Various Economic Means for Environmental Improvement

1. Various Economic Means for Environmental Improvement Kosuda Keigo Monroig Evan R.A.Nilantha P.K. Samarappuli Nirosha

2. emissions of CO2 Mln ton 25,000 20,000 15,000 10,000 5,000 0 1980 1985 1990 1995 1996 1997 1998 1999 year OECD non - OECD 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.

3. Main characteristic of environmentalissue • 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.

4. 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.

5. 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.

6. 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

7. 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

8. Kind of Economics Means • Transferable (tradable) Permit System • Fiscal measures • Measures for older vehicles • Emission charges • Quota system on car ownership • Road pricing (licence)

9. Transferable Permits (TP)System

10. 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…

11. 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)

12. 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.

13. 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.

14. 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

15. Main arguments against the use of TP • Cost of administration over a large number of mobile sources • Transaction cost of transferability.

16. Potential for Implementation • Unitary vehicle emissions • Fuel standard • Car ownership • Car use • Land-use

17. Case study: Ecopoint program in Austria

18. Germany West East Italy 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

19. 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.

20. 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

21. 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).

22. 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

23. 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. Percentage of trucks paying a certain number of Ecopoints

24. 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

25. 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.