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Environmental Regulations in Developed and Developing Countries

Environmental Regulations in Developed and Developing Countries. Real-world applications dealing with industrial pollution. Types of regulations considered. Price instruments (taxes, fees, fines, tariffs) Quantity instruments: quotas, limits Tradable permits Technology restrictions

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Environmental Regulations in Developed and Developing Countries

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  1. Environmental Regulations in Developed and Developing Countries Real-world applications dealing with industrial pollution

  2. Types of regulations considered • Price instruments (taxes, fees, fines, tariffs) • Quantity instruments: quotas, limits • Tradable permits • Technology restrictions • Liability rules • Information disclosure

  3. Sulfur emissions: acid rain • Sulfur a major precursor to acid rain • Acid rain has different effects depending on physical factors where it is deposited • Scandinavia: old rocks, very sensitive • England: not sensitive

  4. European policies for sulfur • Encourage switching energy sources from oil & coal to gas (UK), hydro/nuclear (Sweden, France) • Performance standards (sulfur content of fuels) • Design standards (mandatory technology)

  5. European policies for sulfur • Taxes (energy or fuel) • Sweden, Norway, Denmark ~$2000/ton • Other European ~$50/ton (Italy, France, Spain) • Though to be modestly effective. Responsible for 30% reduction in Sweden.

  6. Tradable sulfur permits (US) • 1990 CAAA, Title IV established market for SO2 among electric utilities. • First time in U.S. • Issued 9 million 1-ton permits • Permits free, based on grandfathering • Prove compliance at end of year. • Can sell or bank permits • Price: $100 - $500/ton (1993-2001)

  7. Tradable sulfur permits cont’d • Marketable permits have potential to reduce control cost when heterogeneous abatement cost. • Heterogeneous SO2 polluters in US • Cost savings due to trading: $800 million

  8. Nitrogen oxides (NOx) • The other major precursor to acid rain • Technically more difficult to monitor, predict, and abate. • Many approaches used to abate

  9. Refunded emissions payments: Sweden • NOx reduced by 20% (but SO2 reduced by 80%). • Tax on electricity prod. of $4000/ton • Revenues returned to polluting companies depending on production • Clean companies, net gain. Dirty, net loss. • Very successful, politically viable

  10. Ground-level ozone: NOx in US • CAAA specifies: • Reduce NOx by 400,000 tons/yr between ’96-’99 and by 1.2 million tons/yr after. • E.g. RECLAIM in LA basin • Aims for 80% reduction in NOx and SOx from ’94-’03. • Each licensed source has to reduce emissions – if over-comply, can trade

  11. Green tax reform in Europe • Sweden and Germany in particular • Use environmental taxes to finance decreases in other taxes • Highly criticized on many grounds. • Not necessarily large enough to do much good. • E.g. oil ($100/m3), coal ($100/ton), also natural gas, LPG, electricity

  12. Liability rules: Superfund • Deals with dumping of toxic waste • E.g. Love Canal (near Niagra Falls) • 21,000 tons toxic chemicals buried • $100 millions spent on cleanup, $14 billion in private lawsuits • Superfund 1980, tax petroleum, chemical industries. Proceeds to clean up hazardous waste sites.

  13. Superfund continued • By 1995 $11 billion collected • By 2000 757 Superfund sites completed. • EPA had reached settlements with polluters totaling $16 billion. • Use strict & retroactive and joint liability • With limited knowledge, liability a good approach (maybe better than mkt based) • May require liability bond as a deposit

  14. Information disclosure • Toxic Release Inventory (TRI) started in 1986 to provide public information about release of toxic substances • 640 chemicals • Also voluntary agreements (e.g. 33/50) • Local environmental groups use TRI to pressure & report on industry • More info  better economic performance. Good starting point for new regulations.

  15. Global policy: Ozone • Montreal Protocol (1985) on substances that deplete the ozone layer (into force 1989). • Most countries developed individual plans to ratchet down production • Permits traded but not banked. • Some countries restricted imports on ozone destroying substance products.

  16. Global climate change • 1997 Kyoto Protocol – mainly industrialized countries agreed to % reductions from 1990 levels (avg 5%) • US continues to reject Kyoto • Distribution of current & future burden • “hot air”, commitment from developing • Permits, int’l taxes, non-carbon substitutes, carbon sequestration

  17. Incentives for innovation

  18. Environmental regulations in the developing world • Often environment is low on policy priority list – urge to industrialize • Policy focus: employment & income • Diverse instruments used, hard to generalize. • Typically market based instruments not as widely used or effective.

  19. Environmental Kuznet’s Curve Early phases of economic growth tend to  pollution Emissions As income rises, clean environment is valued more, emissions decline But v. difficult to estimate due to lack of time series Income

  20. Environmental charges & funds • Central & East Europe (planned economies): high pollution last few decades • Attract limited international capital • Instituted some environmental taxes • But no bite until decentralized • Poland: careful CBA to attract debt-for-nature, unusually successful

  21. Planned economy emissions fees • Sulfur, NOx, carbon, some particulates, lead • Transportation tolls • Water extraction charges, water pollution fines, waste management fees, fertilizer and pesticide fees

  22. Regulations in China • Most populous, one of poorest, one of most polluted countries • Air quality in Beijing:  100 tons SO2,  one statistical life (cost = $300) • 1979 law allows charging for pollution, by 1994 $2 billion collected. • Fees charged when emissions above max. • Fees too low to achieve standards.

  23. Fees in Rio Negro, Colombia • Colombian economy growing quickly • Water/air pollution major problems • 1993 law that environmental damages must be taken into account • Stipulates use of economic instruments • Fees implemented: 28% decline in pollution in first 6 months

  24. Voluntary emissions control • Informal sector in Mexico: brick making • Difficult to monitor, regulate (similar to non-point source pollution) • 20,000 brick kilns burn nasty stuff • Too difficult to enforce ban on dirty fuels • Subsidize propane, voluntary switch • Zoning for certain activities • Involve local grassroots

  25. Info & institutions: Indonesia • Rapid economic growth – drastic exploitation of resources • “Program for Pollution Control Evaluation and Rating” (PROPER) – similar to TRI • Reporting, evaluating, assisting firms • Grades each industry, reports in press • Very successful • Other countries have adopted similar (Mexico, Phillippines, Papua New Guinea)…

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