakes known as Water Quality Objectives
  (WQOs). Industrial premises discharging into
  controlled water must have a discharge consent.

15
Pollution policy Air

• Control of air pollution is divided between Local
  Authorities, the Environment Agency and the
  Pollution Inspectorate. Emissions of sulphur
  dioxide, nitrous oxides and particulates are
  subject to a similar system to water. They are
  monitored at the chimneys, maximum volumes and
  concentrations of chemicals are specified and the
  polluters are liable to prosecution and fines if
  they exceed the limits. More toxic substances
  such as PCBs and the major sources of pollution
  such as large combustion plants and major
  chemical works are subject to a different system
  known as Integrated Pollution Control (IPC).

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Pollution policy

• Integrated Pollution Control
• With IPC the objective is to reduce the pollution
  to the lowest level possible and to choose the
  means of disposal which poses the least threat to
  the environment. This means that the medium to
  which the pollution is discharged can be varied
  to what is called the best practical option
  (BPO). Within BPO another acronym applies,
  BATNEEC, best available technology not entailing
  excessive economic cost.
• Land
• The principal issue concerns the disposal of
  waste, domestic and industrial to landfill sites.
  By EU Directives the UK Government is attempting
  to increase the proportion of waste that goes to
  recycling rather than land fill. Local
  Authorities have been given recycling targets and
  a tax is levied on the volume of waste going to
  landfill. This is the only current example of the
  use of a tax to control point pollution.

17
Pollution Policy

• Non-point pollution
• With non-point pollution it is not possible to
  directly measure and target pollution. Recourse,
  therefore, has to be to indirect methods.

18
Transport Policy

• The transport sector is a very major cause of
  environmental problems, including air pollution,
  noise, water pollution from run-off, and visual
  intrusion
• The ideal charging system would charge a rate per
  vehicle kilometre that would vary with the
  emission characteristics of the vehicle and with
  where and when it was used. Such systems are now
  technically possible in the form of electronic
  road pricing which, although developed primarily
  to deal with problems of congestion, could also
  be used to reflect the environmental costs of
  road use.
• It is likely that any such systems introduced for
  the foreseeable future will be confined to large
  cities and will be much simpler flat rate charges
  for entering an urban area, with only limited
  differentiation by vehicle type.

19
Transport Policy

• A more significant development is the
  governments proposals for introducing a charge
  per kilometre for heavy goods vehicles
  administered by satellite based location
  technology, which would pave the way for much
  more differentiated charges. The government has
  also announced a review of inter-urban road
  charging, though with any reforms being still
  well into the future.
• The final approach discussed above, that of
  tradeable permits, appears extremely complicated
  for a system involving millions of different
  vehicles

20
Transport Policy

• For many years, government policy towards roads
  was what has been described as predict and
  provide.
• An important part of this so-called 'new realism'
  in transport policy was an appreciation of
  environmental constraints, but it was also argued
  that in purely practical and fiscal terms it
  would simply not be possible to cope with
  forecast traffic growth by increasing road space.

21
Transport Policy

• The key features of the July 1998 White Paper
  were
• An emphasis on integration between and within
  modes and between policy areas - transport,
  environment, land use, health, education.
• The introduction of new five year local transport
  plans, produced by local authorities to show how
  the objectives of transport policy would be
  achieved.
• The establishment of a strategic rail authority
  which directly contributes to the funding of new
  rail infrastructure as well as being responsible
  for refranchising passenger services on the basis
  of improvements in service rather than purely
  emphasising minimisation of subsidies.

22
Transport Policy

• The promotion of bus quality partnerships or
  quality contracts in order to make bus transport
  a more attractive alternative. Quality
  partnerships are agreements between local
  authorities and bus operators that both will
  contribute to increased services, for instance by
  the local authority providing more priority and
  better information, and the operator new
  vehicles.
• A new appraisal framework to be applied to
  government funding of all modes of transport, in
  order to achieve a better balance of objectives.
• Powers for local authorities to introduce road
  pricing or a tax on non-residential parking and
  to retain (most of) the revenue to finance other
  transport measures.

23
Transport Policy

• The major new development since the White Paper
  was the publication of the 10 year transport plan
  in 2000 (DETR, 2000). This foresaw a major
  increase in spending on all modes of transport,
  including expansion of trunk road and motorway
  capacity, local road maintenance, a major
  increase in heavy rail spending and some 25 new
  light rail schemes.

24
Wildlife policy

• Problems of wildlife policy properly viewed as
  policy failure, a consequence of inappropriate
  Government policies.
• More than 90 per cent of the land in Britain that
  is not built on is agricultural land. Most of the
  remainder is plantation forest. The only areas
  that might under some definition be called wild
  are the inter-tidal zones, the tops of some of
  the highest mountains and some small off-shore
  islands. In consequence much of Britains
  wildlife exists on agricultural land and
  agricultural policy is central to its
  conservation.

25
Wildlife policy

• Agriculture development over the last fifty years
  has been characterised by two inter-related
  processes intensification and specialisation.
  These processes have led to large-scale losses of
  wildlife and wildlife habitats. Habitats have
  been lost by the destruction of hedgerows and
  farm woodlands, the ploughing up of old
  grassland, the drainage of wet meadows and
  marshland, the replacement of hay meadows by
  temporary grass and arable crops and the
  ploughing of stubbles for winter-sown cereals. In
  addition to the destruction of habitat, intensive
  use of pesticides and fertilisers has further
  destroyed wildlife. Survey data has shown large
  reductions in the populations of almost all
  species of farmland birds and virtual extinction
  of many plants and insects.

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Wildlife policy

• Wildlife might be viewed as a positive
  externality of the agricultural industry, a
  by-product of farming that has the
  characteristics of a public good.
• Wildlife conservation in England is the
  responsibility of a statutory body English Nature
  (EN), answerable to the Department of the
  Environment. The Countryside Council for Wales
  and Scottish National Heritage fulfil the same
  role in Wales and Scotland. These bodies
  designate Sites of Special Scientific Interest
  (SSSIs) that need protection. The basic
  instrument for protecting SSSIs is a management
  agreement with the owner of the land. The owner
  agrees to manage the land in ways that protect
  the scientific interest in return for a payment
  based on the profits she would make by damaging
  the site. If it were ploughed up the plants would
  be destroyed but the owner would receive higher
  profits. The payment would be the difference
  between the profits from the two uses of the land.

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Wildlife policy

• This system of protection has been subject to a
  number of criticisms
• Management agreements are voluntary and for a
  limited period.
• The owner is compensated for losses from
  protecting the site. In contrast polluters are
  not compensated for their losses from reducing
  pollution and instead can be fined for polluting.
  
• Wildlife habitats are fragile and easily damaged
  and the damage is often irreversible.
• There is a problem of moral hazard the landowner
  can take action which damages the scientific
  interest and blame it on natural causes.
• EU legislation takes a different approach to
  protection. The Habitats Directive is concerned
  with protecting biodiversity from deliberate
  destruction from economic activities such as road
  building, urban development, mining and
  quarrying.

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Cost Benefit Analysis

• There are a number of methods that may be used to
  produce money values of environmental effects.
  The most common are
• estimates based on preferences revealed in
  market transactions (revealed preference
  methods).
• methods based on hypothetical questions (stated
  preference methods).
• methods based on avoidance costs.

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Cost Benefit Analysis

• The methods used and the results obtained from
  environmental valuation remain highly
  controversial and their use in practical decision
  taking rare.
• For instance, in the road sector, where a form of
  cost-benefit analysis is applied to all major
  projects, the only costs and benefits quantified
  in money terms are capital and maintenance costs,
  vehicle operating costs, journey time savings and
  changes in accidents.
• Environmental effects are assessed in physical
  terms and a 'score' is attached to the overall
  environmental impact of the road (on a seven
  point scale ranging from large beneficial to
  large adverse). The resulting scores relating to
  all the objectives of road investment are then
  subjectively assessed to produce a decision.
  Whether this approach leads to too much or too
  little emphasis being placed given on
  environmental effects is a matter of hot debate.

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The global environment

• Global environmental impacts are particularly
  problematic to deal with because the impacts of
  pollutants emitted in one country have impacts on
  citizens of other countries.
• A tendency for each country only to take action
  to curb emissions to the extent that it is
  justified by the benefits to their own citizens.
• In the case of global warming, international
  negotiations led to the Kyoto Protocol, which was
  agreed in December 1997. Under this, the ECU
  collectively agreed to cut greenhouse gas
  emissions by 8 per cent below 1990 levels by
  2008-2012. Subsequent negotiations concluded that
  the UK had an above average scope for cutting
  emissions and that its target should be a 12.5
  per cent cut. However, the British government has
  set itself the tougher target of reducing
  greenhouse gas emissions to 20 per cent below
  1990 levels by 2010.

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The global environment

• Global warming from carbon dioxide emissions is
  clearly an area in which the potential for
  pricing as a way of allowing for environmental
  costs is greatest. Carbon has the same effect in
  terms of global warming wherever and whenever it
  is emitted, and, therefore, a simple tax on the
  carbon content of fuels, would appear to be the
  most efficient instrument way of achieving the
  target.
• The effect of increased energy prices on
  consumption in the transport sector in the long
  term appears to be substantial, with a 10 per
  cent increase in the price of fuel leading to a
  reduction in motoring of the order of 3 per cent,
  and an improvement in the fuel efficiency of cars
  of a similar magnitude.