Pollution charges

'Pricing for Pollution', by Wilfred Beckerman (second edition published as Hobart Paper 66, by the Institute of Economic Affairs, 2 Lord North Street, London SW1P 3LB, tel 071 799 3745; fax 071 799 2137, L4-95 plus 50p p&p).

Dr Wilfred Beckerman of Balliol College, Oxford, has argued in print since 1956 that pollution is better controlled by charging for it through pollution taxes or marketable 'rights to pollute' than by regulating it. He notes that the world's politicians are beginning to catch up with him, giving the example of Sweden, where the use of pollution charges is most advanced, and the States, where Bush introduced a programme of 'emission reduction credits',with a market in such rights, to combat air pollution.

'Pollution is better controlled by charging for it through pollution taxes or marketable 'rights to pollute' than by regulating it'

To those who condemn pollution charges as a licence to pollute, Beckerman replies scornfully: 'As if regulations specifying maximum amounts of pollution that firms could carry out without paying a fine were not also a 'licence to pollute' and free at that!' The desirable features of pollution charges include:

- They are less dirigiste and politically authoritarian than quantitative controls.
- They are less dependent on fashionable outcry than regulations, as taxes tend to stay in place once the machinery has been established, and this would be so for pollution taxes, even if the number of votes to be won from being seen to be Green were to diminish for a few years.
- They ensure that pollution is reduced most in firms that can reduce it at least cost.

'They provide firms with a continuing incentive to reduce pollution'

- They provide firms with a continuing incentive to reduce pollution.

A key objection is that it is impossible to measure the pollution sufficiently for pollution to be charged for, but Beckerman responds that 'whatever can be controlled must be measurable; and if it is measurable it can be taxed or priced.' The analogous instance Beckerman gives is of a restaurant annoying neighbours by frying smelly onions. It may not be easy to measure the smell, but just as it would be theoretically possible to control the number of onions used per day, so it would be equally feasible to tax their use.

'Un-owned or communal environmental resources could be privatised. If someone has an interest in husbanding elephants, eagles, the sea and the atmosphere, then, like any other valuable commodity, they will ensure that it is optimally utilised and conserved'

Dr Cento Veljanovski goes further in his introduction, making the more radical suggestion that un-owned or communal environmental resources could be privatised, simply seeking 'to provide a legal framework and an initial assignment of property rights, leaving it to the market to decide how best the resources are used. If someone has an interest in husbanding elephants, eagles, the sea and the atmosphere, then, like any other valuable commodity, they will ensure that it is optimally utilised and conserved. Poaching, the dumping of waste - using scarce resources as if they had no value - would simply not occur. But defining and enforcing property rights in the environment is often impossible, either for technical reasons or because the costs are simply much too high. In such cases other devices (such as tradeable pollution permits) can be used.'

'The best way forward probably lies in a combination of methods: Unitax energy tax as the main background tool, with 'pollution reduction incentives' where Unitax was proving ineffective, and with regulations as a last resort'

The best way forward probably lies in a combination of methods: perhaps Unitax energy tax as the main background tool to encourage energy conservation, with 'pollution reduction incentives' where Unitax was proving ineffective (and as a way of giving advantages to the developing world), and with regulations as a last resort where these methods of choice failed, or where an absolute ban was required. But all these techniques need to be placed in a wider framework - a philosophy that recognises that present trends of consumption cannot logically be other than unsustainable, and that consciousness-raising is required to usher in an age of 'living more simply so that others may simply live.'

Emission reduction credits in the States

Adapted extract from an article in the Times by Paul Griffin, a partner with the solicitors Denton, Hall, Burgin and Warrens.

In the States the creation and trading in emission reduction credits is regulated by the Environmental Protection Agency.

Originally, the creation of a 'bubble' under which credits could be offset against higher pollution levels elsewhere was limited to sites in common ownership.

If a company owned several sites emitting excess levels of waste, one site could be adapted to create a large enough reduction in emissions to offset against the others, saving the expenditure needed to reduce the levels of pollution from all sites.

The bubble principle has been extended so that it now applies to sites throughout the US, regardless of ownership, and a market for the trading of credits has developed.

Credits can be used, sold, stored or even banked depending on the owner's economic needs and future prospects. Market brokers match companies that have credits to sell with those that need to buy.

Despite being viewed as a way of achieving environmental controls more rapidly and cost-effectively than the traditional 'command and control' approach, this method of enforcement is, not surprisingly, controversial.

Although its advantages include lowering the cost of pollution controls, some environmentalists have attacked the scheme on the grounds that it condones continued pollution by permitting the purchase of the right to pollute.

'Some environmentalists have attacked the scheme on the grounds that it condones continued pollution by permitting the purchase of the right to pollute'

Some environmentalists also argue that an ability to reduce pollution should not become the subject of speculation, but instead should always be utilised in the fight against the destruction of the environment.

Supporters, however, insist that the credit trading system benefits both industry and the environment. Although it seems most unlikely that a similar system will be adopted in Britain in the near future, the pace of environmental change indicates that the prospect may not be ruled out in the long run.

The UK's Environmental Protection Bill contemplates overall limits to emissions and reserves the government's right to make national quotas for total releases.

If pollution controls were created in Britain and a US-style market developed, it is possible that the scheme for regulation of emissions would require a regulatory scheme if these 'rights to pollute' were regarded as investments under the Financial Services Act.

Previous / Next / Table of Contents