The use of Economic Instruments and Green Taxes to Complement an Environmental Regulatory Regime

Abstract

In 1999, some countries are developing and effectively applying economic instruments for environmental protection and natural resource management, whilst others are relying on command and control regulatory procedures under-enforced by sometimes inadequately trained and motivated enforcement officers. This paper considers the current and future role of economic instruments as policy instruments for use by governments. In many developed countries, past over-regulation allied to a serious shortfall of experienced environmental enforcers required regulatory regimes to be supplemented by well targeted economic instruments and green taxes. Their application to countries which do not have developed environmental control systems is more questionable. The purported threats of the longer term effects of global warming, damage to the ozone layer and an apparent loss of biodiversity have led environmentalists to adopt the so-called precautionary principle. Sustainable development has added to the pressures for further national and transfrontier legislation. The challenge facing policymakers, therefore, is to design policies to enable market forces to operate in the environmental sphere, for example through a system of pollution charges, principally intended to promote greater environmental efficiency. These charging systems can be of many kinds but their main defining feature is their reliance on markets and the price mechanism to internalise environmental externalities, thereby attempting to make polluters pay through facing the full social costs of their activities. Some of the applications of these charging systems, financial and fiscal instruments and tradable emission systems are explained and illustrated.