Economic Incentives for Sustainable Development

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