New Instruments for Environmental Policy in the EU

Jonathan Golub

• Publisher: Routledge
• Year: 1998
• Topic: Biological Sciences
• eBook ISBN:
  9781134729579
• Subtopic: Environmental Science
• Index: Biological Sciences

New Instruments for Environmental Policy in the EU provides a comprehensive analysis of the debate over new forms of environmental regulation in the European Union.The conclusions draw attention to critical aspects of instrument design, as well as the difficulty of accommodating national policy diversity without contravening EU and international tr

1

NEW INSTRUMENTS FOR ENVIRONMENTAL POLICY IN THE EU

Introduction and overview

Jonathan Golub

European environmental policy is currently undergoing a major transition. At the supranational level, both the Maastricht treaty and the Fifth Environmental Action Programme herald a new era dominated by the search for more flexible and efficient instruments to replace traditional forms of regulation. At the national level, this search has been under way for some time in many of the respective member states of the European Union (EU).

This chapter introduces the main issues surrounding the use of new instruments, and offers an overview of their successes and failures. The first section briefly reviews the dominance and shortcomings of the traditional command and control approach in European environmental policy. The second section has two parts: the first identifies the various types of new instrument considered throughout this volume and discusses their reputed advantages over command and control; the second identifies the domestic and international forces which have been instrumental in getting new policy tools put into practice. The third section opens with a discussion of various criteria for gauging the effectiveness of new instruments. A comparative analysis of member state experience then highlights factors which have facilitated successful application of each type of instrument, as well as those which have undermined their effectiveness. To gain a better perspective on developments within the EU, this section is followed by a brief examination of how new instruments have been used in the United States and Japan. The final section draws out some of the broader implications this volume’s findings hold for the future of environmental policy design, the nature of governance within the EU and the prospects for maintaining global free trade.

Command and control

Originating in the late 1960s, the first generation of environmental policies throughout the member states of the EC primarily followed the so-called ‘command and control’ approach. The command and control approach is characterised by direct regulation: the government prescribes uniform environmental standards across large regions, mandates the abatement methods required to meet such standards, licenses production sites which adopt the required methods, and assures compliance through monitoring and sanctions.

The chapters in this volume make clear that the prevalence of command and control instruments built up throughout the 1970s generally reflected a north–south ‘green’ divide (see also Collier and Golub 1997). Germany and the Netherlands boast particularly strong environmental records, and had extensive direct regulation covering air, water, waste and noise in place by the mid-1970s. Over the years each of these states set and tightened multitudes of emission standards based on what could be achieved by using the ‘best available technology’ (BAT).

The first generation of British environmental policy incorporated greater discretion and flexibility, but the corpus of legislation built up since the nineteenth century was grounded firmly in the command and control tradition. Although less demanding than BAT, British regulation to control air pollution set emission limits according to the ‘best practicable means’ and periodically tightened these limits in line with technological developments (McCormick 1991; Golub 1996a). For water, direct regulation made authorities responsible for ensuring the ‘wholesomeness’ of rivers, frequently taken to be World Health Organisation (WHO) standards. Industrial discharge consents were then generally structured so that overall pollution levels would not exceed WHO recommendations. Command and control also pervaded Belgian environmental policy prior to the early 1980s. While these laws did not require the use of BAT, a variety of direct regulations set national and regional quality objectives in each sector (air, water, waste, etc.).

While the four chapters exploring environmental instruments in northern Europe highlight variations within a group of states sharing strong green traditions and extensive bodies of command and control regulation, the chapters on Spain and Italy (Chapters 6 and 7) reaffirm the north–south dichotomy, illustrating that environmental protection has always occupied a less auspicious position in the highly fragmented policy-making of Mediterranean states (see also Collier and Golub 1997; La Spina and Sciortino 1993). Nevertheless, while regulation devised in the 1960s and 1970s was extremely patchy in southern Europe, amounting to no more than a handful of air and water laws, it too reflected a command and control approach.

In many cases the direct regulation found within European states arose from external constraints, as the expanding corpus of environmental policy adopted at the EC level since 1973 also relied heavily on command and control. EC regulations included many provisions requiring existing industrial installations to curtail pollution in accordance with uniform emissions standards and requiring all new plants to apply BAT.¹

Particularly in Spain and Italy, first generation national command and control instruments were put in place to satisfy the requirements of EC law, filling a pre-existing regulatory void. But even in the north, EC environmental legislation sometimes reshaped or solidified previous national measures. Prescribing uniform emissions standards and abatement technology throughout a state or throughout the EC, with attendant economic costs, was considered by many an equitable response to problems of upstream–downstream pollution, preferable to simply setting quality targets which privileged those states, regions or firms fortunate enough to avoid cross-border effluent problems. Closely bound up with the emphasis on uniformity and technical solutions was the perception that allowing industry in peripheral, isolated or sparsely populated regions to meet environmental objectives at relatively less cost than those in other parts of the EC would constitute an unfair competitive advantage which would distort the common market.

Two decades of experience revealed a number of regulatory failures associated with the traditional command and control approach. These shortcomings fall into three categories: economic inefficiency, environmental ineffectiveness and democratic illegitimacy (see Tietenberg 1988; Eckersley 1995a).

By its very nature, command and control tends towards economic inefficiency by imposing uniform reduction targets and technologies which ignore the variable pollution abatement costs facing individual firms. In practice, marginal costs of pollution reduction vary widely among industries, depending on factors such as age and location of plant. From an efficiency perspective, the result is that some firms regulate too much, others not enough. Installing state-of-the-art equipment or cutting emissions by a specified amount (for example by three tonnes of sulphur per month) will necessarily be easier and cheaper for some plants than for others. While a designated overall level of pollution reduction could thus be achieved at less overall cost if abatement efforts were concentrated where marginal costs were lowest, command and control discourages such efficiency.

In some cases the command and control approach also introduces inefficiency by eschewing environmental quality objectives in favour of uniform emission standards. Consider the case of two identical firms, one located in a sparsely populated area, the other in a city. Because of the differing capacities of their local ecosystems to absorb additional units of pollution, the firms face variable abatement costs and would therefore have to make drastically different reductions in their emissions to meet the same quality targets. Uniform emissions standards and BAT produce inefficiency by imposing identical costs. Not allowed to take advantage of its favourable location, the rural firm is forced to overregulate and jeopardise its economic performance; at the same time, even tougher standards and penalties beyond BAT might actually be required for the urban firm to meet acceptable pollution levels or compensate for environmental damage.

Finally, the command and control approach contributes to inefficiency because it stifles incentives to reduce emissions beyond mandated levels and to develop innovative pollution control technology. Rather, the prescription, license and monitor approach generates a static situation where, having installed a designated technology or achieved a certain level of emissions, polluters would only incur unilateral costs and competitive disadvantages from further reductions. BAT rules are particularly effective in stifling innovation, because firms are forced to adopt expensive equipment regardless of whether other, and sometimes more radical, solutions might be found at less cost (von Weizacker 1990: 202).

Command and control is not only an expensive approach to pollution reduction, but one which, according to many analysts, has also reached the limits of its environmental effectiveness. To a large extent these are related issues, as adoption of new and increasingly stringent emissions limits and technologies intended to safeguard the environment encounter intense political resistance when they are seen as excessively costly. But regulatory failures also plague current policies, for instance when fiscal austerity forces governments to curtail the expensive oversight and enforcement mechanisms vital to command and control, resulting in rampant non-compliance.

A third criticism levelled at the command and control approach is that it lacks democratic legitimacy (Eckersley 1995b; Dryzek 1995). Regulatory bodies responsible to the public for identifying environmental problems, standard setting, determining what constitutes the best available technology and enforcing compliance develop close and often dependent relationships with industry because of the latter’s detailed knowledge of, and direct interest in, polluting activities and potential abatement options. As currently constructed, command and control instruments fail to alleviate the information asymmetries which effectively exclude the general public and environmental interest groups from the decision making process and allow polluters to ‘capture’ regulators, thereby shaping or blocking environmental policies in accordance with their own economic self-interest.²

The shift towards new instruments

An arsenal of new instruments

The limitations and regulatory failures of the traditional command and control approach have sparked a search at both the national and the EU level for a second generation of instruments which promises greater flexibility, efficiency and effectiveness.³ States have experimented with an impressive range of new tools, some of which might be classified as ‘economic’ and ‘suasive’ instruments (OECD 1994b: 16). The former category includes several types of environmental taxes and charges, comprehensive ‘green tax reform’, tradeable pollution permit systems, government subsidies for environmental improvement and deposit/refund schemes. The latter group consists of ecolabels, ecoaudits and voluntary environmental agreements. A third class of new instruments which receives less attention in this volume focuses primarily on altering liability and insurance rules in a manner which benefits the environment. An extensive literature discusses the economic theory underpinning this wide range of potential new tools, as well as their individual merits (Tietenberg 1988; Helm and Pearce 1990; Hahn 1993; Teubner et al. 1994; House of Lords 1993).⁴

New instruments are intended to provide the efficiency and positive incentives which command and control lacks. Taxes and charges levied on each unit of emission force firms to internalise the costs of their pollution, thereby better achieving the ‘polluter pays’ principle, but they also allow industry the freedom to optimise its reduction methods. Tradeable permits and voluntary agreements achieve the same end by setting long-term environmental goals without prescribing specific abatement technology. Latitude to find the most cost-effective means of reducing pollution improves static efficiency but, more importantly, it yields dynamic efficiency by providing incentives for firms to pursue constant pollution reduction and technological innovation (Carraro and Siniscalco 1993; Eckersley 1995b: 9; EC 1992, 1993, 1994). Each successive reduction in emissions saves the firm from paying tax, allows it to sell its tradeable permits to ‘dirtier’ competitors or allows it to meet future targets at lower cost.

Compared to command and control, ecolabels and ecoaudits also substantially reduce the regulatory burden on firms because they prescribe neither targets nor technologies. Rather, these instruments generate incentives for pollution reduction by harnessing the market power of ‘green consumerism’. Armed with the information which labels and audits provide about the content and manufacturing process of products, and about the internal environmental performance of firms, consumers will be able to express their preference for environmentally friendly behaviour, and firms will be forced to respond accordingly or else lose market share.

Ecoaudits also provide several other potential advantages over command and control. First, industry expects to improve relations with green consumers, banks and insurance companies by publicising official certification of its environmental commitment. Environmental audits can also reveal new knowledge about a firm’s production process, and they often illuminate means of improving efficiency and curtailing consumption of natural resources, both of which result in substantial savings. Compared with traditional forms of direct regulation and BAT rules, ecoaudits can also introduce a desirable dynamic element, providing even the worst polluters with positive incentives for future environmental improvement.

Proponents of new instruments suggest that governments also stand to profit by reducing their reliance on command and control, because market-based and suasive tools require less expenditure on implementation and oversight. Furthermore, green taxes might represent a politically popular and lucrative source of government revenue.

Another important advantage attributed to new instruments is that they decrease regulatory capture and lend legitimacy to environmental policy by substituting direct public involvement for command and control’s infamous ‘poacher and gamekeeper’ relationship between industry and regulatory bodies. Labels, audits and ecotaxes allow consumers to decide for themselves the value they place on environmental improvement. Voluntary agreements also have the potential to improve the legitimacy of environmental policy by involving industry in close consultation rather than open confrontation with government. Widening the range of parties participating in the consultation process to include green groups and local community officials further enhances the legitimacy of eventual decisions. Japanese experience with voluntary agreements suggests that industry is willing to disclose important information necessary to set ambitious targets because it considers them economically feasible, and also because it benefits from the trust developed with local communities (Rehbinder 1994).

The widespread appeal of new instruments

The use of new instruments varies widely among member states, as do the reasons for their introduction. The chapters in this volume illustrate the range of domestic and international pressures animating the shift away from command and control: the ascendance of new economic paradigms and political ideologies, demands from industrial groups, the agendas of certain political parties, pressure from environmental or academic organisations, and the requirements of EC law. While in most cases all three of the above considerations (cost, effectiveness and legitimacy) influenced policy change, each author has attempted to identify more precisely the timing of reform and the interplay of domestic and international politics which yielded new tools. For example, academics and think-tanks have played a particularly im...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of tables
• Notes on contributors
• Preface
• 1 New instruments for environmental policy in the EU: introduction and overview
• Part I New instruments in the member states
• Part II New instruments at the EU level
• Index