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Lecturers: Anders N. Andersen Søren Løkke Trine Pipi Kræmer

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1 EU-policies Regulatory Regimes and Policy Instruments for Environment and Energy
Lecturers: Anders N. Andersen Søren Løkke Trine Pipi Kræmer Dorte Kardel Carla K. Smink

2 Aim of the course To provide an understanding of the most common forms of the international conventions and organisations dealing with energy and environmental issues, with focus on the EU A theoretical discussion of different approaches to policy design. + A lot of examples on specific use of different policy instruments within the field of energy and the environment

3 Timetable, parallel sequence
Mondays: Course 6 –10, as written in the study programme Wednesdays Course 1-5, as written in the study programme 2 guest lectures: Niels Meyer Christina Grann (April 1, on Integrated Product Policies (IPP) in EU with focus on the electronic sector and the EuP directive)

4 Carla K. Smink Environmental Management, 8th semester Spring 2005
Policy regimes and the use of different instruments – on regulatory styles and policy regimes Carla K. Smink Environmental Management, 8th semester Spring 2005

5 Outline How to regulate society? What is environmental regulation?
Public environmental regulations (March 14) Market regulation (April 4) Self-regulation (April 11) What is environmental regulation? Policy instruments

6 What is environmental regulation?
‘Environmental regulation aims to promote environmental friendly behaviour by making the environmentally friendly option seem more rewarding to the individual, in spite of his or her own short-sighted interests, and/or by facilitating the performance of environmental friendly behaviour’ (Thøgersen, 1999: 1)

7 What is environmental regulation?
‘Environmental regulation aims to promote environmental friendly behaviour by making the environmentally friendly option seem more rewarding to the individual, in spite of his or her own short-sighted interests, and/or by facilitating the performance of environmental friendly behaviour’ (Thøgersen, 1999: 1)

8 Promotion of environmental friendly behaviour
Changes in technologies, aspirations and life- styles is needed For example, coal, oil and gas will need to be progressively replaced by renewable energy sources, in order to achieve the policy objectives as agreed upon in for example the Kyoto protocol

9 What is regulation? ‘Environmental regulation aims to promote environmental friendly behaviour by making the environmentally friendly option seem more rewarding to the individual, in spite of his or her own short-sighted interests, and/or by facilitating the performance of environmental friendly behaviour’ (Thøgersen, 1999: 1)

10 Making the environmental option seem more rewarding
Carrot (economic incentives) Sermon (information) Stick (legal instruments)

11 What is environmental regulation?
‘Environmental regulation aims to promote environmental friendly behaviour by making the environmentally friendly option seem more rewarding to the individual, in spite of his or her own short-sighted interests, and/or by facilitating the performance of environmental friendly behaviour’ (Thøgersen, 1999: 1)

12 Facilitating the performance of environmental friendly behaviour
An environment-friendly product is environmentally well throughout its life cycle: the raw materials used the manufacture of the product the product consumes little energy the product can be disposed of without significant environmental problems

13 Facilitating the performance of environmental friendly behaviour
The raw materials used: how can we regulate this? The manufacture of the product: how can we regulate this? The product consumes little energy (consumer- phase): how can we regulate this? Product can be disposed of without significant environmental problems: how can we regulate this?

14 ’Pure’ forms of environmental regulation
Self-regulation When I started reading literature on environmental regulations, I focused on three ’pure’ forms of environmental regulations. I started reading literature dealing with public environmental regulations. In this literature, self-regulation and market regulation had been presented as alternatives to public environmental regulations. That is what I tried to illustrate on this overhead. There is no overlap between the different forms of environmental regulation. Public environmental regulation Market regulation

15 ’Pure’ forms of environmental regulation
Self-regulation 11 April 14 March When I started reading literature on environmental regulations, I focused on three ’pure’ forms of environmental regulations. I started reading literature dealing with public environmental regulations. In this literature, self-regulation and market regulation had been presented as alternatives to public environmental regulations. That is what I tried to illustrate on this overhead. There is no overlap between the different forms of environmental regulation. 4 April Public environmental regulation Market regulation

16 ’Pure’ forms of environmental regulation
Strengths Give an overview of the theoretical strengths and weaknesses Weaknesses Do not exist in reality Do not pay attention to time perspective Limited attention to interactions between actors in society

17 Mixes of environmental regulation
Self-regulation So, I thought, it was maybe better to talk about mixes of environmental regulation. By that I mean there is overlap between public environmental regulations, market regulations and self-regulation, as shown on this overhead. Especially after I read more literature on self-regulation, I was more or less convinced that those ’pure’ forms did not exist. In literature on self-regulation, self-regulation was presented as a supplement to public environmental regulations and not as an alternative. Public environmental regulation Market regulation

18 Mixes of environmental regulation
Strengths Focus on role of different actors in society ’Negotiating government’ Focus on industry’s environmental performance Weaknesses Imprecise Linguistic problem Some authors define those mixes of environmental regulations as responsive, reflexive and/or flexible regulation. Also these forms of regulation do have some strengths and weaknesses as written on this overhead.

19 ’Pure’ forms of environmental regulation
Self-regulation Policy instrument C Policy instrument A Policy instrument B Next to describing these ’pure’ forms of environmental regulation, I also tried to put instruments in the boxes. This looked like this. But I was not satisfied with this. For example, eco-labelling. I put this in the box of market regulation, as companies want to show consumers that their product is less polluting than the same products without this label. However, government has played an important role in developing eco-labels, and still plays a role in granting labels and controlling companies that have a label on their product. So, I felt that there was an overlap between public environmental regulations and market regulations. I had also doubts by putting other instruments in the three boxes. Public environmental regulation Market regulation

20 Mixes of environmental regulation
Self-regulation Policy instrument A1 Policy instrument C1 Policy instrument ABC Again I put some examples of instruments in the boxes. As I said before, especially literature on self-regulation, stated that self-regulation was an alternative to public environmental regulations. For market regulation it was not that easy. Many authors define economic instruments as market regulations. I do not agree with this point of view. As you can see in this figure, I see economic instruments as a combination between pubic environmental regulations and market regulation. By means of economic instruments, government can intervene in the market via influencing the price tag that goes with the environmental measures. If the total costs of environmentally friendly behaviour are lower than the total costs of the best alternative, the rational human being, in this case a company, will focus on the cheapest alternative. So, via subsidies and taxes government can influence the price of environmental measures. What I try to explain you is that the government plays an important role in this and that economic instruments can not be regarded as market regulations – at least in my definition – because in market regulation it are market actors that exert pressure on other market actors. Market actors have a buy- and sale relationship. In this definition, government is not a market actor. Policy instrument B1 Public environmental regulation Market regulation

21 What is environmental regulation?
Environmental regulation aims to promote environmental friendly behaviour Making the environmentally friendly option seem more rewarding Facilitating the performance of environmental friendly behaviour Forms of environmental regulation: public environmental regulations, self-regulation and market regulation

22 What is environmental regulation?
Environmental regulation aims to: promote environmental friendly behaviour make the environmentally friendly option seem more rewarding facilitate the performance of environmental friendly behaviour

23 What is environmental regulation?
Forms of environmental regulation: public environmental regulations self-regulation market regulation

24 How to implement environmental regulation?

25 How to implement environmental regulation?
POLICY INSTRUMENTS

26 Definition of policy instruments
‘A policy instrument is a tool by which government tries to achieve its policy objectives’ (Neil Carter, 2001: 285) ‘The myriad techniques at the disposal of governments to implement their policy objectives’ (Jordan et al., 2000: 4)

27 Objectives of EU’s environmental policy
‘to preserve, protect and improve the quality of the environment, protect human health and utilise natural resources prudently and rationally’

28 Policy instruments Different types of policy instruments
Different styles of enforcement Educative

29 Choice of policy instruments
Policy instruments are often not purely ‘regulatory’, purely ‘economic’ or purely ‘voluntary’ Often a single instrument does not operate in isolation; combination of different types of instruments work alongside each other to achieve a desired environmental objective

30 Choice of policy instruments
Some combinations of policy instruments have an effect in the long run, others in the short run The composition of the package may need to change over time

31 Policy instruments Different types of policy instruments
Different styles of enforcement differences between countries differences between governments Educative

32 Policy instruments: differences between countries
‘The same type of policy instrument may be implemented differently as no two governments use the same policy tool in exactly the same manner’ (Hood, 1986: 106)

33 Policy instruments Differences between countries
‘Americans rely heavily on formal rules, often enforced in the face of strong opposition from the institutions affected by them’ ‘The British rely on flexible standards and voluntary compliance. They are reluctant to adopt regulations with which they cannot guarantee compliance. Regulations are formulated in such a way that officials can negotiate arrangements with firms that will not be disallowed by their superiors or the courts’ (Carter, 2001: )

34 Policy instruments: differences between countries
Example: voluntary agreements EU: ‘agreements between industry and public authorities on the achievement of environmental objectives’

35 Voluntary agreement Voluntary agreement Self-regulation
So, I thought, it was maybe better to talk about mixes of environmental regulation. By that I mean there is overlap between public environmental regulations, market regulations and self-regulation, as shown on this overhead. Especially after I read more literature on self-regulation, I was more or less convinced that those ’pure’ forms did not exist. In literature on self-regulation, self-regulation was presented as a supplement to public environmental regulations and not as an alternative. Public environmental regulation Market regulation

36 Policy instruments: differences between countries
Example: voluntary agreements (VA) The Netherlands: VA are almost always legally binding agreements (‘covenants’) Germany: VA are often negotiated ‘in the shadow of the law’. I.e. legislation will be drawn up otherwise and with the intent of pre-emting ‘the stick’

37 Regulatory styles differ between countries
The manner in which regulations are formulated and decided upon differs impositional/adversarial way to involve the subjects concerned; a consensual style Influence behaviour through command and control regulations or self-regulation or market regulation In general, the Danish policy-making style has always been co-operative and consultative. I.e. interest organisations have been involved in environmental policy making from the beginning.

38 Regulatory styles differ between countries
Global framework legislation versus detailed standards and procedures Differences in the preference for specific sanctions and incentives, such as the carrot, the stick and the sermon Differences in the way countries administer and enforce regulations

39 Regulatory styles differ between countries: problems in the EU
Harmonisation of regulation is not easy, differences in: population, political, legal and administrative cultures regulatory styles Harmonisation has been motivated by the need to prevent a regulatory ‘race-to-the bottom’ by Member States As regards popular culture: obedience differs. Not all Europeans are equally abiding citizens. A race-to-the-bottom is a successive lowering of the standards by countries in their competition to attract and keep capital within their borders.

40 Regulatory styles differ between countries: problems in the EU
Harmonisation of the ‘law in the books’ versus harmonisation of the ‘law in action’ Implementation and enforcement styles may have to become more similar: harmonisation of implementation and enforcement rules and procedures: how? harmonisation of the institutions involved: how? As regards popular culture: obedience differs. Not all Europeans are equally abiding citizens. A race-to-the-bottom is a successive lowering of the standards by countries in their competition to attract and keep capital within their borders.

41 Regulatory styles differ in EU: harmonisation is needed
Some policy objectives cannot be achieved effectively by Member States acting individually ex. Directive 2002/96/EC on waste electrical and electronic equipment (WEEE) national applications of the producer responsibility principle may lead to substantial disparities in the financial burden on economic operators different national policies hampers the effectiveness of recycling policies As regards popular culture: obedience differs. Not all Europeans are equally abiding citizens. A race-to-the-bottom is a successive lowering of the standards by countries in their competition to attract and keep capital within their borders.

42 Mixes of environmental regulation
Self-regulation Extended producer responsibility Again I put some examples of instruments in the boxes. As I said before, especially literature on self-regulation, stated that self-regulation was an alternative to public environmental regulations. For market regulation it was not that easy. Many authors define economic instruments as market regulations. I do not agree with this point of view. As you can see in this figure, I see economic instruments as a combination between pubic environmental regulations and market regulation. By means of economic instruments, government can intervene in the market via influencing the price tag that goes with the environmental measures. If the total costs of environmentally friendly behaviour are lower than the total costs of the best alternative, the rational human being, in this case a company, will focus on the cheapest alternative. So, via subsidies and taxes government can influence the price of environmental measures. What I try to explain you is that the government plays an important role in this and that economic instruments can not be regarded as market regulations – at least in my definition – because in market regulation it are market actors that exert pressure on other market actors. Market actors have a buy- and sale relationship. In this definition, government is not a market actor. Public environmental regulation Market regulation

43 Extended producer responsibility
Mix of public environmental regulations, self-regulation and market regulation Public environmental regulations: mandatory take-back minimum recycled content standards requirements on the use of secondary materials energy efficiency standards disposal bans

44 Extended Producer Responsibility (EPR)
Economic instruments: disposal fees virgin material taxes deposit-refund system waste removal premium Self-regulation/Market regulation: information (different forms of labelling, product environmental declaration)

45 Policy instruments Different types of policy instruments
Different styles of enforcement differences between countries differences between governments Educative

46 Policy instruments Differences between governments (within one country) A lot Process guide Advisor Attention to the relationship with the company Intermediary Expert instructor Inspector A little A little A lot Attention to the environmental effectiveness

47 Policy instruments Different types of policy instruments
Different styles of enforcement differences between countries differences between governments Educative: Change the behaviour of target groups Achieve the stated policy objectives Help to spread environmental values throughout society

48 Choice of policy instruments
What factors are likely to influence the choice between different types of policy instruments? How is that choice likely to be affected by its institutional and political characteristics?

49 Choice of policy instruments
Dependent on the nature of the problem which is addressed mandatory EMS is useful where a general improvement in environmental performance is desired. For example Danish car-dismantling trade banning the use of a particular substance is useful where it can be demonstrated that an immediate cessation in use is essential for environmental protection and alternatives are available at reasonable costs

50 Choice of policy instruments
Costs and benefits of the options the ‘best’ instrument will have the highest environmental benefits for the lowest cost of implementation and compliance For example CO2 allowances

51 CO2 allowances Draft bill on CO2 allowances* (February 2004):
The objective of the law is to bring about a cost-effective reduction of the greenhouse-gas CO2 by means of a system of negotiable allowances * legal authorisation to emit a ton of CO2 in a given period

52 Choice of policy instruments
Costs and benefits of the options the ‘best’ instrument will have the highest environmental benefits for the lowest cost of implementation and compliance (CO2 allowances) All policy instruments have strengths and weaknesses Policy instruments have their intended ‘main’ effect and have positive and negative side effects

53 Selection of policy instruments
Economic criteria e.g. economic efficiency, cost-effectiveness Environmental criteria e.g. dose-response relationships, irreversibilities Technological criteria e.g. feasibility, incentives for innovation Political criteria e.g. equity, precaution, acceptability

54 Developments in environmental regulations (1970 – 2000) in industrialised countries
Self-regulation Self-regulation Self-regulation Public environmental regulations Market regulations Public environmental regulations Market regulations Public environmental regulations Market regulations The question you can ask yourself now is, can a process of ecological modernisation be recognised in the Netherlands and Denmark. The first two aspects of ecological modernisation that I mentioned (a move away from a pure hierarchical state-dictated model of environmental change and the increased involved of non-state actors) can be illustrated with this figure. Hereby, I also use regulation theory, as I have introduced to you before. What I try to illustrate with this figure is, that different actors in society have got a new role. It is maybe not so much a move away from government, but government’s role has changed considerably. Government still plays an important role, but has changed from command and control to more flexible strategies. By this I mean, government has increasingly adapted its enforcement strategy to the environmental performance of companies. The figure does also show, that both self-regulation and market regulation have become increasingly important. In other words, individual companies and market actors play next to the state an important role in environmental change. What this figure does not show is how the interaction between these actors has been, besides, this figure does not pay attention to the technological dimension. The third aspect that I have mentioned. That is why I also have used the network approach or network model. This model pays attention to three different networks. 1970s 1980s 1990s

55 Example: Kyoto protocol
An international environmental agreement, accepted by a large number of countries who have committed themselves to reduce their CO2 emissions for the sake of the global climate

56 Which policy instruments can be used to implement the Kyoto protocol?
Problems because sustainable reduction in global greenhouse gas emissions requires internationally co-ordinated policy action Example: Denmark Energy consumption in Denmark Consumption of energy after source Consumption of energy after fuel

57 Problems Different interests of sovereign states
Are reductions equitable in the burden that it imposes on individual countries? Risk of ‘free-riding’ Costs involved Efficiency Enforcement

58 Policy instruments: Kyoto mechanisms
To reach their emission targets under the Kyoto Protocol, industrialised countries can use domestic policy instruments. They can also use four ‘Kyoto Mechanisms’ to co- operate with other countries

59 Which policy instruments can ‘solve’ these problems?
Domestic policy instruments? (Flexible mechanisms?) Bubbles Joint Implementation (JI) Clean Development Mechanism (CDM) International Emission Trading (IEM)

60 Kyoto protocol: Denmark’s commitment
Reduction of CO2 emissions with 21% by 2012 (1990 basis year) Reduction of SO2 (sulphur dioxide) emissions with 30% by 2010 (1998 basis year) Reduction of NOx (nitric oxides) with 45% by 2010 (basis year 1998)

61 Energy consumption in Denmark (1988-2001)

62 Energy consumption by sector (DK)
Two examples: Households Transport sector

63 Energy consumption households
Source:

64 Electric devices in households
(Source: ENS, 2001:17)

65 Energy consumption in households
Which policy instruments can be used to influence the environmental behaviour of households?

66 Energy consumption in households
Which policy instruments can be used to influence the environmental behaviour of households?  Policy instruments that provide information

67 Energy consumption in households
Which policy instruments can be used to influence the environmental behaviour of households? Activities concerning use of electric devices Energy labelling Stand by campaign Lightning

68 Energy consumption in the transport sector (DK)
Source:

69 Energy consumption in the transport sector (EU)
Source: EEA, 2002

70 Energy consumption in the transport sector
Biggest energy-consuming sector (appr. 30% of final energy consumption) Energy consumption in transport, close link between: Transport volumes Economic development Transport energy consumption is closely linked to transport volumes, which in turn are closely linked to economic development. The countries bordering the EU that show the highest growth in GDP (Malta, Cyprus, Poland, Slovenia and Turkey) also show a high growth in transport energy consumption. Lithuania, Estonia, Bulgaria and Romania show the greatest decline in energy consumption, corresponding to economic decline in these countries in this period.

71 Energy consumption in the transport sector
High growth in GDP  high growth in energy consumption (ex. Malta, Cyprus, Poland, Slovenia and Turkey) Decline in energy consumption  decline in economic growth (ex. Lithuania, Estonia, Bulgaria and Romania) Transport energy consumption is closely linked to transport volumes, which in turn are closely linked to economic development. The countries bordering the EU that show the highest growth in GDP (Malta, Cyprus, Poland, Slovenia and Turkey) also show a high growth in transport energy consumption. Lithuania, Estonia, Bulgaria and Romania show the greatest decline in energy consumption, corresponding to economic decline in these countries in this period.

72 Changes in total energy consumption (1990-2000)
AC-10 are the new member states. Source: IEA, 2003

73 Policy relevance EU/Denmark committed themselves to the greenhouse gas targets agreed upon in the Kyoto protocol Transport biggest energy-consuming sector, but no specific targets have been set to address energy consumption

74 Policy relevance EU intends coming forward with proposals to set a compulsory minimum rate of new and renewable energy ex. biofuel consumption should increase to 6% in the year 2010 Reducing energy use per transport movement improvement energy efficiency, less energy consuming modes of transportation such as rail, public transport and shipping)

75 Policy relevance Increasing the share of alternative sources of energy
ex. biofuels, wind and solar energy

76 Policy relevance  But: by means of which policy instruments?
the stick, the carrot or the sermon? National initiatives? International initiatives?

77 Policy relevance  But: by means of which policy instruments?
the stick, the carrot or the sermon? Lecture 2 (March 14): Public environmental regulations and its appearances Lecture 3 (April 4): Market regulation and its appearances Lecture 4 (April 11): Self-regulation and its appearances


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