Environmental Protection in a Knowledge-Based Economy Delhi Sustainable Development Summit February 6-9, 2003 Charles D. Kolstad 3M Visiting Professor of Environmental Economics, MIT and Donald Bren Professor of Environmental Economics & Policy, University of California, Santa Barbara

Economic Solutions to Environmental Problems Price emissions (pay to emit) –Charge urban polluters based on where, when, what –Power plants pay for using the public air Set up tradable rights for emissions –Polluters buy and sell right to emit –Aggregate emissions kept under control BUT what works in theory does not always work in practice!!!

Two fundamental problems with economic solutions to environmental problems Distributional – where the burden falls –Often falls disproportionately on the poor Eg, older polluting cars often owned by poor –Burden often falls on narrow sectors Certain industries bear much of the cost of cleanup Coal-rich countries bear cost of climate control Monitoring – Need to know who, what, where –Easiest sources – big stationary sources –Tough sources: smaller diffuse sources –Cost of monitoring often not justified –Thus technology regulations

Technology Advances in Monitoring Example 1: Road Congestion Levying tolls is the economic solution but is difficult and costly Automatic toll collection becoming reality Transponders Automatic Number Plate Recognition Technology

Technology Advances in Monitoring Example 2: Auto Emissions Technology 1: Routine vehicle emission tests coupled with tamper- proof odometers Technology 2: remote sensing of emissions tied to number plate recognition

Conclusions One of the great obstacles to using economic incentives (prices) to manage the environment has been reliable, cheap monitoring The knowledge-based economy and the computer revolution is causing this obstacle to disappear In a few decades, this may well be the most important innovation in environmental management