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Green and Bear It? Implementing Market-based Policies for Ireland's Environment. Proceedings of a Conference held on 10th May 2001

Daniel McCoy, Sue Scott, C. Averous, Frank Convery, John Eakins (), John Fitzgerald (), Jonathan Hore, David Pearce and H. Von Meyer
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Daniel McCoy: Economic and Social Research Institute (ESRI)
Jonathan Hore: Economic and Social Research Institute (ESRI)

No BMI166 in Research Series from Economic and Social Research Institute (ESRI)

Abstract: David Pearce's Blueprint for a Green Economy, based on a report for the then Conservative UK government, encouraged a major change of government view to the effect that market-based policies "offer the prospect of a more efficient and flexible response to environmental issues". The policies he refers to include taxes, charges and auctioned permits, which yield revenues that can either be added to other tax revenues, or recycled to reduce distorting taxes and to support environmental good causes. The UK has made advances along these lines, but if these policies are so smart, why are they so difficult to introduce? Among these difficulties is the problem of switching support away from the status quo - a problem that is aggravated by the ease of identifying losers rather than gainers, by inconsistent goals and legislation, by clouded thinking about alternatives and by, whatever the rhetoric, the low political priority afforded to the environment. OECD contributors, Christian Averous and Heino von Meyer, summarise the main conclusions from their OECD Environmental Performance Reviews. Regulatory instruments will need to remain at the core of environmental policies but they need to be supplemented by a range of economic instruments (the list of economic instruments includes charges, taxes, tradable permits, deposit-refund schemes, performance bonds and subsidies) and a range of societal instruments (e.g. public consultation and participation, information, and environmental education and training). They find that governments are making efforts to reduce detrimental subsidies but that there remain many examples of users who do not pay for the cost of services that they receive and who thus overuse a resource that is under strain. They note that the public and industry tend to claim that they favour the principle of charging polluters but in practice more needs to be done to increase their sensitivity to and acceptance of the fact that they should bear the costs of the environmental goods and services they use. ESRI contributors, John FitzGerald, Daniel McCoy and Jonathan Hore consider the magnitude of the challenge posed by Irelands Kyoto target for greenhouse gas emissions. It seems likely that on unchanged policies Ireland's emissions could be up to 25 per cent above their 1990 level by the end of this decade, which is well above the required 13 per cent. They conclude that participation in an international emissions trading programme would be an efficient means of reducing Ireland's emissions and that, to be manageable, such a scheme should only apply to importers or producers of primary energy. To be distributionally fair it is important that the tradable permits be sold rather than given away. The revenue can then be used to reduce distorting taxes and to ensure that poor households are protected against the price rises, which would be similar to those under a policy of carbon taxes. In addition special provision can be afforded to sectors that, owing to their energy intensity, face competitive difficulties. Susan Scott and John Eakins of ESRI, note the widespread view that environmental taxes would simply be additional taxes, a view that ignores the potential for re-spending the revenues. Similarly, people fail to make the link between raised charges for environmental services and reduced central government taxes indeed government forgets to point out that the "double taxation" claim is invalid. That said, as the ESRI has been saying, market-based policies can hurt the poor if part of the re-spent revenues is not targeted at vulnerable households. Re-spending from three examples is investigated, namely, (1) carbon taxes, (2) charges for domestic refuse and (3) water charges, all based on the quantity of pollution or resource use. Various re-spending options are described and it is seen how re-spending could be targeted at low-income households in such a way that, if so wished, they are better off than before. On the issue of consulting people, interesting results emerge Frank Convery asks what factors and associated indicators explain the mobilisation or otherwise of environmental taxation as a substantial policy instrument. Some of the possible factors are: lack of champions in government departments to provide leadership, and lack of economists in public administration. Environmental effectiveness might also be questioned and considered not to be worth the effort, despite evidence to support the effectiveness of some taxes and charges, especially when there are close substitutes to what is being taxed. Concerns about competitiveness, populist culture against charges and uncertainty that government can be relied on to re-spend the revenues are also possible factors. In addition, availability of investment funds from the EU could paradoxically substitute for policies that would temper resource and environmental use. Irish circumstances do seem largely to conform to the factors that could inhibit the use of market forces to support environmental policy, at present.

Date: 2001
ISBN: 0707002060
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