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Economic Incentives for Sustainable Development

This article discusses Ecologic Foundation's work on economic incentives for sustainable development, including reports commissioned by the NZ Business Council for Sustainable Development and projects funded by FRST. It explores the advantages of incentives, such as lower compliance costs, innovative approaches, and conflict prevention. Topics covered include tradeable resource recovery certificates, congestion pricing, tradeable water permits, Kyoto carbon charge, and cleaning up urban air.

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Economic Incentives for Sustainable Development

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  1. Economic Incentives for Sustainable Development Guy Salmon Ecologic Foundation 15 June 2004

  2. Ecologic’s work on incentives for sustainable development • NZ Business Council for Sustainable Development commissioned a report from us • FRST has funded two projects: - understanding barriers to adoption - comparing NZ with Nordic countries.

  3. Economic Incentives for Sustainable Development • Sustainable Development is about economic growth that takes proper account of environmental effects and is socially responsible • Economic incentives help to reconcile these potentially conflicting objectives by making it easier to achieve them simultaneously • Price and trading mechanisms – firm about outcomes, flexible about how to get there.

  4. Advantages of Incentives • Incentives give businesses and individuals choice about how to comply • This lowers the total compliance cost • It also stimulates innovative approaches • Can pre-empt conflict with stakeholders • Mainly useful for environmental goals but can also be used where social goals are important.

  5. A Value Proposition for Business • More accurate pricing discourages waste generation & excess resource consumption • This releases more resources for growth • With revenue recycling, eco-efficient households and businesses can be better off than they were before.

  6. A Value Proposition for Business • Creates sustainable business opportunities • Strengthens the competitive advantage of sustainable business

  7. Tradeable Resource Recovery Certificates • Tackle our waste mountain • Level the playing field

  8. Tradeable Resource Recovery Certificates • Certify TRRCs where sustainable resource recovery has occurred • Oblige waste disposers to surrender TRRCs at the landfill gate • Allow sale & purchase of TRRCs • Increase the recovery obligation with experience.

  9. Congestion Pricing • Singapore: 95% of cars = 45kph + • Melbourne: 13-19 minutes now saved on average trip • London: Including bus service upgrade, traffic reduced by 20% • 26 other cities have announced plans.

  10. Congestion Charges • How it works: the marginal driver faces the costs he/she imposes on other road users • We should develop our own approaches for NZ cities • HOT lanes to provide a trial?

  11. Congestion Pricing:Equity Issues • Impact depends on specifics of local design, and use of revenues • Existing system not equitable • Should be able to achieve improved equity outcomes with better pricing.

  12. Tradeable Water Permits • Potential to improve resource use and enable allocation to new users • Possible now – sec 136 RMA • Only Oroua Plan and Proposed Waikato Plan have adopted TWPs • Barriers to wider adoption?

  13. Tradeable Water Permits • Need to consider potential for localised impacts, eg from intensification • Amend RMA to separate allocation decision from the effects management decision • Then trade allowances subject to consents • Question of resource rent should be faced.

  14. Tradeable Water Permits • TWPs are not appropriate in every case, but – • Nelson, Canterbury waters overcommitted – new users cannot access water • Waitaki River – Project Aqua vs irrigation • Water markets could address Dr Cullen’s concern that projects with nationally important benefits should progress • Markets a better approach than “waters of national importance.”

  15. Ensuring A High National Benefit Project Can Prevail • Highest net national benefit should prevail in allocation decisions • If such benefit exists, market will deliver • But sec 5 requirements, eg to avoid, remedy or mitigate adverse effects, should apply equally to all projects whether national or local

  16. Kyoto Carbon Charge and Associated Tax Reductions • Aim is to influence growth toward less emissions-intensive path • Revenue from up to $25/t CO2 charge in 2007 • Plus revenue from sale of forest credits • Revenue: ~ $380m @ $10/t ~ $940m @ $25/t

  17. Kyoto Carbon Charge: Potential Tax Reductions • 6% reduction in company tax, or • 2% cut in GST, or • 3% cut in lowest tax rate, to 16.5%, or • 1.5% cut in all personal income & company tax. • Energy-efficient households and businesses would come out ahead.

  18. Cleaning Up Urban Air • 28 dirty cities & 970 deaths/year from airborne particulates (e.g. PM10)

  19. Cleaning Up Urban Air • Emission trading for large point sources & charges for householders could provide flexibility and funding • Revenue could be used for subsidies to low income households to change over to clean heating • Additional legislative powers would be required.

  20. Where To From Here? • Leadership • Legislation • Design • Debate

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