Various Economic Means for Environmental Improvement

1
Various Economic Means for Environmental
Improvement

• Kosuda Keigo
• Monroig Evan
• R.A.Nilantha P.K.
• Samarappuli Nirosha

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Global trend of environmental degradation

• increase of the amount of CO2 in the atmosphere
• acceleration of global warming
• destruction of the ozone layer

We need to preserve the environment!
We need a certain regulation.
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Main characteristic of environmental issue

• External diseconomyAction of a certain economic
  unit that induces a loss to other economic units,
  without performing payment or compensating the
  expense.
• PPP (polluter-pays principle)The idea that
  whoever causes pollution is responsible for the
  cost of repairing any damage.

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Two kinds of regulations

• Direct regulation (command and control)
• This has been achieved by applying direct
  regulatory controls on industry, for instance by
  specifying allowable levels of pollution.
• The basis of the regulatory system is that the
  polluter has little choice - they comply with the
  standard imposed or face penalties.
• This system may be the most appropriate for
  controlling particularly dangerous pollutants.

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Two kinds of regulations (2)

• Economic means (economic instruments)
• This regulation promises to transform the
  pattern of pollution control.
• This aim to control pollution by harnessing the
  power of market incentives, offer a more
  cost-effective, flexible and dynamic form of
  regulation than conventional measures.

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Direct regulation

• Merits
• Immediate effect
• Demerits
• Administration cost is very huge
• Administration cannot identify discharge
  curtailment of expense between companies
• Causal relationship is complicated
• Extent of the impact is too wide

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Economic means

• Merits
• PPP is reflected
• Use of price mechanism is effective
• Efficient distribution of resources is possible
• Applicable from prevention measures to penal
  regulations
• Demerits
• A setup of the optimal tax rates is difficult
• The rate of a low income earner's expense burden
  is large

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Kind of Economics Means

• Transferable (tradable) Permit System
• Fiscal measures
• Measures for older vehicles
• Emission charges
• Quota system on car ownership
• Road pricing (licence)

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Transferable Permits (TP) System
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What is the TP system?

• TP is not a new concept (it has been used in
  fisheries, in the fields of construction and
  water pollution).
• Variety of instruments introduction of
  flexibility into traditional regulation,
  organization of competitive markets for permits

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What is the TP system? (2)

• These various means have in common
• Quantified physical constraints (obligations,
  permits, credits, rights)
• Permission granted to the agents to transfer
  these quotas between
• Activities
• Products
• Places (offsetting)
• Periods of time (banking)
• Other agents (trading)

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Features of TP appropriate for the transport
sector

• More likely to achieve a quantitative objective
  than taxation.
• If the price-elasticity of demand is low in the
  short term or medium term, a TP system is more
  appropriate.
• It allows flexible implementation of control of
  policy and can be used to target local and
  regional problems arising from the transportation
  activities.

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Features of TP appropriate for the transport
sector (2)

• In political terms, systems where permits are
  allocated free of charge may be seen as a means
  of avoiding an additional tax, e.g.. High fuel
  duties in Europe, this can enhance the
  acceptability of the new environment.

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Important points for effective TP

• The heterogeneity of the agents involved in the
  system.
• Marginal costs of pollution abatement must be
  sufficiently different for agents allowing
  profits to be made by the exchange of permits and
  thus letting the market function effectively.
• Clarity the physical basis is clearly defined
• Simplicity for transactions
• Pragmatism the program should be able to evolve

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Main arguments against the use of TP

• Cost of administration over a large number of
  mobile sources
• Transaction cost of transferability.

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Potential for Implementation

• Unitary vehicle emissions
• Fuel standard
• Car ownership
• Car use
• Land-use

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Case study Ecopoint program in Austria
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Background

• NS route Italy Germany
• Major link between Eastern Europe and Western
  Europe
• Ecologically fragile Alpine valleys
• Exhaust emissions cannot readily escape
• Highway noise is intensified
• NOX are 3 times higher than on a plain with
  similar traffic volumes

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Objectives of the Ecopoint Program

• Austria negotiated an agreement with the European
  Union concerning trucks passing through Austria.
• The objectives were to reduce atmospheric
  pollution (NOX) to 60 of its level in 1991 after
  12 years, and to reduce the noise.

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The Ecopoint Program

• Concerns the heavy goods vehicles (HGV) that pass
  through Austria, originating from all EU Member
  States and some other countries.
• Each vehicle has a Conformity of Production
  document (COP) which states its level of NOX
  emissions, and the number of Ecopoints required
  to travel through Austria (October 1, 1990).
• 1 Ecopoint 1g of NOX/kWh

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The Ecopoint Program (continued)

• Ecopoints are distributed annually by the
  European Commission among the Member States,
  which in turn redistribute them among their
  hauliers.
• The unused Ecopoints are transferred through an
  administrative process.
• The Ecopoints are deducted using an electronic
  system (Ecotags, overhead electronic readers).

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Results costs

• Interoperable electronic road charging systems
  targeting trucks exist already, or are being set
  up in several European countries.
• ? the costs will be minimal once these systems
  are already working

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Results benefits

• The number of Ecopoints used by trucks has
  declined more swiftly than the target value laid
  down in the agreement. The program may have
  accelerated the technology shift.

Ecopoints 1993 1999
15 51 2
7 or less 0.1 78
Percentage of trucks paying a certain number of
Ecopoints
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Results shortcomings

• Insufficient coverage of pollution sources
• Trucks going to Austria or coming from Austria
• Light-duty vehicles and buses
• Lack of incentive to use even cleaner trucks
• Because the number of through trips cannot exceed
  108 of the number in 1991 (the 108 clause)
• Too comprehensive measure for addressing the
  preservation of Alpine valleys
• The system targets entire Austria, so the traffic
  may increase in the Alpine valleys as long as it
  decreases in plains

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Conclusions

• It is technically possible to apply a quota-based
  system of permits to mobile sources within a
  defined area, at an acceptable financial cost.
• The points of entry and exit should be few and
  easily controllable (trade-off with the size of
  the area).
• The transfer of quotas between hauliers could
  have been introduced, to reduce the total cost of
  the scheme.