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 February 2003 Geneva, Switzerland Doug Koplow Earth Track, Inc Massachusetts Avenue, 4th Floor Cambridge, MA (617)

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

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.

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.

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.

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.

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?

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.

Finalization: Structural Issues 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?

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?

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.

Rules of Thumb, Version 1.0

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.

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.