1、The Use of Economic Incentive Mechanisms in Environmental Management Research Paper #051 Robert C. Anderson Lisa A. Hofmann Michael Rusin June 1990 The contents of this paper are for the purposes of study and discussion of government legislative or regulatory proposals and do not necessarily repres.
2、e,nt the views of the American Petroleum Institute or any of its members. American Petroleum Institute 1220 L Street, Northwest Washington, D.C. 20005 l? Table of Contents I. Introduction and S11mmary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3、 . . . . 1 II. Definitions and Properties of Incentive Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A Definition of Incentive Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Economic Jnc,entive Systems W
4、ithin the Framework of Existing Laws . . . . . . . . . . . . . . . . . . 9 C. Monitoring and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 D. Efficiency of Incentive Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5、. . . . . . . . . . . . . . . . . 10 E. Distributional Impacts of Incentive Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 F. Technological Change and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 G. Applicabil
6、ity ,of Incentive Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Ill. The Existing Record: U.S. and Foreign Experiences With Incentive Mec:hanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7、 . . . . 15 A Trading of Ai“r Emissions Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 B. South Coast Air Quality Management Districts Fee System . . . . . . . . . . . . . . . . . . . . . . . . . 20 C. The Lead Tra.Cling Program . . . . . . . .
8、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 D. Municipal Sollid Waste Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 E. Foreign Expe:r:lence With Incentive Systems . . . . . . . . . . . . . . . . .
9、. . . . . . . . . . . . . . . . . . . . . 33 F. Non-Conformance Penalties for Heavy Duty Vehicles and Engines . . . . . . . . . . . . . . . . . . . . . 37 G. NPDES Permdt Fees . -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 H. Municipal W1mtewater Effluent Charg
10、es 38 I. Water Pollution Rights: The Fox River . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 J. Water Pollution Rights: Dillon Reservoir, Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 K Deposit-rebate Systems . . . . . . . . . . .
11、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 IV. Potential Future Use of Incentive Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 A The Project 8:B Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12、. . . . . . . . . . . . . . . . . . . . . . . . 43 B. Acid Rain Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 C. Used Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13、. . . . . . . . . . . . . . 45 D. Chlorofluorocarbons and Halons -Proposed Fee and Permit Systems . . . . . . . . . . . . . . . . . . 47 E. Reducing Pote:ntial Global Climate Change With a Tax on the Carbon Conte1nt of Fossil Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14、. . . . . . . . . . . . . 50 V. Incidence and Eq11ity Effects of Incentive Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 A General Questions ofWho Pays Under Incentive Systems Versus Direct Regula.tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15、. . . . . . . . . . . . . . . . . . . . . . . . . . 55 B. The Effects of the Lead Trading Program on Gasoline Markets . . . . . . . . . . . . . . . . . . . . . . . 60 C. The Effects of a Carbon Tax on US Energy Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 VI. References .
16、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 iii List of Tables Table Ill.1 - California Emission Fees, 1977 - 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table Ill.2- USEPA J
17、ead Phase Down Schedule 25 Table Ill.3 - Characteristics of the Lead Trading Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Table III.4- Non-Cordhrmance Penalties Levied on Heavy Duty Vehicles and. Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18、. . . . . . . . . . . . . . . . . . . . . 38 Table III.5- Industri1L1 and Municipal Fee Schedule- State of New York . . . . . . . . . . . . . . . . . . . . . 39 Table IV.1- Ozone-Dt!pleting Chemicals Tax, Base Tax Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table IV.2 - Ozone-D
19、opletion Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table IV.3 - Rigid Fo1lln Tax Phase-In Schedu1e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Table IV.4 - Halon Tsll:. Phase-In Schedule . . . .
20、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Table IV.5- Potential rax on CFC-113 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Table IV.6 - Dimensictns of a Tax on the Carbon Content of U. 13. Fossil Fuels .
21、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Table V.1- Example: nffects of Lead Trading on the Gasoline Market 64 Table V.2 - Energy Dte:mand Price Elasticities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22、65 iv List of Figures Figure 111.1 - Califomill Emission Fees for Sources of Emitting between 5 aJtd 25 tons per year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 111.2- Califomill Emission Fees for Sources Emitting over 25 tons per year. . . .
23、 . . . . . . . . . . . 23 Figure 111.3 - Numbers of Refiners and Importers Trading Lead Credits . . . . . . . . . . . . . . . . . . . . . . 26 Figure 111.4 - Numbers of Refiners and Importers Banking Lead Credits . . . . . . . . . . . . . . . . . . . . . . 27 Figure 111.5 - QuantititEtS of Lead Righ
24、ts Traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 111.6 - QuantititEtS of Lead Rights Banked Under the Lead Trading Program . . . . . . . . . . . . . . 28 Figure III. 7 - Lead Ba.nking Withdrawals as a Percent of All Lead Used . . . . . . . . . . .
25、 . . . . . . . . . . . 28 Figure IV.l - Potential Revenue From a One Cent Per Pound Carbon Tax on 1917 U.S. Fossil Fuel Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Figure V.l - Incidencet of an Emission Fee Proportional to Output . . . . . . . . . . . . . . .
26、. . . . . . . . . . . . 56 Figure V.2 - The Efte,-ts of Allowing Emissions Trading When Demand is Elastic . . . . . . . . . . . . . . . 58 Figure V.3 - The Eftec:t.s of Allowing Emissions Trading When Demand is Inelastic . . . . . . . . . . . . . . 58 Figure V.4 - Effects of a Deposit/Rebate System
27、on Equilibrium Supply and Demand . . . . . . . . . . . . 59 Figure V.5- Effects of Lead Trading on the Gasoline Market. 62 Figure V.6 - Potential !ftects of a One Cent Per Pound Carbon Tax on U. B. Energy Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28、 . . 65 v I. Introduction and Summary Introduction The nations priiDC:ipal environmental laws approach pollution corl1;rol through a mix of strate gies, most of which im11lve direct regulation of the quantity of pollution ions streams and rivers. Emissions from thouands or millions of dispersed sour
29、ces as well as la11:e sources that are already tightly controlled produce urban ozone. Tens of millions of motorists who change their own oil re lease used motor oil tc1 the environment. Landfills are rapidly approachil:t.g capacity in many commu nities, stimulating ini:.1rest in ways to reduce the
30、generation of solid Wl:t5te. For these and similar environmental problents, direct regulatory action may be expensive snell ineffective. It can be argued that individual firms or households are morl! able than regulators or legislators to choose tl!tu most appropriate pollution control techniques. A
31、lbeit with information provid ed by others, e. g., vendors of equipment, govern ments, etc., individual1 and firms are most likely to be aware of the fulll“ange of options available - from process changes to input changes to specific control technologies, 11nd their costs and effective ness. Few reg
32、ulators 1are equipped with this range of knowledge. Direcl; regulations further fail to provide an incentive to adopt pollution control options other than tll(lse specified by regulators, even if tlley would be more effective. Po11ution reductions beyond thl)IM! mandated may create a signal to the r
33、egulators that further reductions are possible, undermining the ability of the regulated community to stave off future regulations. Finally, once a pollution control approach is specified by regulations and installed at sources, there may be few incentives to improve on that technology. Economic Inc
34、entive mechanisms as a tool to manage the environment The principal alternative to direct regulation uses market forces in the form of economic in centives to reduce pollution. Incentive mechanisms incorporate the “polluter pays“ principle. Specifi cally, with an incentive mechanism in place, the po
35、lluter pays a financial penalty for higher levels of pollution and pays a lesser penalty or receives a financial reward for lower levels of pollution. Incentive systems include emission fees, deposit re bate systems, and marketable permit and credit systems, where the right to a specified level of e
36、missions may be bought and sold. There are other related forms of incentive systems as well. All, however, share the feature that a firm or individual subject to the system pays more when he pollutes more. In theory, incentive mechanisms have the ability to reduce pollution at less cost than tradi t
37、ional regulatory means. However, in spite of their theoretical appeal, they are relatively little used. A major purpose of this paper is to examine the ex isting record on the use of incentive mechanisms for evidence on whether they have improved the effectiveness and efficiency of environmental reg
38、ulation. U. S. experience with Incentive mechanisms Incentive-based approaches are the exception rather than the norm for environmental manage ment in the United States. However, incentive systems have been put in place to help manage air and water quality, and solid wastes. 2 API Research Paper 105
39、1 Air The EPAs 1Lir emtsstons trading program began in 1975. 1Ihe major components of the program are bubblns, banking, offsets, and netting, all of which allo111 multiple emission sources to trade emissions in1 :some fashion, geographically, or over time. The kinds of trades allowed are heavily cir
40、cumscribed by legal and regulatory require ments. Most trac:l.es require extensive and time consuming prior a.pproval. Establishing emissions and air quality le!vels before and after trading is also difficult. As n result of these and other fac tors, traded emise1ions represent a tiny fraction of al
41、l air emissions. Nonetheless, the program has probably resulted in substantial savings, estimated at $5.5 to $12.5 billion over the life of the program, or two to four per1c1mt of total air pollution control expenditures over r.hat period. Beginning in H76, Californias South Coast Air Quality Manage
42、r.nent District imposed fees on organic gases, gaS1e1:)us sulfur, nitrogen dioxide, and particulate emissiHms. Fees rose from modest levels in 1977 to il88 per ton for nitrogen dioxide and $327 per ton for organic gases in 1988. At this level the fees are on the order of ten percent or more of margi
43、mL1 control costs, and probably influence the choi1c1 of control technology for some firms. In 1983, as pa:l“ll; of the effort to reduce or elimi nate lead in gasc:tline, EPA began a program to allow refiners andl importers of leaded gasoline to buy and sell rightu to use lead in gasoline. Partici p
44、ants could also “bank“ lead rights by postponing use for later use or sale. The program ended after 1987 when the m.aximum lead concentration was lowered to 0.1 gram oflead per gallon of gasoline. Trading was extensive. Most refiners par ticipated. The volu:rnes of lead traded were high; in the last
45、 quarters of the program, the volume of lead traded was Cltver half of all lead used. EPA estimates that th1! banking and trading program saved over $200 million, with no net effect on environmental qwllity. The lead trading program stands in strong contrast to EPAs 1li remission trading program. In
46、 the lead trading Jn“ogram, EPA required no prior approval of trades, but did require reporting after the fact. Unlike air emissions, which are difficult to measure and model, lead content is easily defined and measured. The definition and rights t;c. that which can be traded were clear and unam big
47、uous. Enforcement was relatively simple, in part because the two parties to each transaction had to report to EPA data on the transaction and on lead purchases from the few U.S. suppliers of tetraethyllead. EPA conducted periodical audits to confirm that the reports were consistent. Finally, under a
48、 provision of the Clean Air Act, EPA sets non-conformance penalties on classes of heavy duty vehicles or engines that exceed allow able standards. These penalties are potentially incentive mechanisms, because they are to vary with the amount of exceedance. Penalties collected under the program have
49、been small. EPA collected $7 million from two companies in 1987 and $2 million from three companies in 1988. Water A number of incentive mechanisms are in place in the area of water quality management. Under the National Pollution DiSICharge Elimination System (NPDES), a number of states charge fees for water pollutant diSICharges that are based on volume and/or toxicity of wastes. The effects of these charges on waste volume and character is not known. Municipal waste water treatment facilities typically impose charges on industrial facilities and households that
