Internalization Of External Costs Research Articles

Implementation of the Polluter Pays Principle: Economic Approaches to Pollution

This work presents an economic analysis of the issues surrounding pollution and the pollution pays principle (PPP) such as the conflict between economics and ecology, externalities, internalization of external costs, solutions to externalities, the economic instruments as recommended by the OECD and the European Union (EU) and their economic analysis. It describes the traditional way of reducing pollution, i.e. ‘command and control’ or CAC and the various economic instruments, i.e. emission charges and tradeable discharge permits or TDPs, overlapping between the PPP and the User Pays Principle (UPP) and the Victim Pays Principle (VPP).

Selected implications of negative externalities – on the example of the Polish energy sector

The aim of this paper is to present selected issues of the effective allocation of resources and its function in optimal decision-making processes. The authors focus on the economic consequences of market failure in the case of external effects – both positive and negative. It has been characterized from the theoretical perspective by illustrating the economic implications of this situation for producers (producers surplus), consumers (consumer surplus), and the environment (external costs and benefits). This paper shines a light on effective levels of production, the subsidies to producers (in the case of positive externalities), or correcting tax (in the case of negative externalities). Moreover, the decision rules that are used in the cost-benefit analysis (a method supporting the decision-making process undertaken by both private entities and public authorities) are given. There are specific examples of its application in order to achieve allocative efficiency. An exception of its use is to achieve cost efficiency, which does not ensure that a project, program, or policy is socially optimal and desirable. The second part of this paper includes theoretical implications of market failure. The results of the authors’ mathematical model that is used to optimize long-term energy sector development are presented. The importance of the presented results is that they reflect development of the Polish energy sector, both from the private and public viewpoint, taking into account the adverse effects caused by the emission of gaseous pollutants. Consumer and producer surpluses were the bases to estimate costs and benefits of change in the social welfare. It has been proven that the use of private welfare criterion is incorrect. The internalization of external costs (which means including them in decision-making criterion, significantly – i.e., 24%) increases the level of social welfare achieved on the scale of the whole Polish energy sector.

THE INTERNALISATION OF EXTERNAL COSTS OF CO2 AND POLLUTANT EMISSIONS FROM PASSENGER CARS

The paper's goal is to unify practical and theoretical aspects of internalisation of external costs, in line with the “polluter pays” and “user pays” principles. Due to the impossibility of applying an ideal economic solution for internalisation of external costs, alternative solutions have to be developed and implemented. One of the possible solutions for internalisation of external costs of CO2 and pollutant emissions from passenger cars is presented in this paper. It is a new methodology for calculating annual circulation taxes on passenger cars. This methodology, besides CO2, also takes into account the pollutants whose emissions are regulated by the Euro standards (CO, HC, NOx and PM), as well as the vehicle age and kilometres driven. The proposed methodology has been tested on some of the best-selling passenger cars in Europe. The results of analysis show significant differences between our methodology and the methodologies that are used in five European countries (Ireland, the United Kingdom, Malta, Luxembourg and Sweden), which use the CO2 emissions as a reference value for their calculation. Also, we have proved that the annual circulation tax, calculated using our methodology, provide better internalisation of external costs compared to the fuel tax.

Internalisation of external costs of transport–A target driven approach with a focus on climate change

The traditional answer of economists to the problem of internalising external costs of transport is “setting prices right”. In a neoclassical economic world this would correspond to setting prices according to marginal social costs. The neoclassical world is far from reality, however, and therefore workable instruments have to be developed with respect to technology, transaction costs and social acceptance. From this follows that the appropriate lever point for public intervention has to be identified for every type of externality of transport. This results in a strategy bundle for which every instrument should be optimised according to economic rules. While the principle appears simple its implementation leads to rather complex follow-up problems. Some instruments have only partial effects and should be complemented by further instruments (e.g.: emission trading in the case of climate change). Other instruments have various side impacts and influence some external effects in the desired direction but others in a counterproductive way (e.g.: emission standards for NOx and PM and their impacts on CO2). In this paper we give a brief outline of the theoretical foundation of the problem, which can be formulated as a multi-objective programming problem. Based on this we suggest a heuristic solution, which translates essential objectives into constraints in form of safe minimum requirements for objective achievement. The problem reduces then to find least cost solutions for the design of instruments, which are employed to achieve the safe minimum requirements. In this approach the “right prices” for external effects come out as by-products of the optimal solution (shadow prices) and can be compared with the results of direct marginal external cost estimations. We give examples for the quantification of external costs of noise and of climate change, based on this approach.

Towards a sustainable transport system

This report presents the results of an innovative study into the internalisation of external costs and the lessons that can be built on further, especially for a major inland-waterway infrastructure project, the “Saône-Moselle/Saône-Rhine” (SMSR) project, which in future is going to provide a link between the Mediterranean Basin and Germany as well as the rest of Europe, passing through France.

Internalization of External Costs of Energy Generation in Central and Eastern European Countries

In this article a bottom-up approach to quantification of air pollution externalities from electricity generation is used to show that market-based instruments are not very effective in internalizing these external costs in six CEE countries. Although governments in CEE countries have regulated air emissions by imposing strict command-and-control measures, most of them have also introduced air emission charges and more recently taxes on electricity. We find however that the level of internalization by these two economic instruments is fairly low for existing fossil-fired power plants ranging from 3% for coal- and lignite-fuelled plants to 31% for gas-fuelled plants. The picture improves if cross-subsidies for renewable electricity are accounted for but the internalization level is still below air pollution–related external costs, between 9% and 55% for coal- and oil-fired power plants. A substantial overinternalization by these three instruments is however encountered in the case of gas-fired power plants.

防災•減災による外部不経済の内部化: 復興のための新規需要

防災•減災による外部不経済の内部化: 復興のための新規需要

A generation dispatch model internalizing external costs of power plants

SUMMARYThere are two kinds of generation dispatch models under trial operation in today's Chinese electric power industry, that is, the model based on the electricity market and the model based on energy‐saving generation. In this paper, the theory of energy consumption rights trading and pricing is firstly presented. And then a new generation dispatch model based on internalization of external costs of electric power plants is proposed. The model revises the market settlement with external cost. Through the simulation analysis on East China electricity market, it is shown that the new model achieves a joint optimization of energy saving, emission reduction, and economic benefits. Copyright © 2011 John Wiley & Sons, Ltd.

Motor fuel taxes and the environmental protection

Motor fuel taxes are primarily revenue-raising taxes. However, due to high fuel consumption these taxes can be quite an efficient source of general budget revenue in many countries. It seems that the taxes on motor fuels may also be useful instruments for environmental policy or climate change policy. Environmental objectives can be achieved through change of behavior of drivers. The paper presents theoretical basis for taxes levied on motor fuels. Attention is paid to the problem of external costs of transport and internalization of external costs by applying taxes on motor fuels. The article also contains a review of the European Union countries experience with taxes levied on motor fuels (such as: petrol, diesel oil, liquid petroleum gas and compressed natural gas). The author discusses the structure of fuel taxation and tax rates in different countries. Attention is also paid to the fuel taxes which are principally intended to change behavior, not to raise revenue (particularly carbon taxes) and to the ‘environmentally friendly’ tax differentiations. The paper is based on the available literature and reports published by various organizations (Eurostat, the OECD).

The transit network design problem with elastic demand and internalisation of external costs: An application to rail frequency optimisation

In this paper we examine the transit network design problem under the assumption of elastic demand, focusing on the problem of designing the frequencies of a regional metro. In this problem, investments in transit services have appreciable effects on modal split. Neglecting demand elasticity can lead to solutions that may not represent the actual objectives of the design. We propose four different objective functions that can be adopted to assume demand as elastic, considering the costs of all transportation systems (car, bus and rail) as well as the external costs, and we define the constraints of the problem. Heuristic and meta-heuristic solution algorithms are also proposed. The models and algorithms are tested on a small network and on a real-scale network.

Implementation of 'Coase Theorem' for the purpose of internalization of ecological cost in the law system of Republic of Serbia

Economic Analysis of Law (Law and Economic) starts from the assumption that the target of legal norms is to enable efficient resource allocation. The phenomenon of ecological costs as a part of negative externalities leads to inefficiency. The government is expected to create an institutional framework that will provide internalization of all costs, in order to succeed optimal economic behavior of all parties. One of the methods to reach the goal is by agreement of interested parties, contained in the 'Coase Theorem'. The first article is about ecological cost as a part of negative externalities and a way it leads to deviation of optimal economic behavior. Afterwards, the basic assumptions about internalization of external cost through agreement of interested parties are exposed. Then the specifics of ecological cost as a part of externalities are shown, which only in some cases leads to an agreement that provides optimal results. At the end, the possibility of contamination licenses market is discussed, where in certain circumstances the achievement of optimal behavior of all parties could be expected through their mutual coordination and exchange of resources they possess.

Heavily regulated, but promising prospects: Entry in the German Express Coach Market

Domestic express coach services in Germany have long been heavily restricted by regulation, although offerings comparable to countries like, for example, Great Britain or Sweden bear substantial opportunities for competition, the environment, and mobility. In this paper, we motivate market entry in the German express coach market for local public and integrated transport companies by high profitability rates in other countries and the availability of bus facilities and skills. This is followed by the evaluation of supply and demand. Supply is represented by an analysis of external and internal costs showing that express coaches have significant cost advantages that are intensified by the possible internalization of external costs. Demand is represented by a survey of customers that is evaluated with a conjoint analysis. Our results suggest a market share for express coach services in Germany of at least 5.3%.

The Game Analysis of Negative Externality of Environmental Logistics and Government Regulation

This paper mainly discuss the negative externality problems involved in environmental logistics and the necessity of government regulation, and the government’s role in resolving negative externality. In the process of environmental logistics, around the interest distribution after the internalization of external cost, it exists a series of games among parties of logistics systems, including game between enterprises and environment, game between enterprises and game between government and enterprises. Through the analysis of game model, we conclude that environmental logistics cannot only rely on the market forces, the government should play a greater role. The economic incentives based on market are the most effective way to resolve negative externality and at the same time we should avoid rent-seeking behavior. The government should accelerate the process of environmental logistics in China by increasing the intensity of propaganda of environmental logistics, making evaluation standard of environmental logistics, carrying out financial subsidies on environmental logistics, and guiding enterprises participating the technology development of environmental logistics.

A decision analysis framework for intermodal transport: Comparing fuel price increases and the internalisation of external costs

This paper presents the impact of fuel price increases on the market area of intermodal transport terminals. Aim of this research is to determine whether an increase in fuel prices is sufficient enough to raise the market area of intermodal transport to the same degree that would be accomplished by stimulating intermodal transport through policy instruments. Therefore, several fuel price scenarios are analysed in order to verify the impact of different fuel price evolutions on the market area of unimodal road transport compared to intermodal transport in Belgium. The LAMBIT-model (Location Analysis for Belgian Intermodal Terminals), which is a GIS-based model ( Macharis and Pekin, 2008), is used to analyse the different fuel price increases and enables a visualisation of the impact on the market area. The LAMBIT model incorporates the different network layers for each transport mode by setting up a GIS network that includes four different layers: the road network, the rail network, the inland waterways network and the final haulage network. The geographic locations of the intermodal terminals and the port of Antwerp are added as nodes in the network and the Belgian municipality centres are defined and connected to the different network layers. Based on the different fuel price scenarios representing respectively a fuel price increase with 10% (low price case), 50% (business as usual case) and 90% (high price case), the results of the LAMBIT model show that the market areas rise in favour of intermodal barge/road and intermodal rail/road. Depending on the scenario, the degree of modal shift however differs. Additionally, in order to compare policy measures with the effect of a fuel price increase, the internalisation of the external costs is analysed with the LAMBIT model. For some years, the European Commission is supporting the idea that transportation costs should reflect the true impacts on environment and society, and is relentlessly pushing towards the so called ‘internalisation of external costs’ as a policy instrument in order to establish fair and efficient pricing of different transport modes. This requires monetarizing the external effects of transport and adding them to the already internalized costs in order to give the correct price signals. Results of this comparative analysis performed with the LAMBIT model are also presented in this paper.

Accounting for external costs in a study of a Swedish district-heating system – An assessment of environmental policies

Sweden has historically had strict emission control by implementation of economic policy instruments with the aim of internalising the external costs of air pollution. This study aims to evaluate how well current Swedish policy instruments reflect the environmental costs associated with heat generation in several district-heating (DH) plants in the DH system of Göteborg. Furthermore, it aims to simulate and evaluate the operation of the DH system based on its social cost-effectiveness which takes into account the DH system’s private and external costs (non-internalised environmental costs). The study shows that the economic policy instruments do not fully internalise all external costs whereas for certain technologies, the costs in terms of taxes, emission permits, environmental fees, etc. are higher than the environmental costs caused by the pollutants, given the environmental cost estimates used in the study. The simulation results show that the deviating internalisation of external costs affects the economic ranking of the different plants within the studied DH system. The estimated loss in social-cost effectiveness of the operation of the DH system of Göteborg is noticable but relatively small if compared to the variable heat generation costs for most of the studied DH plants.

Eco-compensation effects of the wetland recovery in Dongting Lake area

Eco-compensation is an environmental economic instrument for internalization of external cost. Returning farmland to lake is one of the important parts of restoring wetland ecosystem function in the Yangtze River Valley of China. Whether the project of lake recovery can be successful depends on the compensation to the farmers who have lost their original benefits and contributed to the wetland ecosystem recovery by returning farmland to lake. Aiming at the wetland recovery of the Dongting Lake, the practical implementation of programs of the lake recovery and flood control in this area has been challenged by the heavy task of population resettlement, so it is an ideal area for case studies to reach the academic objectives proposed as the above. Based on field survey and experimentation, this research evaluated the benefit losses of the resettled farmers and the increased values of ecosystem service functions caused by wetland recovery, and furthermore, the value of eco-compensation for relocated farmers was calculated by considering the combination of the farmers’ compensation appeal. The value of eco-compensation for relocated farmers in the Dongting Lake area was 6084.5 yuan per household by synthetic analysis of the effects on wetland ecosystem restoration. Moreover, this article took Dongting Lake area as a case to study and explore the basic issues of the eco-compensation by returning farmland to lake, that was who should pay, who should be paid, how much the payment was and what the payment means was, which sought the mechanisms of wetland restoration eco-compensation and prompted the people℉s enthusiasms for ecological restoration.

Ship emissions and their externalities for Greece

The existing and emerging international and European policy framework for the reduction of ship exhaust emissions dictates the need to produce reliable national, regional and global inventories in order to monitor emission trends and consequently provide the necessary support for future policy making. Furthermore, the inventories of ship exhaust emissions constitute the basis upon which their external costs are estimated in an attempt to highlight the economic burden they impose upon the society and facilitate the cost–benefit analysis of the proposed emission abatement technologies, operational measures and market-based instruments prior to their implementation. The case of Greece is of particular interest mainly because the dense ship traffic within the Greek seas directly imposes the impact of its exhaust emission pollutants (NO x, SO 2 and PM) upon the highly populated, physically sensitive and culturally precious Greek coastline, as well as upon the land and seas of Greece in general, whereas the contribution of Greece in the global CO 2 inventory at a time of climatic change awareness cannot be ignored. In this context, this paper presents the contribution of Greece in ship exhaust emissions of CO 2, NO x, SO 2 and PM from domestic and international shipping over the last 25 years (1984–2008), utilizing the fuel-based (fuel sales) emission methodology. Furthermore, the ship exhaust emissions generated within the Greek seas and their externalities are estimated for the year 2008, through utilizing the fuel-based (fuel sales) approach for domestic shipping and the activity-based (ship traffic) approach for international shipping. On this basis, it was found that during the 1984 to 2008 period the fuel-based (fuel sales) ship emission inventory for Greece increased at an average annual rate of 2.85%. In 2008, the CO 2, NO x, SO 2 and PM emissions reached 12.9 million tons (of which 12.4 million tons of CO 2) and their externalities were found to be around 3.1 billion euro. With regard to shipping within the Greek seas, the utilization of the fuel-based (fuel sales) analysis for domestic shipping and the activity-based (ship traffic) analysis for international shipping shows that the ship-generated emissions reached 7.4 million tons (of which 7 million tons of CO 2) and their externalities were estimated at 2.95 billion euro. Finally, the internalization of external costs for domestic shipping was found to produce an increase of 12.96 and 2.71 euro per passenger and transported ton, respectively.

The role of public policy in stimulating radical environmental impact reduction in the automotive sector: the need to focus on product-service system innovation

Product-service system (PSS) innovation is a promising approach to address sustainability challenges in the automotive industry. Starting form this assumption, this paper presents and discusses the potential contribution that policy measures can have in fostering the automotive sector in innovating on a PSS level. A set of policy instruments (general instruments and specific PSS-targeted ones) are presented and classified, underlining the effects they could produce at the company and environmental levels. In order to effectively support sustainable PSS diffusion in the automotive industry, the paper suggests the integration of general policy measures (such as internalisation of external costs, extended producer responsibility programmes and informative policies), with the PSS-targeted ones (such as Green Public Procurement focused on sustainable PSS, support of companies in acquiring information related to PSS, support of demonstrative pilot projects). In addition, the paper suggests the necessity to involve actively universities and research centres.

Beyond BAT: Selecting optimal combinations of available techniques, with an example from the limestone industry

Technological choices are multi-dimensional and thus one needs a multi-dimensional methodology to identify best available techniques. Moreover, in the presence of environmental externalities generated by productive activities, ‘best’ available techniques should be best from Society's point of view, not only in terms of private interests. In this paper we present a modeling framework based on methodologies appropriate to serve these two purposes, namely linear programming and internalization of external costs. We develop it as an operational decision tool, of interest for both firms and regulators, and we apply it to a plant in the lime industry. We show why, in this context, there is in general not a single best available technique (BAT), but well a best combination of available techniques to be used (BCAT).

THE EFFICIENCY OF THE GREEN TAXES AS INSTRUMENTS FOR ENVIRONMENTAL PROTECTION

This paper focused on the green taxes, great actuality issue in the contemporary world. As research method, the paper is based on economical theory of externalities, their presence making the company to take decisions with different social effects. Starting from social cost and private cost of human activity, it is a debate regarding the internalization of external costs by applying the corrective taxes. The purpose of this paper it is the establishing of an optimal tax level which has as effect the decreasing of the overall cost of a negative externality (for example, the pollution) through controlling the external effects. Deriving from the analysis it has been disclosed that ideally the environmental taxes should be introduced over externalities source, meaning that taxes should report directly over emissions or environment services.