Environmental Policy - Instruments, Problems, and Issues

Instruments, Problems, and Issues

Environmental policy instruments are tools used by governments to implement their environmental policies. Governments may use a number of different types of instruments. For example, economic incentives and market-based instruments such as taxes and tax exemptions, tradable permits, and fees can be very effective to encourage compliance with environmental policy.

Voluntary measures, such as bilateral agreements negotiated between the government and private firms and commitments made by firms independent of government pressure, are other instruments used in environmental policy. Another instrument is the implementation of greener public purchasing programs.

Often, several instruments are combined in an instrument mix formulated to address a certain environmental problem. Since environmental issues often have many different aspects, several policy instruments may be needed to adequately address each one. Furthermore, instrument mixes may allow firms greater flexibility in finding ways to comply with government policy while reducing the uncertainty in the cost of doing so. However, instrument mixes must be carefully formulated so that the individual measures within them do not undermine each other or create a rigid and cost-ineffective compliance framework. Also, overlapping instruments lead to unnecessary administrative costs, making implementation of environmental policies more costly than necessary In order to help governments realize their environmental policy goals, the OECD Environment Directorate studies and collects data on the efficiency of the environmental instruments governments use to achieve their goals as well as their consequences for other policies. The site www.economicinstruments.com serves as a complementary database detailing countries' experience with the application of instruments for environmental policy.

The current reliance on a market based framework is controversial, however, with many prominent environmentalists arguing that a more radical, overarching, approach is needed than a set of specific initiatives, to deal coherently with the scale of the climate change challenge. For an example of the problems, energy efficiency measures may actually increase energy consumption in the absence of a cap on fossil fuel use, as people might drive more efficient cars further and they might sell better. Thus, for example, Aubrey Meyer calls for a 'framework based market' of contraction and convergence examples of which are ideas such as the recent Cap and Share and 'Sky Trust' proposals.

Environmental Impact Assessments (EIA) are often prepared to assess and compare the impacts of various policy alternatives. Moreover, it is often assumed that if policymakers will make rational decisions based on the merits of the project. Eccleston and March report that even though policymakers often have access to reasonable accurate information political and economic factors often lead to long-term environmentally destructive decisions. Yet decision-making theory casts doubt on this premise. Irrational decisions are often reached based on unconsciousness biases, illogical assumptions and premises, and the desire to avoid ambiguity and uncertainty.

Eccleston identifies and describe 5 of the most critical environmental policy issues facing humanity: water scarcity, food scarcity, climate change, Peak Oil, and the Population Paradox.