The Politics of the Environment: Ideas, Activism, Policy, 2nd Edition

Policy instruments and implementation

12.2 Market-based instruments

A market-based instrument internalises into the

price of a good or product the external costs to

the environment of producing and using it.

Eco-taxes

User charges Fees payable for

treatment, collection and

disposal costs of wastes

or other environmental

administration

Emission charges Charges on the discharge

of pollutants into air, water

or soil (i.e. directly linked to

quantity and quality of

pollutant), e.g. taxes on

sulphur emissions, or

water effluent charges.

Product charges Charges on harmful

products, e.g. fertilisers,

pesticides, low sulphur

petrol, plastic bags,

batteries.

Tradeable permits Environmental quotas that

are tradeable, e.g. SO 2

and CO 2 emissions,

fishing quotas.

Deposit-refunds Charge on a polluting

product that is refunded

if the product is returned

after use, e.g. beverage

containers.

Sources:Turner et al. ( 1994 ); OECD ( 1997 );

EEA (2006a).

of production, including the use of public goods such as air, water or land for
emissions. An MBI internalises these external costs into the price of a good
(Turner et al. 1994 :145)bymeansofanexplicit government intervention
in the market.^2 The MBIs with most potential are eco-taxes and tradeable
permits (see Box12.2). The refundable deposit, such as the returnable deposit
imposed on drink containers in Denmark and several US states (Rabe 2006 :
40), can also be an effective means of rewarding environmental concern and
punishing neglect.^3
Eco-taxesare levied on pollution or on the goods whose production gen-
erates pollution. Direct effluent charges are most appropriate where pollu-
tion is concentrated, such as chemical emissions from a power-station or
factory discharges in a river. Where pollution is widely dispersed, as with
farm wastecontaining fertiliser nitrates orCO 2 from vehicle exhausts, it
may be easier to tax the source, namely the fertiliser containing nitrate or
the fuel containing carbon (Jacobs 1991 :141). The rationale for eco-taxes is
that the government decides the ambient standard of pollution it wants
to achieve and sets a tax at a level that will achieve that outcome. Unlike
aregulatory standard, a tax allows the individual polluter the flexibility
todecide how (and how far) it will reduce pollution. Those firms that
can cut pollution relatively cheaply will pursue abatement further than
those for whom it is relatively expensive (who will pay more tax). Thus eco-
taxes are more efficient than regulation because the same level of pollution
abatement should be achieved for a lower overall cost to industry. Moreover,
whereas regulation offers no incentive for firms to reduce pollution below
theambient standard, eco-taxes provide a constant incentive for industry to