Incentive-based Policies Research Articles

Deforestation in Australia: drivers, trends and policy responses

Australia’s terrestrial environment has been dramatically modified since European colonisation. Deforestation – the clearing and modification of native forest for agricultural, urban and industrial development – remains a significant threat to Australia’s biodiversity. Substantial policy reform over the last 40 years has delivered a range of policy instruments aimed to control deforestation across all Australian States and Territories. Despite these policy efforts – as well as strong governance and high institutional capacity – deforestation rates in Australia were nonetheless globally significant at the turn of this century. Legislation introduced in Queensland and New South Wales during the mid-2000s was at the time seen to have effectively ended broad-scale clearing; however, recent policy changes have raised concerns that Australia may again become a global hotspot for deforestation. Here, I describe the deforestation trends, drivers and policy responses in Australia over the last four decades. Using satellite imagery of forest cover and deforestation events across Australia between 1972 and 2014, I present a comprehensive analysis of deforestation rates at a fine resolution. I discuss trends in deforestation with reference to the institutional, macroeconomic and environmental conditions that are associated with human-induced forest loss in Australia. I provide a detailed history and critique of the native vegetation policies introduced across Australia over the last 40 years, including recent legislative amendments and reviews. Finally, I comment on future prospects for curbing deforestation in Australia, including the role of incentive-based policies such as carbon farming, private land conservation and biodiversity offsets. Despite being a highly active policy space, very little is known of the effectiveness of policy responses to deforestation in Australia, and whether the recent shift away from ‘command and control’ policies will necessarily lead to better outcomes. My analysis demonstrates the need for an effective policy mix to curb deforestation in Australia, including a greater focus on monitoring, evaluation and policy learning.

An energy-constrained state priority list model using deferrable electrolyzers as a load management mechanism

To reduce the consumption of fossil fuel and greenhouse gas (GHG) emissions, incentive-based policies are used to encourage end-users to utilize more clean energy. Hydrogen energy is an ideal clean energy that can be integrated into the next generation power grid. Deferrable electrolyzers (DEs), as a typical electricity-to-hydrogen conversion devices and capable of modulating power consumption, can convert excessive power to store electricity as hydrogen. Therefore it can be used as a method for load management. The main contribution of this paper is to propose an energy-constrained state priority list (ECSPL) model, for analyzing the charging response of aggregated loads consisting of DE units. The typical hysteresis control of DEs as a load management mechanism is first discussed. A characteristic parameter, i.e. the energy state of DE charging load, is used to group and prioritize the DE units. The proposed ECSPL model optimally determines the operating status of DE charging and standby process, and it maintains the user-desired DE charging trajectory considering customer-constraints. The proposed model maintains the diversity of operating status of DE charging and standby process to prevent unexpected synchronization phenomenon for operating status. To evaluate the performance of the proposed method, an estimated baseline of the aggregated DE charging loads is obtained based on natural hysteresis control. The ECSPL control method of DE units for intra-hour load balancing is then evaluated. The effects of different energy-constraints, deadbands of sampled end-use state comparison, error associated with the charging-trajectory measurements are modeled to evaluate the performance of controlled DE group. The ECSPL model is described and demonstrated by the modeling results of investigated DE units.

Getting Citizens to Save: Media Influence on Incentive-Based Policies

AbstractGovernments often introduce financial incentives to citizens in order to encourage ‘personally responsible’ behaviour. Examples of these types of incentives include tax-deferral or tax-free incentives around retirement savings. These types of incentives are shown to matter to investment strategies in the aggregate, but we still lack a full explanation as to how individuals respond to these types of incentives, and what role media play in advertising these incentives. This paper illustrates the potentially vital role that media play in enhancing contributions to one incentive-based policy, the Registered Retirement Savings Plan (RRSP) in Canada (2000–2013), using aggregate contribution data, media data, as well as individual-level survey data from the Canadian Financial Capability Survey. Results show that media advertising of the programme influences contribution outcomes and, while media may not outweigh lifecycle effects such as proximity to retirement, it is nonetheless an essential – and overlooked – motivator for contributions to late-life savings.

INCENTIVES, MARGINS, AND COST EFFECTIVENESS IN COMPREHENSIVE CLIMATE POLICY FOR THE POWER SECTOR

Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of the resources used to produce power. Several different incentive-based policies have been proposed ranging from setting minimums for clean generation sources to maximum emission rate standards and caps on CO2emissions, all of which are allowed under the EPA’s Clean Power Plan. This paper analyzes the economic consequences of a suite of different flexible and comprehensive policies to reduce CO2emissions from the power sector, including a carbon tax, a tradable emissions rate performance standard, and two versions of a clean energy standard (CES). Modeling results suggest that policies that encourage emissions reductions along multiple margins can be substantially more cost-effective than less flexible policies. The margins are intra and inter fuel, and technology substitution, electricity demand, and generator fuel efficiency. Despite cost differences, all of the policies result in substantial increases in social welfare.

Optimal policy instruments for externality-producing durable goods under present bias

When consumers exhibit present bias, the standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities for present-biased consumers. Optimal policy includes an instrument to correct the externality and an instrument to correct the present bias. Either instrument can be an incentive-based policy (e.g. a tax on fuel economy) or a command-and-control policy (e.g. a fuel economy mandate). Under consumer heterogeneity, a command-and-control policy may dominate an incentive-based policy. Calibrated to the US automobile market, simulation results suggest that the second-best gasoline tax is 3–30% higher than marginal external damages. The optimal price policy includes a gasoline tax set about equal to marginal external damages and a fuel economy tax that increases the price of an average non-hybrid car by about $550–$2200 relative to the price of an average hybrid car.

Evaluating management strategies to enhance biodiversity in conservation developments: Perspectives from developers in Colorado, USA

Conservation development (CD) refers to a set of land development techniques aimed at minimizing impacts on natural resources. Typically, homes are clustered and open space is set aside for conservation. The evidence for the effectiveness of CDs in conserving biodiversity is mixed, with some studies attributing these results to a lack of stewardship in conserved areas. The purpose of this research was to ask landowners and developers to evaluate which conservation practices, as part of a policy scenario, would be most acceptable. We surveyed landowners and developers who had created CDs in north-central Colorado; we solicited their attitudes about native wildlife conservation and willingness to adopt four conservation practices, given proposed incentive-based policies. We also conducted semi-structured interviews with respondents to elaborate on their response to these proposed incentives, as well as two potential funding mechanisms for managing the open space for biodiversity (homeowners’ association dues and a property tax). Overall, we found moderate support for the conservation practices, some interest in two types of incentives (a housing density bonus and fast-tracking permits), and opposition to the two proposed funding mechanisms for land stewardship. Our findings suggest that CD developers in Colorado would be willing to adopt conservation practices, and are generally supportive of incentive-based policies, but greater understanding of homeowners’ willingness to pay for conservation features is needed to gain support for a funding mechanism.

“We are the city lungs”: Payments for ecosystem services in the outskirts of Mexico City

Payments for ecosystem services (PES) have emerged as an incentive-based policy instrument to manage and secure the flow of ecosystem services for human wellbeing. PES implementation has been mostly examined in rural areas but very few studies have paid attention to experiences in rural–urban landscapes that provide critical ecosystem services for densely populated areas. Informed by household surveys and focus groups, we analyze the implementation of Mexico's federal program of Payments for Watershed Services (PSAH in Spanish) in two communities located in the rural–urban fringe of Mexico City, paying attention to landowners’ dependence on ecosystem services and both perceived benefits and costs of participating in the PSAH program. We demonstrate that landowners are generally aware of the critical services they provide to the city and beyond but there is a skewed level of knowledge regarding the program objectives and an uneven sharing of its benefits. The latter is influenced by collective organization and environmental history, with higher knowledge and more equitable benefit sharing present in the community with a more long-standing commitment to forest conservation. The PSAH incentive contributes to household income but it is clearly insufficient to motivate strong family and collective action towards halting land-use change beyond the PSAH targeted area. We thus argue that conservation policy in urban–rural fringes needs to be accompanied by effective land-use planning at regional level. This should involve multiple stakeholders and the re-conceptualization of Mexico City surrounding agricultural lands and forests as spaces to be governed for the provision of ecosystem services rather than as areas over which the city can expand.

Mandatory Versus Incentive-Based State Zoning Reform Policiesfor Affordable Housing in the United States:A Comparative Assessment

To break the chain of exclusionary zoning and produce affordable housing, mandatory state zoning reform policies have been in place for a couple decades in the United States. Their success is often constrained by local resistance and noncompliance. Some scholars argue that the lack of incentives to communities for affordable housing production is one of the main reasons for their resistance to state mandates. At present, no incentive-based state zoning reform policy is at work except in Massachusetts. Inclusionary zoning policies do offer incentives to developers but not to communities. This article examines the strengths and weaknesses of mandatory state policies and Massachusetts's incentive-based policy and offers policy insights for the future.

Economic and conservation implications of a variable effort penalty system in effort-controlled fisheries

Bycatch of threatened, endangered or protected species by commercial fishers is a universal problem. Technical solutions are often applied that may impose inefficiencies across the fleet, even in periods or areas when the risk of bycatch is low. These may include gear specifically designed to avoid the bycatch which may also reduce the targeted catch, or designation of marine protected areas that exclude fishing from whole areas. In this article, we examine the effectiveness of a variable penalty system that can provide incentives for fishers to redirect their effort away from problem areas. The system is examined using a case study of fishery, which is currently subjected to gear and closure controls to limit bycatch of turtles and seabirds. An alternative incentive-based management policy using a series of differential hook penalties has been proposed as a flexible tool to discourage vessels operating in certain areas. The effects of various hook penalties and closures in key areas on fishing effort in those areas and elsewhere as well as vessel economic performance are assessed using a location choice model. The results suggest that incentive-based approaches may result in lower costs to industry than closures provided some level of residual bycatch is acceptable.

The transformation of Scottish fisheries: Sustainable interdependence from ‘net to plate’

The European Union's Common Fisheries Policy (CFP) is often considered inflexible and inherently failing. Yet, the recent experience of Scottish fisheries suggests that change is possible. Not confining themselves to limiting visions of the CFP, private collective and public actors across the industry in Scotland have worked to give new meaning to fisheries practices through institutionalizing their own understandings of sustainability. This is not just rhetoric. Rather, industry conditions of collapsing stocks have been re-problematized; new spaces of public/private action have been created and engaged in; new incentive-based policy instruments have been designed and operationalized. Throughout, interconnections between natural and social orders have been acknowledged and built into policymaking processes. However, these transformations could not have been achieved if other forms of political and economic interdependence had not also been recognised and worked upon. These include techno-political interdependencies of knowledge; spatial interdependencies of territory and domain interdependencies of production and commercial practices. It is active awareness of these which ultimately enabled actors to transform their fisheries from ‘net to plate’.

A general technology adoption model of solar photovoltaic under feed-in tariff policy incorporating learning and network effects

There is now a plethora of renewable energy policy instruments to support the adoption of renewable energy technology and the generation of renewable electricity. Different ways to characterize such policies have included whether these policies are Price driven or Quota (Quantity) driven, generation based or capacity driven, etc. All such incentive-based policies (vs. Command and control policies) attempt to correct market failure of under supply of renewable energy. This paper uses a technology adoption approach to study the feed-in tariff policy for the photovoltaic (PV) technology. We developed a general economic model to study the adoption incentive for smaller system under a feed-in tariff regime. The model incorporates both the learning effect of system cost and a negative network externality effect inherent in the feed-in tariff policy. The latter is due to that nonadopters would need to contribute to payment for adopters' electricity generation. Using numerical methods, we demonstrated that the feed-in tariff model has the potential to exhibit bandwagon or accelerated adoption effects. Cost learning is key to contributing to this but network effects would serve to dampen it. Our model seems to able to explain the rapid growth pattern in PV systems installation capacity and generation in Germany during the growth period of 1999–2003. We explore some policy implications of the model and suggest future research directions.

Emirati Women and Public Sector Employment: The Implicit Patriarchal Bargain

An implicit patriarchal bargain between Emirati fathers and daughters is examined from a social constructionist perspective. Using qualitative methodology we found that fathers explicitly encourage their daughters to pursue tertiary education and careers, but hedge this break from tradition with implicit understandings that daughters will observe norms that can only realistically be followed in public sector employment. The persistent public-private imbalance in female employment patterns can thus be construed, as a ‘wicked problem” that cannot be addressed through market incentive-based policies such as Emiratization but rather through behavioral changes on the part of both UAE businesses and Emirati families.

Fostering Incentive-Based Policies and Partnerships for Integrated Watershed Management in the Southeast Asian Uplands

This paper attempts to identify the major factors associated with some of the failures and successes of integrated watershed management policies and projects with a particular emphasis on the uplands of mainland Southeast Asia. It argues that many policy measures have been misguided by failing to acknowledge the multidimensional facets of sustainable watershed management and putting too much emphasis on command-and-control approaches to resource management and onesize-fits-all conservation models. Attempts to introduce soil and water conservation measures, for instance, have largely failed because they concentrated merely on the technical feasibility and potential ecological effects, while neglecting economic viability and socio-cultural acceptance. The production of agricultural commodities, on the other hand, has mostly been market-driven and often induced boom and bust cycles that compromised the ecological and social dimensions of sustainability. Purely community-based approaches to watershed management, on their part, have often failed to address issues of elite capture and competing interests within and between heterogeneous uplands communities. Drawing on a review of recent experience and on lessons from initiatives in a long-term collaborative research program in Thailand (The Uplands Program) aimed at bridging the various dimensions of sustainability in the Southeast Asian uplands, this paper discusses how a socially, institutionally and ecologically sustainable mix of agricultural production, ecosystem services and rural livelihood opportunities can be achieved through incentive-based policies and multi-stakeholder partnerships that attempt to overcome the (perceived) antagonism between conservation and development in upland watersheds of Southeast Asia.

Managers’ Environmental Altruism and Firms’ Compliance to National Environmental Management Strategies: Evidence from the Food Processing Sector in Sri Lanka

The environmental economics literature highlights that incentive-based policies (e.g. taxes, tradable permits) are more efficient than command-and-control type regulations that require each firm to adopt the same abatement technology and that the adoption of such controls in the firm is not only driven by organizational-level determinants but are also the outcomes of environmental paradigms of the management or rather its environmental altruism. Hence, this study was aimed to examine the degree of influence their altruistic behavior possess in complying to the environmental management controls, using the special case of “non-adopters” of the “ National Strategy for Solid Waste Management ” recently introduced by the Ministry of Environment, under which, a set of environmental management controls with the characteristics of technology standards are recommended for the Sri Lankan food processing industry to minimize the accumulation of solid waste in the firm and reduce industrial pollution as a whole. The firms involved with processing of different types of food products at various scales in the most densely populated provinces in Sri Lanka, but did not comply with any of the environmental controls recommended by the ministry by May 2010 (n=150) were selected for the study. Data were collected through personal interviews with the person responsible for implementing environmental controls of the firm, supported by a structured questionnaire comprised of a set of attitudinal statements which encapsulates the degree of environmental altruism of the respondent. The scores given to each statement by the firms on a two-way fivepoint Likert scale were subjected to a series of Multivariate Data Analysis techniques (e.g. Principle Component Analysis, Scale Reliability testing), and the outcome of which was used to derive an Environmental Altruistic Index (EAI) and a Weighted Environmental Altruism Index (WEAI) – an additive index of which the values range from -1.00 (perfectly non-altruistic) to 1.00 (perfectly altruistic). The results suggest that the values of EAI were relatively low i.e. 0.25, on an average, of the WEAI ranges from -1 to 1. This implies that, amongst the other internal (e.g. cost, efficiency) and external (e.g. commercial pressure, liability) forces and coercive government pressure, it is equally important to augment the environmental altruism of decision-makers through better education and awareness programs alongside an incentive-based regulatory framework to increase the level of adoption of environmental controls at the firm level. DOI: http://dx.doi.org/10.4038/jfa.v2i2.4175 JFA 2009; 2(2): 6-15

Abatement cost functions for incentive-based policies in the automobile market

This paper compares the outcomes of policies that target vehicle holdings with those that target vehicle usage using data from the US Consumer Expenditure Survey. Results show that a higher price of gasoline shifts vehicle holdings towards more fuel efficient vehicles and reduces the annual demand for miles, whereas imposing a fee on vehicles or a feebate program only shifts vehicle holdings towards more fuel efficient vehicles and has little to no impact on the demand for miles. While it is relatively expensive to reduce CO 2 emission through incentive-based policies, achieving any abatement level is more expensive through imposing fees on vehicles than gasoline taxes. In addition, the maximum amount of abatement attainable by a feebate program is relatively small and the same amount could be achieved by imposing a $0.73 gasoline tax per gallon.

Towards New Policy Incentives for Fixed Capital Investment and Technological Upgrades in Russia

The paper approaches the problem of private fixed capital underinvestment in Russia. The author uses empirical studies of the Russian economy and cases of successful technological modernization to outline several groups of disincentives for private companies to perform fixed capital investment in Russia. To counter these constraints, a certain incentive-based economic policy framework is developed.

The Effects of Municipal Policy on Green Building Designations in the United States

This article describes the results of a quantitative examination of the effect of municipal policies on the number of commercial office buildings with a green building designation. Many states and cities have adopted green building requirements and incentives as policy instruments. During this study, an ordinary least square (OLS) regression analysis was conducted using American inner cities as a unit of analysis and coding municipal green building regulations and incentives as four separate dummy variables. The study also included four factors grouped by a factor analysis-supply-side factors, demand-side factors, air quality, and temperature-to control for external effects that can affect the decision to implement green building construction. The results indicate that, at the municipal level, regulatory policy has been a strong tool to promote green office building developments, as expected, but incentive-based policies have not been as effective, with the exception of administrative incentives.

The impacts of carbon tax and complementary policies on Chinese economy

Under the pressure of global warming, it is imperative for Chinese government to impose effective policy instruments to promote domestic energy saving and carbon emissions reduction. As one of the most important incentive-based policy instruments, carbon tax has sparked a lively controversy in China. This paper explores the impact of carbon tax on Chinese economy, as well as the cushion effects of the complementary policies, by constructing a dynamic recursive general equilibrium model. The model can describe the new equilibrium for each sequential independent period (e.g. one year) after carbon tax and the complementary policies are imposed, and thus describe the long-term impacts of the policies. The simulation results show that carbon tax is an effective policy tool because it can reduce carbon emissions with a little negative impact on economic growth; reducing indirect tax in the meantime of imposing carbon tax will help to reduce the negative impact of the tax on production and competitiveness; in addition, giving households subsidy in the meantime will help to stimulate household consumptions. Therefore, complementary policies used together with carbon tax will help to cushion the negative impacts of carbon tax on the economy. The dynamic CGE analysis shows the impact of carbon tax policy on the GDP is relatively small, but the reduction of carbon emission is relatively large.

The efficiency of voluntary incentive policies for preventing biodiversity loss

Habitat loss is a primary cause of loss of biodiversity but conserving habitat for species presents challenges. Land parcels differ in their ability to produce returns for landowners and landowners may have private information about the value of the land to them. Land parcels also differ in the type and quality of habitat and the spatial pattern of land use across multiple landowners is important for determining the conservation value of parcels. This paper analyzes the relative efficiency of simple voluntary incentive-based policies in achieving biodiversity conservation objectives. This topic is important not just for biodiversity conservation but for any effort to provide a public good requiring coordination across multiple decision-makers who have some degree of private information. We develop a method that integrates spatially explicit data, an econometric model of private land-use decisions, landscape simulations, a biological model of biodiversity as a function of landscape pattern, and an algorithm that estimates the set of efficient solutions. These methods allow us to simulate landowner responses to policies, measure the consequences of these decisions for biodiversity conservation, and compare these outcomes to efficient outcomes to show the relative efficiency of various policy approaches. We find substantial differences in biodiversity conservation scores generated by simple voluntary incentive-based policies and efficient solutions. The performance of incentive-based policies is particularly poor at low levels of the conservation budget where spatial fragmentation of conserved parcels is a large concern. Performance can be improved by encouraging agglomeration of conserved habitat and by incorporating basic biological information, such as that on rare habitats, into the selection criteria.

The Distinction between Dictatorial and Incentive Policy Interventions and its Implication for IV Estimation

We investigate if, and under which conditions, the distinction between dictatorial and incentive-based policy interventions affects the capacity of Instrument Variable (IV) methods to estimate the relevant treatment effect parameter of an outcome equation. The analysis is set in a non-trivial framework, in which the right-hand side variable of interest is affected by selectivity, and the error term is driven by a sequence of unobserved life-cycle endogenous choices. We show that, for a wide class of outcome equations, incentive-based policies may be designed so to generate a sufficient degree of post-intervention randomization (a lesser degree of selection on individual endowments among the sub-population affected). This helps the instrument to fulfill the orthogonality condition. However, for a same class of outcome equation, dictatorial policies that enforce minimum consumption cannot meet this condition. We illustrate these concepts within a calibrated dynamic life cycle model of human capital accumulation, and focus on the estimation of the returns to schooling using instruments generated from mandatory schooling reforms and education subsidies. We show how the nature of the skill accumulation process (substitutability vs complementarity) may play a fundamental role in interpreting IV estimates of the returns to schooling.