Effluent Charges Research Articles

The Political Economy of Water Effluent Charges in France: Why are Rates Kept Low?

The French water effluent charge was set up thirty years ago. However, its design differs significantly with the Pigovian tax envisaged in economic textbooks. In particular, various studies have shown that the tax rate is too low to significantly affect the polluters' behaviour. The paper is a case study of this charge and aims to understand why rates are low. It consists of a careful political economy analysis of the institutional setting through which the water effluent charge is implemented using both historical evidence and simple modelling. The fact that the charge is combined with regulation plays a crucial role in explaining its rate.

Endogenous Policy Choice: The Case of Pollution and Growth

What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful for understanding more generally the relationship between policies and growth? In this paper we make a first attempt to analyze the equilibrium behavior of two quantities—the level of pollution and the level of income— in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone, and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when cross-country differences in economic performance are studied. Journal of Economic Literature Classification Numbers: E2, O1, O2, Q2.

Self-Selection and Optimal Nonlinear Effluent Charges

This paper proposes an optimal nonlinear effluent-charge system forenvironmental pollution control. This system achieves the first-bestoptimum through a self-selecting mechanism under asymmetric information.The proposed system can also control the level of revenues so as to reducethe excess burden of environmental taxation, and discriminate among thepolluters. The paper also compares this system with the conventional lineareffluent-charge system and discusses some economic implications ofimplementing the system.

The Use of Economic Instruments for Water Management in Selected EU Member Countries

AbstractThe use of economic instruments for environmental management is being encouraged by the European Commission for the management of water abstractions and effluent discharges. Economic instruments are being applied increasingly by EU Member States to complement the traditional ‘command and control’approach, based on the licensing system. However, the design and the purpose of the charging schemes, and the levels of charges raised in the different EU Member States, vary widely.This paper (a) discusses the use of abstraction and effluent charges applied in France, Germany, The Netherlands, and England & Wales, (b) assesses the impact of the schemes on water abstractions and effluent discharges, and (c) evaluates the feasibility of the application of incentive charging schemes.

Comparative Environmental Policy: Market‐type Instruments in Industrialized Capitalist Countries

This paper examines experiences of five industrialized capitalist countries in using effluent charges, tradable permits, and subsidies as tools of environmental regulation and compares their programs to economists’models of the market approach. Observed disparity between theory and practice suggests that advantages of the market approach are not as significant as proponents contend. Reasons are identified, and differences in national characteristics of public administration are considered toward explaining differences in how countries have applied market instruments.

Toward a positive theory of coalition formation and endogenous instrumental choice in global pollution control

The paper analyzes the coalition formation process in a global emission game with asymmetric countries where the number of signatories, the abatement target and the policy instrument are chosen simultaneously. Exemplarily, a uniform emission reduction quota and an effluent charge are considered. Stability is analyzed in a supergame framework by applying the concept of coalition-proofness. The analysis also considers the impact of impatient agents, restricted and simple punishment profiles. Two main results may be mentioned: First, paradoxically, IEAs achieve only little (if signed at all) if the externality problem is distinct. Second, our model helps to explain the frequent appearance of emission quotas in international pollution control despite the recommendations by economists to use market-based instruments like effluent charges.

The Diffusion of Biological Waste-Water Treatment Plants in the Dutch Food and Beverage Industry

This article develops an economic model of environmental technology adoption decisions. The model is applied econometrically to the diffusion of biological waste-water treatment plants in the Dutch food and beverage industry. It shows that it is possible to explain the overall diffusion pattern of biological waste-water treatment plants in terms of a rational choice model in which prospective adopters trade off the costs of effluent treatment against the savings on effluent tax payments. Effluent charges are shown to be a significant positive factor in the timing of adoption of biological effluent treatment plants. This result is brought out by both the rational choice and the epidemic models. None of the models however can explain year-to-year changes in the ownership of biological waste-water treatment plants during the 1974–91 period, which suggests that there are other factors, not included in the model, that affect the timing of adoption.

Analysis of effluent charge for wastewater treatment plants in industrial districts

Three cost functions of wastewater treatment plants in industrial districts were analyzed and discussed. From the results, the effluent charge rate can be proposed in order to internalize parts of the external cost of wastewater pollution. The charge base of the effluent charge shall be the total pollutant amounts in the effluent. The charge rate shall be set up according to the results of cost functions for various treatment efficiencies. The marginal cost of NT$790 (US$30.4) per noxiousness unit (F=1,000 m3/day, Q=5,000 noxiousness units/year, treatment efficiency = 90%) was recommended to be the initial charge rate. This cost should be updated regularly and the charge rate should be raised according annually.

Analysis of effluent charge for wastewater treatment plants in industrial districts

Three cost functions of wastewater treatment plants in industrial districts were analyzed and discussed. From the results, the effluent charge rate can be proposed in order to internalize parts of the external cost of wastewater pollution. The charge base of the effluent charge shall be the total pollutant amounts in the effluent. The charge rate shall be set up according to the results of cost functions for various treatment efficiencies. The marginal cost of NT$790 (US$30.4) per noxiousness unit (F=1,000 M3/day, Q=5,000 noxiousness unitslyear, treatment efficiency = 90%) was recommended to be the initial charge rate. This cost should be updated regularly and the charge rate should be raised according annually.

Why pollution standards are preferred by industries: pragmatism and rent-seeking behaviour

Regulatory instruments in environmental policy have strongraison d'etre. They still dominate the instruments selected by policy makers. Even with the growing interest in the use of economic instruments, in theory, empirical studies and policy, industries tend to prefer command-and-control as a practical instrument in pollution control. Polluters often assume they have more influence on regulation than on setting effluent charge levels. The industry can be better off under the regulatory standard than an imposed effluent charge when the total cost of abatement to the industry is considered. The higher costs to the industry make effluent charges less attractive. In practice, generally a ‘mixed’ environmental policy is used in which regulations dominate. This choice has been based on effectiveness, economic efficiency and political acceptability. By simulating the abatement cost function, it was found that marketable permits offer an attractive system of pollution control when the scope of variation in abatement levels is evident. Unfortunately, at higher levels of abatement, the benefits of this system are small and insufficient to justify any regulatory reform. Thus, with a pragmatic approach coupled with a rent-seeking behaviour of the polluters, a shift to the use of economic instruments is neither likely nor desirable even when administrative and transactions costs are not considered.

The charges approach to the environmental policy in an economy with homogeneous jurisdictions

This paper investigates properties of an environmental policy based on the concept of a Lindahl equilibrium. Such a policy results in a system of “effluent” charges, if the economy is composed of homogeneous jurisdictions, each inhabited by a continuum of households. The supply of the environmental commodities in the jurisdictions generates spillovers, and consumption of the environmental commodities is subject to congestion. In such an economy, the set of equal treatment Lindahl equilibria coincides with the core, if congestion effects exhibit “constant returns to group size” locally in each jurisdiction. This is insofar important, since the federal government typically has the possibility to modify spillover effects and congestion effects by appropriate environmental regulations. Thus, there are policy implications which go beyond the recommendation of environmental policy instruments, and which also affect the design of an economically sound system of effluent charges.

Water and Sewerage Charges in Scotland

ABSTRACTThe paper outlines the statutory arrangements governing water and sewerage charges in Scotland, and comments on the factors affecting the levels of charges. Trends in revenue expenditure over the period 1989–90 to 1992–93 are considered in relation to increases in personal community water charge levels, metered water rates, and costs per household. Non‐domestic sewerage rates and industrial effluent charges are also discussed. Some comparisons are made with England and Wales and with other countries. The funding arrangements for capital expenditure and their effect on the levels of charges are described, with particular reference to debt levels and rising expenditure to meet UK and EC standards. Factors affecting future charge levels are also identified.

The control of industrial pollution: Implications for technology choice and growth

AbstractTo reduce pollution, industrial enterprises can cut production or choose cleaner technologies. A rise in demand increases marginal revenue and, for given plant sizes and costs, profits. Abatement cost can therefore coincide with marginal profits. If economic growth implies a rising demand, then growth can increase incentive to pollute because, other things equal, it makes abatement relatively more costly. The choice of cleaner technologies may be the alternative.Without official pollution control measures, profit‐maximizing enterprises will choose polluting technologies. The control measures themselves imply different choice of technologies. Effluent charges and polluter subsidies induce similar responses by an enterprise, but in a competitive industry, the former will yield lower output and pollution levels than would occur under subsidies. Moreover, in certain cases the command‐and‐control measures can be more effective than incentive‐based measures in controlling industrial pollution and promoting growth. A differential in information, monitoring and enforcement costs of different pollution‐control measures does not alter the results.

Regulation of externalities in an open economy

This paper considers the ranking of second-best policies for an open economy that regulate externalities arising from the production of an exportable. Pesticides and other chemicals used in US agriculture are good examples. Uncertainty originates from three sources: random shifts in production cost and external costs, and the random fluctuations in the world price of a traded good. World prices become unreliable indicators of comparative advantages in the presence of external costs. Nonintervention of free trade can encourage excessive production and exports of commodities with spurious comparative advantages. The paper analyses the properties of the optimal state-contingent tax or first-best tax, which is difficult to implement. These properties are then used to rank second-best policies that are determined before uncertainties are resolved. It is shown that ex ante taxes and quotas are equivalent when the marginal external cost is subject to random shifts. When the world price is uncertain, the optimal ex ante effluent charge dominates the optimal quantity standard. When the marginal production cost of the exportable is subject to random shifts, the ranking of second-best policies is generally ambiguous.

Pricing and regulating affect environmental ethics

Effluent charges and tradeable permits are economically efficient but rarely used. A new explanation for this discrepancy is offered. Pricing may crowd out environmental ethics in the pricing, and via spillovers, also in non-pricing sectors. Pricing may therefore increase pollution, providing a reason why decision-makers tend to reject environmental pricing. Five propositions showing the conditions for counterproductive effects are advanced. They are consistent with available empirical evidence. Regulation by setting standards and subsidies damage environmental ethics less than pricing, because pollution is condoned. Damaging environmental ethics may prevent political action in favor of the environment.

Policy instruments for pollution control in developing countries.

Economic development in developing countries must be accomplished in a manner that does not harm the environment with pollution. Pollution harms human health and productivity. Thus appropriate strategies must be developed that promote growth, reduce poverty, and protect the environment. A review of the current literature is performed with attention paid to cost-effective interventions i.e., comparisons of regulatory and fiscal instruments that can reduce pollution. Both direct instruments (like effluent charges, tradable permits, deposit refund systems, emission regulations and regulatory agency funding for purification, cleanup, waste disposal, and enforcement) and indirect instruments (like input/output taxes and subsidies, substitution subsidies, abatement inputs, regulation of equipment and processes, and development of clean technologies) are examined. Examples are used to show how indirect instruments can be successful when monitoring and enforcement is too costly. A careful examination of distributive concerns illustrate how the effect on the poor may need particular consideration and how groups with vested interests can help evaluate the probable success of such interventions.

The cost of edible fish—Effects on the Swedish and finnish forest industries from the imposition of effluent charges on chlorine residuals in Sweden

An urgent issue in environmental protection in Sweden and Finland is the reduction of discharges of organic chlorine compounds produced by bleached chemical pulp manufacturing into the Baltic Sea. To speed up the process, the Swedish Government is currently considering introduction of an effluent charge on chlorine residuals. This would raise the cost of chlorine-bleached pulp and paper products in Sweden and induce restructuring of the forest industries of both Sweden and Finland. These effects, and the total cost to Sweden, including the deadweight loss on the pulpwood market are analysed. A computable model for comparative static analysis on the long-term equilibrium on the Swedish and the Finnish pulpwood markets is developed. It is shown that, on one hand, the marginal cost of emission control through product substitution is less than the marginal cost of technical purification measures to reduce discharges per unit of output, but, on the other hand, the role played by product substitution induced by an effluent charge will be minor in comparison to the effects that can be attained by traditional regulation through emission standards.

The Effects of Pricing Policies on Water Conservation and Drainage

AbstractA general model of adoption of input‐conserving technologies by competitive firms is introduced using drip irrigation as an example. An environmental regulation such as a drainage effluent charge is shown to influence adoption. Early adopters are likely to be producers with less efficient fixed assets (land of low quality or antiquated capital), higher input costs (higher water prices or greater depth to groundwater), and in more environmentally sensitive regions. Simulations show that drainage regulations can be expected to play a major role in adoption of more efficient irrigation technologies in California. Thus, conservation may be a key to solving resource scarcity problems and reducing external environmental costs.

Permits and effluent charges in the water pollution control policies of France, West Germany, and the Netherlands

In this article the water pollution control policies of these countries and their effects on emitters are analyzed. In the Netherlands, local water control boards levy pollution charges on both direct and indirect emitters. The charges are based upon measured emissions and actual treatment costs and they vary among the boards. Discharges into surface waters are by permission only. West German law sets nationally uniform rates only for direct emitters and some pollutants, irrespective of treatment costs. The States (Länder), however, may make indirect emitters liable to pay as well. In France, river basin agencies charge emitters and grant discounts where abatement facilities have been installed. Further policy instruments are tax cuts, subsidies, and standards set on local and national levels. France, in this complex policy, also uses contrats de branche where government and industries agree by contract on pollution abatement. Evidence shows that all these policies have reduced water pollution. As emissions decrease, problems of overcapacity might occur where collective water treatment plants have been installed already. Moreover, investment in additive abatement technology may inhibit the introduction of low-waste, integrated technologies. Yet the development of the latter, though expensive in the short run, should enable industry to meet more stringent standards in the future.

Effluent charges on municipal wastewater treatment facilities: In search of their theoretical rationale

Effluent charges on municipal wastewater treatment facilities: In search of their theoretical rationale