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Economic Instruments in Environmental Policy Making: Opportunities, Prospects, and Challenges

This report provides a user's manual for policy makers on economic instruments, offering practical guidance and establishing a framework for synthesizing data, selecting instruments, and addressing localized environmental challenges.

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Economic Instruments in Environmental Policy Making: Opportunities, Prospects, and Challenges

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  1. Opportunities, Prospects and Challenges for the Use of Economic Instruments in Environmental Policy Making: An Update UNEP Working Group on Economic Instruments for Environmental Policy 17-18 February 2003 Geneva, Switzerland Doug Koplow Earth Track, Inc. 2067 Massachusetts Avenue, 4th Floor Cambridge, MA 02140 (617) 661-4700 DKoplow@earthtrack.net

  2. Purpose of the Report • Users manual to policy makers on EIs • Rules of thumb, not theoretical discourse. • Generalized approaches: too many local conditionalities render guidance useless. • Short and accessible. • Provide intuitive understanding of why EIs work and what they try to accomplish. • Establish workable framework for: • Synthesizing existing data, identifying baseline conditions. • Instrument choice (including what NOT to use). • Focus on developing countries

  3. Report Process • Reliance on existing case studies for the most part; no budget to conduct new ones. • Derivation of "rules of thumb"from combination of case studies and literature review. • Incorporation of approximately 15 sets of comments on first draft.

  4. Focus on Localized Environmental Challenges • If faced with a specific problem to address, what are your options? • Organize tools by function not by type. • Mapping on new options to existing policy base. • Limited time and power • Political economy as the driver. • Operational responses vs. building national policy infrastructure. • Guidance through "rules of thumb" rather than detailed theoretical presentation.

  5. Approach: Key Stages • Baseline: assemble existing information in a structured way (using template). • Phase 1: Identifying "short-list" of policy options given baseline data. • Phase 2: Engaging stakeholders. • Phase 3: Policy implementation and subsequent evaluation.

  6. Structuring Baseline Data • Exhibit 2 designed to help organize existing data in a meaningful way. • Problem assessment • Factional analysis (key stakeholders, interests) • Overview of public sector institutions • Specific questions and issues to be addressed help clarify leverage points, roadblocks.

  7. Report Finalization: Triage • Deal with minor structural, definitional, tone issues outside of meeting, using written comments. • Focus on core issues in discussion here: • Is the analytical structure presented in the report helpful and useful in general? • Has it worked in assessing options in your countries? If not, where has it broken down? • Do you have additions/modifications to its conclusions and rules of thumb?

  8. Finalization: Content Issues for Discussion • Role of CACs in final report: how much is enough? • Positive incentives: How much discussion, emphasis? Need to address political economy. • Case studies: more, more detailed, more integrated. What is possible? • Privatization: What parameters? Can't ignore massively inefficient public provision of water and energy. • Input on phases 2 (engaging stakeholders) and 3 (policy implementation and evaluation) of transition.

  9. Finalization: StructuralIssues for Discussion • Templates versus text • Some commenters wanted simpler tables; migration of detail to text. • I like templates because: • They are rigid in structure: you can't hide when you are missing information. • More quickly adaptable to a policy check list. • What are your views?

  10. Beyond the Final Report • Report is a starting point; should be field tested. • Integrate feedback from meeting, issue final report. • Create UNEP web site with approaches and discussion groups to assess: • Are templates working well? How can they be improved? • Can rules of thumb be expanded? • Can case study library be expanded in scope and detail? • Present actual details on political economy of reform efforts and policy trade-offs made. • Can tools for institutional reform be linked in?

  11. Additional References • Rules of thumb approaches derived thus far. • Overview of different types of cost recovery. • Detail on economic instruments: • Grouping by function, not form. • Exhibit 1 from report: detail on functions of classes of EIs. • Exhibit 2 from report: detailed template for structuring existing data.

  12. Rules of Thumb, Version 1.0

  13. Confusion over Cost Recovery • All charges are not the same: • User fees: repayment for private use of publicly-provided, tangible, goods and services. • Pollution charges: repayment for private use of intangible environmental/social goods & services. • Royalties: compensation for private use of a limited publicly-owned asset.

  14. Policy Instruments by Function not Form • Establishing property rights; clarifying or improving existing ones. • Revenue recovery on provision of public goods and services. • Ensuring fair market value is received on sale of natural resource endowments. • Internalization of pollution, post-closure costs (possibly including compensation for positive externalities). • Subsidizing transition to cleaner alternatives.

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