Turkey Green Growth Policy Paper: Towards a Greener Economy
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5.4 Regulatory instrumentsRegulation has been the predominant strategy for pollution control in the EU and across most OECD countries, and one in which a public authority sets standards and then carries out inspection, monitoring, and the enforcement of compliance with these standards, and also punishes transgressions with formal legal sanctions. These regulations may, for example, specify an environmental goal - such as the reduction of NOx emissions by a specified date - or they may mandate the use of a particular technology or process. Such approaches give the regulator maximum authority to control where and how resources will be allocated in order to achieve environmental objectives, and provide the regulator with a reasonable degree of predictability as to how much pollution levels will be reduced. There are certain specific situations where regulatory instruments might be seen as the most appropriate and effective means of achieving a desired environmental outcome, an example being the control of hazardous substance releases through restrictions or bans. Environmental quality in the majority of industrialized countries is based on programs for direct regulation. The efficiency of regulations depends on the instruments used to influence the behavior of the polluter. The majority of the programs for direct regulation rely on specified compliance, where precise and specific demands are imposed on the regulated entity or industrial community with little bargaining and few exceptions allowed. Although generally successful, this arguably authoritarian style has drawbacks in that the regulated entity can become alienated and might unite in opposition against the rule makers. Some of these drawbacks can be offset with the use of a negotiated compliance approach, where setting and enforcing standards are performed more cooperatively. This “shared responsibility” between the government and industry enhances the likelihood of a more open exchange of information between the parties, and allows greater flexibility regarding the means of meeting the standard. In a number of countries, so-called non-prescriptive regulations exist. With these, attainment of certain targets (for example, recycling targets) is required, but a concrete means of achieving such targets is left to the industries involved. Such approaches hold the potential to improve the economic efficiency of the regulation, and may stimulate the emergence and adoption of innovative preventative approaches. 5.5 Market-based instruments (MBIs)Instead of banning unwanted activities or dictating acceptable ones, MBIs seek to address market failure of “environmental externalities” either by incorporating the external cost of a firm’s polluting activities within the firm’s private cost (for example, through taxation), or by creating property rights and facilitating the establishment of a proxy market (for example, by using tradable pollution permits). MBIs can be more efficient economically than regulatory standards in achieving a desired reduction in pollution because they act as incentives for the development of more cost-effective pollution control and prevention technologies and provide greater flexibility in the choice of technology or prevention strategy. In addition, they may provide the government with a source of revenue that may be used to support environmental and/or social initiatives. Introduction of MBIs, however, is often faced with significant constraints. It is advisable to identify and evaluate existing economic incentives that have a direct or indirect link to the targeted performance - such as subsidies encouraging overuse of resources - prior to introducing new economic incentives. Taxes, charges, and fees are among the most commonly used MBIs. For example, France introduced water charges, and emission taxes on sulfur, volatile organic compounds and NOx which are earmarked for pollution abatement investments by the polluting industries (Sterner, 2003). Setting high-enough levels for these to achieve desired goals, however, is often politically infeasible. Furthermore, successful implementation of such initiatives requires a system of monitoring, revenue collection, and enforcement. These are also prone to fueling corruption. Liability rules, holding firms responsible for all of the environmental damage they cause, even if they have fulfilled their legal obligations and have exercised “due diligence,” can be another example of effective MBIs, provided that an appropriate enforcement mechanism and legal system exist. Subsidies that can be provided in the form of, for example, low-interest loans, direct grants, or preferential tax treatment are also among MBIs that are proven to be effective in stimulating desired environmental performance. In line with earlier arguments, these need to be carefully assessed prior to their introduction in order to avoid hidden incentives for counter-productive behavior. Emission trading schemes (ETSs) are another MBI that, if applied properly, could be highly effective. In the case of an ETS, the right to emit a certain unit is certified and the total amount of emissions is set at a maximum level (cap) for a specified group of controlled entities (for example, countries or companies). If the emissions cap is below the business-as-usual level, the emission certificates become valuable and incentivizing tools for emissions reductions. As such, the ETS would lead to a more cost-effective allocation, since emitters with abatement costs above the market price of the certificate can refrain from taking costly emission reduction measures and buy lower-cost certificates instead. These certificates are supplied by emitters with lower abatement costs, who realize additional emission reductions and sell their surplus certificates. Contrary to a tax on emissions, an ETS ensures reaching the environmental target (which is equal to the emission cap), and uses the market to determine the price associated with reaching that target. It also achieves this target at a lower total cost than a uniform tax. There are functional trading schemes for several air pollutants. In the United States there is a national scheme to reduce acid rain and several regional ones for nitrogen oxides. But for GHG the most successful scheme is the European Union Emissions Trading System (EU ETS), which is at the core of the EU's policy to combat climate change, and is the main tool for cost-effectively reducing industrial greenhouse gas emissions. The scheme is akin to the largest international system for the trading of greenhouse gas emission allowances, and covers some 11,000 power stations and industrial plants in 30 countries (the 27 EU Member States plus Iceland, Liechtenstein and Norway). The scheme covers CO2 emissions from installations such as power stations, combustion plants, oil refineries and iron and steel works, as well as factories making cement, glass, lime, bricks, ceramics, pulp, paper and board. Turkish Environmental Law now recognizes the use of carbon markets for climate action and studies are underway to establish one by 2015. Turkey became a participating member of the Partnership for Market Readiness (PMR) in 2011, and is interested in exploring the potential use of market-based instruments for greenhouse-gas emissions. |