Implementation of Incentive-based Instruments

1
Implementation of Incentive-based Instruments

• Environmental Economics lecture 8

2
Examples

• Sources
• Primary U.S. Stavins, 2000
• Additional examples Hahn, 1989 Tietenberg, 2003
• Policies
• Permit-based systems
• Fee-based systems
• Subsidies
• Market improvement or creation
• Subsidy reduction

3
Permit-based systems
Policy Economic Savings
Emissions trading for criteria pollutants 5-12 billion (over 25 years)
Lead phase-down 250 million innovation
SO2 trading 1 billon/year
4
Pure charge-based systems

• Very few policies that really look exactly like a
  Pigouvian tax, except
• Household waste (Pay as you throw)
• CFC charges
• Non-compliance penalties might act like tax if
  penalty level is set low enough
• Diesel emissions standards
• Deposit-refund systems
• Bottle bills
• Car batteries

5
European effluent charges

• Hahn
• France
• Germany
• Netherlands

• Tietenberg
• France
• Japan
• Sweden

6
Other charge-based systems

• User Charges
• Parks, hunting and fishing licenses
• Sales Excise taxes
• Gasoline
• Tires
• Insurance premium taxes

7
Other price-based tax differentiation

• Hybrid cars
• Renewable energy sources
• Tax exemptions for alternative fuels
• Income tax rules for mass transit

8
Market Improvement Creation

• Create new markets
• Water rights
• Liability Rules
• Information Programs
• Green lights
• TRI
• Energy Star

9
Subsidy Reductions

• Timber
• Fossil Fuels

10
Why so few market-based policies

• Stock flow problem in creating regulations
• Resistance from interest groups
• Environmentalists
• Regulated Firms
• Resistance from public

11
Mixed performance

• Unrealistic expectations
• See Tietenberg, table 16.2
• Poor design
• Limitations at the firm level learning curves

12
Increased Enthusiasm for market-based incentives

• Some success stories (SO2,, lead phasedown)
• Increased control costs
• Political shifts
• Left more accepting of markets
• Right more accepting of environmental issues