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/m 3 ), 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 PolicyGains to innovating firm Command & Controlnone Best available technology- Performance Standards++ Emissions tax+++ Auctioned permits+++++ Grandfathered permits++ Tradable performance standards ++

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

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)…