Economic Instruments for Environmental Protection

8/7/2019 Economic Instruments for Environmental Protection

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Economic Instruments for Environmental Protection

Jaromr Kov

Table of Contents

I. Introduction

II. Emission Charges in the Czech Republic

A. System of Emission Taxes/Charges in the Czech Republic

B. Pollution Charges (The Czech Experiences)

C. Possible Functions of Emissions Charges

D. The Description of Specific Application of Emission Charges

III. Comments on new Types of Economic Instruments

A. Tradeable Permits

B. Joint Implementation

IV. Approaches to Specific Problems

A. Sustainable Development of the Private Sector and its Relationship to the Economy(Based on the Example of the Czech Republic)

B. What Policy Should be Implemented with Respect to Controlling Air PollutionEmissions from Motor Vehicles in the Czech Republic

Attachment

A. Concrete Economic Tools in the Areas of Pollution of the Environment and theUtilization of Natural Resources

B. The Taxation System and its Use for Protection of the Environment

C. Financial Support of the Environmental Measures

D. Further Tools of Economic Character

E. The Specific Economic Category Used in the Area of Environmental Protection

F. Environmental Protection and the Macroeconomic Structures

G. General Problems of the Environmental Economy
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I. Introduction

This document contains a couple of selected discussion papers and short documentsconcerning the topic of economic instruments for environmental protection.

All documents were written in the last two years and the reasons for their preparation weredifferent. Some documents were written as a presentation of our experiences, some asproposals for future conceptions and some as reactions to actual problems. Most of thesepapers arose during the course of the UNDP project "Economic Instruments for SustainableDevelopment" and during the authors stay in the United States.

The first block (Chapter II.) contains discussion papers about the Czech experiences withemission charges. These charges have been in force in the Czech Republic since the mid-60`s.- with modifications in the last few years. In principle these charges are based on theabatement costs of pollution control and this is a rare experience with the practical application

of the principle from the theory. The description of both approaches to these charges and theirreal life forms could be interesting for the assessment of our experiences and for anassessment of the possible application in other countries with similar environmental andeconomic conditions.

All four documents in the first block describe the same problems, but from different aspects.The first paper is only a short summary of these problems, the second paper contains moredetailed description of the application of these principles in the case of charges for airpollution and water pollution, the third paper contains parts with theoretical descriptions ofcharges and possible types of charges, and the last paper contains a description of the practicalapplication of emission charges.

The second block contains papers about new types of economic instruments forenvironmental protection. Tradeable permits are in force in the United States as the basiceconomic instrument for air protection and this type of instrument is usually recommended forapplication by American experts. The paper contains about 20 key questions which we mustconsider and discuss before the application of tradeable permits under the different conditionspresent in the transition countries.

Joint Implementation represents a new approach to "joint" solution of the air pollutionproblems from both the developed and developing countries. We must solve many problemsfor the development of this instrument and for the developing of mutual cooperation among

the polluters from different countries. This paper considers above all the problems concerningconditions on the side of the host country and especially the possibilities for the direct orindirect economic advantages for the investors.

The last part (Chapter IV.) contains specific approaches to solving two problems in atransition country as a reaction to the authors stay at the State University of New York atSyracuse. The first paper is a very similar description of the environmentally-friendlybehavior of enterprises and the economic aspects of this behavior. The second paper showsthe possible approaches to the solution of emissions from mobile sources in the CzechRepublic. In spite of these problems` similarities in most countries, the solution could bedifferent according to the different conditions, such as the environmental situation andpriorities, environmental policies, regulations and instruments, economic situations, andeconomic and social impacts.


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The Attachment contains the "Program of Economic Instruments for Pollution Control andUse of Natural Resources in the Czech Republic", with more than 30 fields of activities andmore than 150 partial steps and targets for their solution. In spite of the fact that thisdocument was published by the Ministry of the Environment of the Czech Republic in 1994,most of these targets and steps are still not fulfilled and it is not necessary to make basic

corrections to this document.

New elements and the importance of these papers is possible to see in the views on thespecific environmental problems and options for their solution in the specific conditions of acountry in transition. In many cases there exist big differences not only between the situationand solution to the problems, both in the developed and developing/transiting countries, butalso differences in the opinions on and assessing of the specific problems and instruments.

The majority of the papers were prepared as the authors opinion on specific problems and astopics for future discussion. These papers are not detailed analyses and descriptions of theproblems, but mostly only a short introduction to them. The scope of these papers is,

primarily, to initiate further discussion and possible cooperation towards solving the describedproblems.

II. Emission Charges in the Czech Republic

A. System of Emission Taxes/Charges in the CzechRepublic

(Summary of the presentation)

1. Introduction to the Czech Republic and the Discussed Problem

The Environment

The present situation is worse than in developed (European) countries. The targets forimprovement are relatively high. Environmental regulation is based especially onadministrative instruments (limits and standards) and economic instruments have only asupplementary role.

The Economy

The present economic system is in transition to a market economy, after the main steps, suchas the privatization of industry.

Charges for Pollution (Emissions)

Charges for air pollution and water pollution were introduced by government regulation in1966. At the present time the basic principles of charges are based on the level of theabatement costs of pollution, which generally correspond to basic theoretical approaches(there is no other country implementing this principle).

Development of the Basic Principle of the Charges


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The charges are considered not only as a responsibility of the polluters, but as one part of awhole system of charges (a system of economic motivation for polluters). This system isgradually being developed in the global system of charges.

Implementation of the Charges

All implementation of charges or their modification must be proclaimed by parliament andlaw.

Differences Between Taxes and Charges

In the Czech Republic there exist strong distinctions between taxes and charges. Thesedistinctions are based on:

their basic function (income for state expenditures or motivation of polluters), use of the revenue (state budget for all types of state expenditures or a special

environmental fund only for environmental protection), responsibility for regulation (Ministry of Finance or Ministry of the Environment).

2. General Description of the Approaches to the Taxes/Charges

The emission charges are based on the balancing of the economic condition between twotypes of enterprises. This principle is close to the theoretical "optimal" level of pollutionbased on the abatement costs, but it has many specific modifications. The basic principle isillustrated below:

The first is an enterprise which operates utilizing environmental protection technologies. Thesecond is an enterprise without these technologies. Without the existence of chargesdetermined on the balancing principle, the situation arises where the environmentally-friendly enterprise will be at a disadvantage and wont have the ability to compete with theenterprises which pollute the environment. In this case the incentive objective is based on thefollowing principles:

charges should influence environmental quality through a change of behavior by thepolluters,

the economic advantage of the polluters must be reduced and polluting must be moreexpensive than environmentally-friendly behavior or activities - likewise

environmental protection must be cost-effective for the polluters.

The application of these principles in practice solves some basic problems - above all:

ensuring the economic motivation of polluters to undertake measures forenvironmental protection,

reducing the current economic advantage of the polluters, balancing the economic condition between two types of enterprises (polluters and the

first, which operates environmental protection technologies), inclusion of environmental protection costs into the operational costs of polluters, taking into account important information about the significance of environmental

impacts and the costs of corrective measures taken by some enterprises or branches,


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ensurance of financial revenue from charges which is possible to use for the support ofenvironmental protection measures,

application of the "polluter pays principle" which has been accepted by all Europeancountries.

3. Determination of the Charge Rates

The first step is a decision about the targets. In many cases it is a political decision but it ispossible also to use the targets from official documents such as governmental environmentalpolicy. We must take into account the economic aspects of these targets (for example, a smallrise in pollution reduction above the limit of 90 % is several times more expensive).

By the calculation of the equivalency of the abatement costs we need to solve/decide:

different equivalency of costs in relation to the utilization of cleaning technologies or to the scale (size) of the pollution source the type of abatement cost, which we will compare - the costs of existing technology of building (preparing) technology or of future technology the kind of calculation of the investment costs into the total abatement costs, the case when the abatement costs dont exist.

4. Economic Impact of Charges

Macroeconomic impacts

Total revenue from the charges represent about 1 % of the total tax payments and the increasein the next few years will be about 2 %. This amount is economically acceptable.

Microeconomic impacts

Impacts on polluters must be considered as a replacement of the abatement (or environmental)costs, which must be spent in order to achieve the targets. The same reason is also in the caseof competition with export products.

Social impacts

In most cases, the payment of charges is transferred to consumer price increases. Thisproblem we must assess separately case by case and we must decide if it is acceptable. Butgenerally, the consumer price increases merely reflect the internalization of environmentalcosts of production.

5. Developing of Charges into a Charges System

The system of charges must be based on the following principles:


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specification of pollutants covered by charges (it must be the pollutants which areimportant from an environmental protection standpoint and for which it is efficient toapply an economic motivation of polluters),

determination of the optimum function of the charges (see part 2.), determination of charge rates (see part 3.).

The next parts of the charges system contains the following main points:

increasing charges in certain conditions, reduction of charges in specific conditions, exemptions from the payment of charges, altering economic impacts on the payers, main decisions about the fiscal side of the charges.

Besides the above mentioned modifications we have started to apply the followingmodifications as well:

gradual integration of joint elements of the charges (air, water, waste), creating a unified conception of charges, ensuring possibilities to actually modify charges (valorization, actualization, etc.), respecting the mutual relation and interdependencies of the charges and other

instruments (economic and administrative), establishing the charges as an integral part of environmental policy instruments, ensuring the acceptation of the charges by the European Union.

B. Pollution Charges (The Czech Experiences)

1. The Approaches to Emission Charges

We have found that the main condition of economic stimulation is the implementation of asufficient level of payments. These payments must, at least, compensate the enterprises for theconstruction and operating costs of cleaner technology. If pollution charges will be the sameor higher than these environmental protection costs, the implementation of environmentaltechnologies can lead to a cancellation or large reduction of charges in the enterprisesexpenses. In this way, environmental protection becomes cost-effective for enterprises.

This principle of determining the level of environmental charges has in our experienceanother important element - balancing the economic condition between two types ofenterprises. The first is the enterprise which operates environmental protection technologies.The second is the enterprise without these technologies which must pay the charges forpollution. Without the existence of charges determined on the aforementioned principle, thesituation arises that the environmentally-friendly enterprise will be at a disadvantage andwont have the ability to compete with the enterprises which pollute the environment. We canfollow this idea to its theoretical conclusion that the nonexistence of efficient environmentalcharges will support environmental polluters and gradually bankrupt the environmentally-friendly enterprises.

The above mentioned basic principle of emission charges has been gradually implementedinto Czech environmental policy and it is being further developed. The incentive function and


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additional elements are creating a charges system which operates complexly to create anintricate system of economic stimulation. Our charges system contains the following mainpoints:

- increasing charges in certain conditions

This means increasing the impact on polluters. We use exceedance of local environmentalobjectives as the criteria for raising the basic level of the charges rates. These criteria differaccording to the different areas of the environment.

- reduction of charges in specific conditions

This means the reduction of the impact on the polluters. This problem especially concernscharge reduction (temporary charge credit) if the polluter has started to invest in pollutionprevention. The polluter is committed to use the saved amount of charge to finance theabatement technology. The second possibility is to reduce the charges in the case that the are

operating cleaning technology in accordance with acceptable standards.

- altering economic impacts on the payers

This means for example a decision about the method of paying - pre-tax costs, etc. If wedefine the charges as being the equivalent of abatement costs or as being the balance ofeconomic conditions between enterprises, then the charges are paid from the usual operatingcosts of the enterprises. However, additional charges mean additional impacts and are paidfrom the profit margin of the payers.

- main decisions about the fiscal side of the charges

This means the distribution of the fiscal revenue. It is possible to determine the method ofusing these sources at the time of their creation. There are three main alternatives in use forcharge reallocation:

1. transferring charge revenue to the central sources - to special funds, state budget, etc.(centralization of charges)

1. retaining revenue from charges by the polluters in specific cases,1. retaining revenues from charges at lower levels - in the municipalities, etc.

(decentralization of charges),

Our practice is to pursue the first option therefore most of the charge revenue goes to ourState Environmental Fund. At present we are also promoting the second alternative - retentionof charges revenue by the polluters if they have initiated activities aimed at reducingpollution.

2. Problems with the Application of Emission Charges and theirSolution

The most efficient stimulation of polluters is in the case where the level of charges isestablished at the same level as that of the costs for the reduction of pollution. These charges

and the charges system naturally entail some problems. In Practice these are fairly simple tosolve. We should mention some of these problems. Primarily they include:


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a) decision about the targets (standards)

This problem involves determination of the standards and the necessary efficiency of thetechnology which will be taken as the basis for the calculation of the equivalency of costs.Above all, we must take into account the cases where a small rise in efficiency above the

border of 90 % efficiency is several times more expensive, and this problem is shown by asignificant raising of the charges. Thus, we must fix this efficiency of the technology byconsidering not only the environment but also these economic relations and impacts.

b) accurate determination of equivalency costs

In practice there exist different equivalencies of costs, for example, in accordance with theutilization of cleaning technologies or the vastness of the pollution source when the costs forcleaning technologies are higher for smaller pollution sources than for the bigger. A possiblesolution is to set more charges rates or to average the costs into one rate of charges (we preferthe second option).

c) influence of the charges from inflation

It is possible that inflation can influence the charges and their impact on polluters. Thisproblem is very important if the charges play the role of an incentive instrument and presentequivalency of abatement costs and also if inflation is very high. A possible solution is theregular modification of charges with an inflation coefficient or a regular amendment of thelaw with charges (we prefer the second option).

3. Impact of Charges on Polluters

3.1. Concerns About the Impact

The main question which is discussed in the area of charges for environmental pollution is thetotal impact of these charges on industry and households. Opponents of charges (andeconomic instruments in general) argue that these impacts are too great and raise fears ofinflation.

The anxiety about the high impact of charges is unnecessary. If charges are based on theprinciple of the equivalency of operational costs for environmental measures, then the chargesact to ensure the "environmental" costs to the economy are included in enterprises prices and

their profits. If we take as the long-term aim the gradual improvement of the environment,then these charges contribute towards this aim and also compensate this aim. As long as thecharges are very high for some enterprises or branches, it will also be very high for therealization of environmental measures now or in the future. The enterprises must incur thesecosts in a specific period to promote real interest for solving environmental problems.

The opposite case - pollution without the existence of efficient charges - will represent thesituation when industrial production and profit will be to the detriment of the environment.This situation will exist until the time of effective implementation of charges orenvironmental technologies. The problem is solving the question of which level is it possibleto reckon these environmental costs or charges into the prices of products, and at which level

it is possible to eliminate these "environmentally expensive" products.


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This charge would not be considered inappropriate. On the contrary, the level of chargeswould be taken as important information about the significance of environmental impacts andthe very high costs of corrective measures taken by some enterprises or branches.

The actual impact on the polluters in our experience depends upon the following:

the role of economic instruments as one of the influences on polluters - in this case wehave strong emission limits (especially in air protection regulation) and the pollutioncharges play only a supplementary role in their impact on the polluter,

the implementation of the incentive function at all levels - this principle is applied inthe case of water pollution charges, in the case of the air pollution charges it is onlypartially applied,

structure of the polluters - if we apply the incentive function at the level of the averagecosts as the only charge rate, we must count upon different impacts - one section of thepolluters are above this level and the incentive is in force, the second section of thepolluters is under this level and the impact is small (we solve the second case by the

application of additional charges).

3.2. Impact of the Water Pollution Charges

Water pollution charges role is as a motivating economic instrument. The charges rates weremodified in the past in accordance to increases in the abatement costs and inflation, thereforethe impact of charges is relatively stable. Presently we are preparing a new amendment to thewater pollution charges law with more precise charges levels.

The affect of the charges is good above all in the case of polluters with smaller abatementcosts per person, due to the fact that they must pay the average charges rate which is greaterthan their actual costs and so they are more likely to take the abatement measures. In ourexperience this advantage comes into effect for municipalities which cleanse waste waterfrom the equivalent of 15 000 citizens. This impact is in accordance with our environmentalpolicy, where we want to solve above all the bigger polluters.

We also have favorable experiences with the impact of the other points of the charges(charges system), especially with temporary charges credit. About 50 % polluters are usingthis possibility and these sources can create about 20 - 50 % of the resources for the financingof the measures. Because these resources originate in the enterprises from the costs beforetaxation, they present for the polluters the cheapest sources of finance.

3.3. Impact of the Air Pollution Charges

In the case of air pollution charges we implement the incentive function only partially. Thereason being that our former air protection regulations were lax and the impact from theimplementation of the incentive function with a relative high level of the charges would betoo large, however it is planned to introduce the full role.

The incentive function and the necessary impact is applied for some pollutants (for examplesolid emissions), but they dont play the main role in our air pollution problems now. In thecase of our other pollutants (i.e. sulfur dioxide) we have charges rates only about 10 % of the

abatement cost and therefore the impact is only symbolic.


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The next problem of the impact is that the law contains a stepwise curve for 5 years and notuntil 1997 will polluters pay the full level of charges. This regulation presents anotherreduction of the impact on polluters.

The other points of the charges system have only a partial effect. For example the temporary

charges credit is only 40 % (the least from all other charges) and if the total amount ofcharges is relatively small, the positive impact for the polluters is minimal.

4. Recommendations for the Use of Emission Charges

Our experiences with emission charges produce the following recommendations concerningthe implementation of this economic instrument.

4.1. Conditions for the Implementation of Emission Charges

a) environmental conditions

The implementation of emission charges (especially with the incentive objective) is moreimportant in countries with poor environmental conditions. The implementation of chargescan contribute to the solution of these environmental problems.

b) economic conditions

The emission charges as a market oriented instrument is important both in market economycountries and transiting countries. We have experience with the effects of charges in a non-market system, but their role is substantially different.

c) political conditions

The negotiations concerning the implementation of emission charges seem to be easier than inthe case of environmental taxes. In our practice we have charges as a special instrumentcovered by special environmental legislation and their implementation is the responsibility ofthe Ministry of the Environment. In this case the implementation is relatively easier than inthe case of establishing environmental taxes, which is the responsibility of the Ministry ofFinance.

4.2. Steps for the Implementation of the Charges

a) specification of pollutants covered by charges

It is relatively easy to select the pollutants for which it is efficient to apply economic pressure.They must be pollutants which are important both from an environmental protectionstandpoint and for which it is efficient to apply an economic motivation to polluters.

b) determination of the optimum function of the charge

This means the principal objective of the charges. In the Czech Republic we prefer anincentive objective.

c) determination of standards


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We need information about the general environmental targets and then we must set thestandards and the required efficiency of the technology. To ensure the appropriate incentiveeffect this information will be taken as the basis for calculations of the equivalency of costs.

d) determination of stimulative charge rates

The rates of the charges are set for specific pollutants and the minimum level is set at the levelof average abatement costs (operational costs plus dividing investment costs into a few years).

e) the potential for increased charge rates

It is possible to supplement the charge with an increased rate or additional charge which is setin accordance with specified principles and conditions. For example, the charge can be raisedif we are interested in attaining a set target - reduction of the concentration of the pollutantdifferentiated according to the region (areas with high environmental protection, drinkingwater courses, etc..).

f) the potential for reducing charge rates

In many cases it is possible to create positive incentives for polluters. The charges can bereduced in some cases, especially:

if the polluter has started the construction of the necessary environmental measureswhich will reduce pollution and we want to financially support this measure,

if the polluter is operating a cleaning technology and the pollution covered by chargesrepresents only the residual pollution (the costs of reducing this pollution are high andit is inefficient to take additional measures),

if the polluter complies with the specific criteria which are set for this part of theenvironment - i.e. specific limits, etc.

g) the potential for decentralizing charges

We can decentralize charges in an efficient way and in pre-determined conditions. Forexample we can set aside a part of the charges to the jurisdiction of the lower authority of thestate administration or local authorities. The transfer of the jurisdiction also transfers theresponsibility to the lower administrative level. The decentralization of the charges concernsnot only their assessment and levying, but also the utilization of their fiscal income.

Decentralization is possible in the case of small sources of pollution, in the case of the part ofcharges which are being increased (see above mentioned points), etc.

h) the potential for altering economic impacts on the payers

This means a possibility of determining from which sources enterprises can pay charges (fromoperational costs or from profits, etc.).

i) the fiscal side of charges

This is the question of the fiscal income of the charges which is possible to use for financially

supporting environmental measures. The use of the income from charges is possible on a fewlevels and in a few forms. From the standpoint of the level this is a question, for example, to


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have polluters retain a part of the charge amount (see point c) in the region, or in centralgovernment (state budget, State Environmental Fund, etc.). This fiscal income is importantand creates financial resources also, in cases when the fiscal function is not the principle aim.In the case of returning charges to polluters in the form of financial help, we can also talkabout the redistributive function.

j) administrative elements of the charges

The charges also have an administrative aspect - primarily the legislation proclaiming theselection, monitoring and levying of charges. These problems are subsequently solved inmany cases and not during the time of discussion and preparation of new charges.

k) relation of charges to other economic instruments

We must consider charges as components of the whole system of economic instruments. Inthis area the charge solves one aspect from the sphere of economic stimulation and has its

place. This close relationship is essentially finances for the support of environmentalmeasures. It is not possible to substitute this instrument and its function with other economicinstruments (compensation for damages, penalties, etc.).

5. Conclusions

In the Czech Republic we consider charges for pollution the most important economicinstrument, and they have an important place among the instruments of environmental policy.The charges have above all the function of an economic impact on polluters according todetermined rates. Charges are increased by additional rates to increasingly afflict polluters.

The revenue from charges also ensures resources for positive stimulation of polluters. Withregards to the possibilities of delays and reductions, charges can also be important positivemotivating instruments directly applied to polluters. All these functions can be considered asparts of the charges system which can create the necessary economic conditions for meetingenvironmental policy targets.

The existence of charges takes into account the economic concerns of the polluters and offersthe possibility of choice from the most effective alternatives. The existence of charges andother economic instruments allows room for the application of other instruments - especiallyadministrative instruments. The opposite procedure is more complicated - the application ofadministrative limits or prohibitions excludes or restricts the utilization of economic

instruments.

The authors opinion is, that the above mentioned approaches are not novel. However we haveno information about their practical implementation on this scale, as in our country.

Solving the problems in the above mentioned chapters will entail increasing the incentivefunction of the charges. Charges based on these principles are the simplest way of includingexternal impacts into the operating costs of enterprises. These charges also enforce therealization of the polluter pays principle which has become the standard in developedcountries.

C. Possible Functions of Emission Charges


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1. Introduction

Pressure to enforce desirable behavior of environmental polluters is applied through differentmeans. This pressure may be exerted through specific limits for pollution, prohibitions orother subjective and nonsystematic regulations. These centrally determined administrative

approaches meet resistance from enterprises which attempt to avoid or delay compliance. Asystem of economic instruments is essential in stimulating and influencing the determinationof prices and profits for environmentally-friendly behavior. Administrative instruments canserve a complementary function to economic instruments in this process.

The existence of charges takes into account economic concerns of the polluters and offers thepossibility of choice among the most effective alternatives. The existence of charges and othereconomic instruments allows room for the application of other instruments - especiallyadministrative instruments. The opposite procedure is more complicated - the application ofadministrative limits or prohibitions excludes or restricts the utilization of economicinstruments.

Charges are one of the environmental policy instruments which can influence environmentalquality. This is a question of economic instruments covered in the category of instruments ofnegative stimulation which affect polluters of the environment. Fiscal income from chargesalso enables the positive stimulation of polluters.

Charges are the simplest form of including external impacts into the operating costs ofenterprises. Charges also enforce realization of the polluter pays principle which has becomethe standard in developed countries.

2. Possible Functions of Charges

Charges as payments for pollution may fulfill many functions. These include:

a) incentive function

effective stimulation of polluters for the realization of desirable measures which lead to thereduction of pollution (it means that charges are higher than the costs of the necessarymeasures),

b) fiscal function

ensuring the funds for the financing or partial financing of the determined targets forenvironmental protection (charges are on a level so that their total amount ensures a desirableamount of required finances),

c) harmful damage function

right of recovery from the polluter according to the level of harmful individual pollutingsubstances (charges are set according to subjective determinations of the estimate of harmfuldamages),

d) compensation for damages function


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compensation for damages rises in conjunction with concrete activities which are pollutingthe environment (charges are set on a level of the estimation of damages caused by thepolluting substances),

e) regional function

general negative impact on the specific region (charges are differentiated according to theregions or areas which are affected by the pollution),

f) compensation function

compensation for environmental impacts on the specific region (charges are set ascompensation for impacts),

g) recycling function

creating economic conditions for the recycling or collection of waste or harmful substances(charges ensure economic conditions for recycling),

h) rate of deterioration function

the rate of deterioration of environmental quality (charges are set on the basis of criteriawhich contain the "rate of deterioration" of the environment),

i) right of recovery function

continuing nonfulfillment of laws and other regulations (charges are set in consideration ofdetermined standards),

j) profitable impact function

profitable impacts from the point of view of the enterprises or macroeconomics (charges areset in accordance with and cannot exceed a pre-determined level of economic impact),

k) combination function

combination of some of the above mentioned principles,

l) zero function

simple implementation of the charges as a resource from polluters without an explanation oftheir basic function (in this case it takes into account none of the above mentioned criteria).

3. Assessment of the Separate Functions of Charges

It is possible to write many comments assessing all the functions mentioned in Chapter II.2.For all, except for point (a), there is an absence of measures motivating polluters to alter theirbehavior. These charges fail to achieve the purpose that it will be more economically

advantageous to engage in environmentally-friendly behavior rather than to continue


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polluting. A detailed analysis of all the variants requires much space. Limited space allowsonly a few comments:

(a) motivating function

positive: economically motivates the polluters to improveenvironmental behavior

negative: small imperfections are discussed in other papers

conclusion: we consider this the most efficient function and this is thereason for its detailed description in the following section

(b) fiscal function

positive: ensures the funds for the support of determined targets

negative: the problem is determining the needed amount of financialsources

conclusion: this function is possible to use only in developed economieswith a stable environment where it is fairly simple to partiallysolve problems for which it is necessary to ensure adetermined level of financial sources

(c) harmful damage function

positive: solves the level of the harmful damages of the polluting

substances, and this harmful damage level can be used in thedifferentiation of the charge rates

negative: the setting of charge rates is very subjective because objectivebases for the foundation of the charges dont exist

conclusion: we can use this function only for a few pollutants which weneed to cover by charges and which are also impossible toliquidate - we dont use the "motivating" function, butaccording to the level of harmful damage we can compare anddetermine rates of charges for other pollutants

(d) compensation for damages function

positive: solves environmental impacts according to damages

negative: it is impossible to determine objectively the environmentalimpact of all pollutants covered by charges

conclusion: in practice this is unacceptable because, aside from problemsin determining charge levels, there are also problems with thepossibility of applying the compensations of an individualdamaging pollutant between two subjects (it is impossible toapply the compensation twice)

(e) regional function


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positive: differentially solves environmental impacts according to thecharacter of the region which is affected by the pollution

negative: it is impossible to determine an objective base for the charges

conclusion: it is possible to apply only as a complementary function

(f) compensation function

positive: creates the possibility for the financial compensation ofdetermined environmental impacts

negative: it is impossible to determine an objective base for the charges

conclusion: it is possible to use only as a complementary function

(g) recycling function

positive: creates the economic conditions for financing the recycling ordeposit-refund system jointly with the liquidation of thepollutant or product with a negative impact on theenvironment

negative: it is possible to use only in the case of pollutants or wastes forwhich we can ensure recycling or collection and liquidation

conclusion: we can use this function only for solving partial problems oras a component of deposit-refund systems

(h) rate of deterioration function

positive: takes into consideration the level of environmentaldeterioration

negative: is impossible to determine an objective base for the level ofcharges

conclusion: we can use only as a complementary function

(i) right of recovery function

positive: takes into account the fulfillment or nonfulfillment ofdetermined criteria which is crucial for the level of applicationof charges

negative: it is impossible to determine an objective base for the level ofcharges

conclusion: we can use only as a complementary function

(j) limited profitable impact function

positive: it is the most acceptable function from the point of view of theenterprises concerns (but to the detriment of the environment)


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negative: there is no motivation in relation to the environment and thedetermination of the profitable level is very debatable

conclusion: from our point of view these variables are unacceptablebecause it only economically afflicts and motivates pollutingenterprises symbolically

(k) combination function

positive: this function accomplishes more functions together at the sametime

negative: it is not possible to determine the basic function of the charges

conclusion: in the basic form this isnt acceptable in practice because itisnt possible to determine the basic function and principle ofthe charges

(l) zero function

positive:negative: the charges are set quite subjectively

conclusions: is not acceptable in practice because the charges dont fulfill concretefunctions

The basic functions of the charges should be unambiguously set because of the necessity forcalculating the charges level and relationships to other environmental policy instruments. As

the most efficient variable it is possible to consider function (a), and that is why the majorityof this chapter will contain its detailed analysis.

The subsequent functions of the charges are inferior from the standpoint of having aninefficient impact on the polluters. Some functions are possible to use in an acceptable way assupplementary functions. For example, the "harmful damages" function (c) is possible to useto set the type level of pollutants which need to be covered by charges and at the same time itis possible to set the level in accordance to the criterion of (a). Another example is the"regional" function (e) which is possible to use for increasing the level of the charges.

The "fiscal" function (b) is specific because it is also included in all the other functions. Theother functions include fiscal income of charges only as a secondary effect, whereas theconcrete function (b) means priorities from the fiscal standpoint. The level and rates ofcharges are reckoned and set so that a predetermined fiscal amount will be acquired.

4. Conclusions

The previous review reveals that from the perspective of economic motivation of the polluterthe most efficient variable is (a) - it means that charges are at a minimum the same or higherthan the operational costs of cleaning. This variable is set so that the specific pollutingenterprise is economically stimulated to change its behavior in accordance with environmental

concerns.


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The law contains a positive stimulus for the polluters (large and medium sources) which havestarted work on the reduction of pollution - a 40 % reduction in the charges (temporarycharges credit) for the duration of the realization of these measures. The polluters use thesefinancial resources for financing these measures. The polluter must transfer these resources tothe specific account from which it will finance the measures. If the polluter finishes the works

in accordance with set conditions, it is possible to make a decision regarding the exemption ofreturning to the reduced charges total. In the case where the polluter does not fulfill theconditions for the reduction, the polluter must pay the total reduced amount.

The authorities which monitor and make decisions regarding the charges are:

large sources - Czech Environmental Inspectorate medium sources - local district authorities small sources - local town authorities

Until the end of 1992 the polluter paid these charges from its profits. In 1992 the concept of

charges was changed - the base rate means the balance of conditions between two subjectsand thus it was also necessary to change the aforementioned impact on the economic indices.The law about income taxes contains the following change from January1,1991: the base rateis considered as the usual expense for tax duties and the impact from its payment istransferred in a set ratio to the state budget. This method is not used in the case of theadditional rates of charges which must be paid from the profits of the polluter.

The main area of air pollution charges is their fiscal effect - the revenue of financial sources.In 1992 a new system of charges with a change in their use was introduced. The mostimportant change was the implementation of a 40 % reduction in the charges at the initiationof activities aimed at reducing pollution. Thus, part of the financial sources from the chargesrevenue stays directly with the polluters. The second main part of the charges is collected insources of the State Environmental Fund and in the municipal sources in towns.

Some rates of charges are considerably smaller than those corresponding to the "incentive"function - it means the costs for the measures of pollution reduction (e.g. the rates for SO2 inrelation to the cost for the reduction of SO2). In addition, the law contains the stepwise curvefor 5 years and not until 1997 will polluters pay the full level of charges.

At present we must consider the following as the basic defects of the air pollution charges:

Of the more than 90 pollutants covered by charges, the majority are unable to beefficiently reduced and it is not possible to efficiently measure many of them.

Solution: Re-evaluate the number of pollutants covered by charges with the aim of reducingthem to an efficient number. As a criterion for inclusion or exclusion it is possible to use theefficient stimulation of polluters, technical conditions for the payments (measures, etc.),administrative claims which are simple for the implementation of charges, etc.

Problems with unambiguously determining the function of air pollution chargesbecause up to now the principle of the balance of economic conditions (incentivefunction) was not accepted in all cases.

Solution: Confirm the "incentive" function of the charges in all basic


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environmental or economic documents (e.g. EnvironmentalPolicy).

Low rates of charges for some basic pollutants.

Solution: Raise rates of charges with the aim of making them comparableto the costs of implementing pollution abatement technology.

Long phase in period for charges.

Solution: Assess the possibility of speeding up the current implementationschedule.

Unsuitability of the function for setting additional rates of the charges when this partof the charges are joined with the fulfillment of the administrative regulation(nonfulfillment of the emission limit).

Solution: Re-evaluate the function and level of the additional rates of thecharges and simultaneously assess the possibilities of creating,from the additional rates, a regional economic instrument.

Insufficient reduction of the charges (temporary charges credit) at the beginning of therealization of specific measures for pollution abatement.

Solution: Raising of the charges reduction from the current 40 % up to a level of 80 or 90 %.

Minimal decentralization of the charges (presently only in the case of small pollution

sources).

Solution: Assess extending decentralization, especially for medium-sizesources and additional rates.

III. Comments on new Types of EconomicInstruments

A. Tradeable Permits

(Topics for discussion before their implementation based on the example of a country intransition)

1. Basic Principles of Tradeable Permits

a) philosophy of tradeable permits

This instrument is based on the issuing of "permits" for polluting. In principle it represents adifferent approach from regulations based on the "limits". These limits represent the highest

possible amount of pollution, but all pollution levels are considered as non-environmentally-friendly and it is covered usually by the payment of special taxes or charges.


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As opposed to other economic instruments, such as emission taxes or charges, tradeablepermits allow a certain amount of pollution without payment. The possibility for additionalpollution is only through payment (purchase).

b) the principle of tradeable permits

The first step is a decision about the number of permits. This is an administrative decision,which can influence the subsequent steps and other principles of tradeable permits (trades,prices, strength of the supply and demand, etc.). The total amount of permits is moreimportant than the possibility of trading them. Therefore, we count tradeable permits as aneconomic instrument, but the basic principles are set by an administrative decision, whichinfluences to a great degree the economic side of this instrument.

c) reduction of tradeable permits in the following years

A similar decision as above concerns the reduction of the permits in the following years - it

may be very rapid or quite slow. This is also an administrative (or political) decision, whichcan influence the subsequent steps, especially the scope of their trade, prices, etc.

2. Environmental Aspects

a) structure of the polluters

It is impossible to implement tradeable permits if the polluters are the most importantinfrastructure producers, i.e. water treatment plants dealing with pollution frommunicipalities, heating and energy power plants, etc. It would be inappropriate if it was very

expensive to pay for the permits or if they dont have the finances to pay for them.b) increasing pollution for special cases

Tradeable permits prepare conditions for the initiation of activities by new polluters or raisethe present pollution level of polluters, however they account for this possibility, because theyalso have a demand component. It is a question as to what level of purchase we can allow. Incontrast a regulation based on limits, in principle, doesnt allow an increase in pollution.

c) rich (foreign) polluters

The above point concerning the activities of new polluters is especially valid in the case of theexistence of large foreign capital, which creates an imbalanced condition as they can buy upmost of the free permits on the market.

d) number of pollutants covered by tradeable permits

It is only possible to issue tradeable permits for a specific pollutant, such as CO. If we need tosolve more problems and pollutants, we must issue more kinds of tradeable permits and foreach we need a specific system. It is, however, impossible to solve all the problems of airpollution, water pollution, etc. using only tradeable permits.

3. Economic Aspects


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a) motivational (incentive) function of tradeable permits

Enterprises should be motivated to reduce pollution. In the economic branch it means thatpayments or other additional expenses must be higher than the expenses incurred by reducingthe pollution (abatement costs). In the case of tradeable permits the enterprises must spend

additional (environmental) expenses in accordance with their permits, without directeconomic motivation - this is only an administrative pressure. They can also pay foradditional measures which reduce pollution more than the permits demand and it is this extrapollution reduction which is possible to trade on the market. But during these expenditures itis not possible to know the market prices of the permits after reducing the pollution, i.e. aftera few years. In this event the economic motivation is very debatable and must be assessed andjudged case by case.

b) relation to other economic instruments

We must assess the relation of tradeable permits to other instruments and possible joint

existence - for example tradeable permits and emission charges or a financial form ofcompensation for damages done (it may also be possible to pay compensation even forpermitted pollution - see point 1.a), etc.).

c) necessity of funding the measures

The polluters need money to finance the reduction of pollution while carrying out thesemeasures. They must ask for loans from the banks etc. After finalizing the measures andreducing the pollution they can receive the money (if the level of pollution is smaller thantheir permits and if they sell this surplus of permits). But this can only be accomplished afterthe measures have been put into effect and certainly not in advance in any unknown amount,because the permits will be subject to trade in the future.

d) the level of the flow of money

As opposed to other economic instruments (taxes or charges) in the case of tradeable permits,the money flows in a horizontal level among the polluters. This system doesnt contain avertical flow of money (from polluters to special funds or the state budget) and doesnt createspecial sources of money at the governmental level for the financial support of specificmeasures.

e) necessity of funding the system of tradeable permits

The preparation of a new system of tradeable permits requires financial funding from central(government) sources. Also the operation of this system requires financial funding (whichcould be covered only partially from the implementation of special fees for each trade).

f) implementation of tradeable permits in a market economy

It is a necessity of tradeable permits that they be implemented only in an open and developedmarket economy system (it means for example with a developed private sector, freecompetition, full deregulation of prices, etc.).

4. Legislation and Organization


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a) present regulations

It is necessary to implement tradeable permits in accordance with the present regulations. Thismeans with the present environmental policy, declared targets and steps, etc. Tradeablepermits are a brand new instrument which should not endanger the adopted regulations (based

for example on the meeting of special limits from all polluters).

b) the legislation involving tradeable permits

It is necessary to prepare special laws or other regulations for the implementation of tradeablepermits.

c) the organization of tradeable permits in force

It is necessary to prepare both a special framework and institutions for the management oftradeable permits (i.e. for the preparation of the system, for the regulation of the permits

issue, for the trading of the permits, etc.).

d) monitoring of the pollution

The monitoring of pollution in the case of the implementation of tradeable permits is moreimportant than in the case of other instruments such as taxes or charges. The taxes/charges arebased on different functions. For example the fiscal function is focused on the total amount offiscal revenue, the incentive/motivating function is based on average costs and it allows smalldifferences. On the other side the system of tradeable permits is based on meeting(nonviolation) the specific permitted amount of pollution. In this case it is necessary to knowprecisely the level of pollution which is the base of this instrument and could be traded. Thismonitoring requires special measures by both the polluter and the state authorities or specialinstitutions.

e) penalties or other fines for non-permitted pollution

It is necessary to prepare not only a system of pollution monitoring and checking, but also asystem of fines for polluters which have exceeded the permitable levels (this means penalties,possibilities for the cessation of production, etc.). In the case of penalties it is also necessaryto solve problems such as their level (this level must be both effective and adequate to preventthe exceedence of permitted pollution). The problem of permanently exceeding the limits

must be solved, too. Without this system of fines, tradeable permits are only a symbolicinstrument.

f) reduction of possible speculation with tradeable permits

We must take into account the possible speculation with tradeable permits, but thisspeculation can not have the same character as speculation on the stock exchange with shares.Here it is possible to recognize two basic types: speculation from the polluters (for example atthe end of a specific period) and from the other subjects with access to the market (not alltheir speculation could have environmentally-friendly aims). It is therefore necessary toreduce all kinds of possible speculation.

g) the kind of tradeable permits


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The system of tradeable permits has many kinds of options and modifications. If we discusstradeable permits, it is better to have a discussion about definite kinds of possible applicationfor a specific pollutant, in a specific territory, for specific polluters, by the specific issue ofpermits, etc. Then it is necessary to asses all the possible kinds of tradeable permits andprepare the implementation of the best one. These kinds could be, for example, in different:

areas (air, water, waste, land, etc.), territories (one country, small or large regions, etc.), types of polluters (all polluters, special branches, infrastructure polluters, etc.) levels for the first permits (in accordance with present pollution levels, smaller than

present pollution), types of permit issue (free issuing, paying either the market or a nominal price), kinds of reduction on the number of permits issued the next time (slowly or quickly), regulations concerning the system of trading (specific types of restriction, etc.) types of markets with these permits in relation to their reduction of pollution.

B. Joint Implementation

(Opinions about some aspects especially from the point of view of a transition/developingcountry)

1. Brief Description of Joint Implementation

Joint implementation is a specific approach to the reduction of greenhouse gas emissions.This solution is based on international cooperation and financial assistance. The pollutersfrom developed countries could solve the reduction of pollution by investing in measures in

developing countries. This type of joint implementation is still based on the voluntaryactivities from the side of the polluters.

For the future there exists an idea on the specific conditions in the investors domestic country.New regulation will contain exemptions from having to meet new limits (standards) forpollution if polluters invest in developing countries for specific measures and these measureswill reduce the same or a higher amount of pollution than is the polluters domestic obligation.

This type of economic instrument is a more effective approach to the solution of globalwarming. The basis for this type of international cooperation was established in Article 4.2 ofthe United Nations Framework Convention on Climate Change and was discussed at the EarthSummit in Rio de Janeiro in June 1992.

2. Side of Developed Countries

In the developed countries there usually exists a program for the control of the emission ofgreenhouse gases. This program is based especially on command and control regulation, itmeans there are specific limits for the emission of specific pollutants (particularly CO2).Economic incentives such as specific taxes or charges are used on a very small scale or not atall. In the United States the possibility exists to trade with these limits.

Joint Implementation exists only on a voluntary basis. The investors can only obtain "credits"for the possible violation of limits in the future.


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3. Side of Developing Countries/Countries in Transition

The solution of environmental problems, including air pollution problems, are very different.These differences arise above all from their environmental problems, economic problems,approaches to the solution, etc.

One of the main problems are the financial resources for the solution. These countrieswelcome any kind of assistance from abroad, which can help with their environmentalsituation. In these cases they only follow the donators conditions and dont make bigdifferences between these sources. Also financial assistance in the framework of JointImplementation is mostly considered as "foreign sources" for environmental protectionwithout further specification.

Management of all these "foreign sources" is usually administered at the governmental level.

4. Developing Cooperation in the Framework of Joint Implementation

The idea of Joint Implementation creates a larger opportunity for financial assistance in theside of developed countries. Previous financial assistance only represents voluntary activitiesfrom the side of industry in the developed countries, without direct advantages for it. Fullydeveloped Joint Implementation represents specific advantages for the industry in relation toprevious general assistance, because at the same time as giving financial assistance todeveloping countries it can save financial resources to be spent on pollution reduction in thedomestic country.

From the side of the investor the amount of financial resources for the solution in the resident

country is, in general, the same (or similar) as its assistance to the host country. This means itcan decide upon the localization of its sources between two similar options.

At present we prefer the idea of Joint Implementation, it means giving financial assistance toa developing country. The reason for this is, above all, that it is a cheaper solution for thedeveloping world or higher reduction there for the same money. The question which arises is,how can we support the ideas of Joint Implementation and especially the investors in thedeveloped countries.

The developed country will provide investors with exemptions for meeting their targets(limits) in the future. For this approach it is necessary to prepare special regulation and

systems of administration. This part seems to be the basic and the main step for the solution.The next steps must be provided from the developing countries side.

5. The Options for Higher Usage of Joint Implementation on the Sideof Developing Countries

The investments in developing countries create some advantages for the investors, such as:

creating contacts with the developing country and its representatives, publicity from the nontraditional approach, cheaper solution (in relation to reducing to the same level of pollution in the domestic

country), the promise of "credits" for future limits in the domestic country.


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These advantages are more formal and not directly economic. From this point of view we canassess the kinds of further advantages for the foreign investors, especially in the field of theeconomy.

In general it is very difficult to apply different approaches to foreigner investors, for example

in the case of taxation, such as tax exemptions or tax reduction. These approaches will berefused by governments in relatively stable economic conditions and in this field there existvery little chances of possible activities. Therefore it is necessary to discuss and assess otherand not so usual possibilities.

Privatization is one of the main opportunities for the solution of this problem in transitioncountries. The government can apply many kinds of nontraditional approaches andadvantages, during this process, for foreign investors in the event of their financial assistance.The specific possibilities will depend on the kinds of privatization in each country.

Novel and very different possibilities can be found at the regional level, i.e. at the level of

district offices and municipal authorities. They have many jurisdictions, they can decide aboutmany things and problems in their regions, they are owners of property, etc. These authoritiescan offer many advantages for investors which can improve their environment.

For the solution of these problems we need to assess the mutual conditions between foreigninvestors and the host country. We must know, above all, which condition will these investorsprefer. They are mostly big polluters with a specific position in their country and with aspecific production such as energy, etc. They will probably prefer specific options ofadvantages, such as access to a market, participation in the property or in the profit,developing specific activities in the host country, etc.

6. Results

It is necessary to prepare the following steps for the development of Joint Implementation:

A. In the developed countries assessment of the:

possible financial sources for the investments abroad, specification of the possible investors, level of the financial sources, conditions of the investors (expected advantages),

conditions in the domestic country.

B. In the developing country/country in transition preparing

general conditions for this type of assistance, direct economic advantages for the investors, indirect advantages for the investors, specific approaches to this problem during privatization, advantages at the non-governmental level.

Developing Joint Implementation is possible especially by creating specific conditions for the

investors from developed countries. This problem must be solved by both sides together, itmeans not only the possible advantages for investors in the host country, but also the expected


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advantages from the side of potential foreign investors. Then we can compare both sides andwe can use the best options for our solution.

All these possibilities must be resolved, prepared and implemented as a system, which isuniform with other conditions and instruments in each country.

IV. Approaches to Specific Problems

A. Sustainable Development of the Private Sectorand its Relationship to the Economy (Based on theExample of the Czech Republic)

1. Introduction

This problem concerns some of the economic aspects of the behavior of the private sector(enterprises, firms, corporations) to sustainable development. This economic aspect should beconsidered as very important, because all activities and changes pass through some economicconditions and we must take them into account.

For our problem we need to discuss some basic points, specifically:

what we mean by sustainable development behavior and what it means in relation tothe private sector in general and in specific cases,

how private sector behavior can be influenced or how it can modify its behavior itself,

which economic conditions exist in the private sector and how these economicconditions relate to it, what are the expected reactions of the private sector.

Sustainable development approaches in the private sector must be considered in two separateareas:

a) All agents exist under the same conditions, this however is the more theoretical example.

b) All agents exist under different conditions in the sphere of:

the economy - both the economic conditions in their area (state, region) and their owneconomic conditions, production process - including products, applicable technology, etc., relation to the environment such as pollution and other types of impacts on their

neighbors (it can be different according to the location of the agent, etc.).

In this paper we skip most of these problems or we will simplify them and we will mentiononly some economic aspects of the economic relationships.

2. Possible Options for Relationships

There are three basic relationships between the sustainable development of the private sectorand the environment:


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1. the private sector must meet basic environmental regulations such as acts, limits forpollution, etc.,

2. the private sector could be influenced especially through incentive instruments,

3. the private sector can develop sustainable (environmental-friendly) behavior itself.

In practice all of these options dont exist separately, but in mutual combination. For examplein the Czech Republic:

the legal regulation is developed, economic instruments are partially developed and they play a supplementary role, environmentally-friendly behavior of the private sector is in the initial stages.

All these points have differing relationships to the economy and we must consider themseparately.

2.1. Basic Environmental Regulation

These regulations are set by either: the Parliament, the Government, the Ministry of theEnvironment or other authorities. In this case, the private sector must adhere to these types ofregulation at all events. The regulation is in the form of:

basic norms and standards for behavior in general, or specific norms of behavior such as limits for pollution.

This part represents the basic environmental regulation of the country or region and this is thereason for its importance. This part must also set other basic environmental relations such asthe responsibility to the environment, the institutional base, etc. It is the responsibility of theParliament or other authorities to achieve these goals through the creation of inspections,agencies and penalties.

The regulations have an extensive economic impact on the private sector. The regulations are,generally, strict and leave the private sector with a small amount of options for their ownsolutions.

The relationship to the economy has the following specific elements:

a) a direct economic impact on the private sector which must adhere to the regulation, and

b) global economic impacts on the macroeconomy with:

an indirect relationship to the private sector (the possibility of related problems fromthe macroeconomy to the private sector), and

the relationship on citizens, the social sphere, etc. (for example the rise in prices as aresult of industries adhering to the regulation).

The author of the act or regulation must evaluate the economic impact. He must consider

various aspects such as: global economic impact, cost benefit analysis, etc. This assessment isvery important because the regulation must be followed.


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2.2. Incentive Regulation for Influencing the Behavior of the Private Sector

In this case the regulation is also set by either: the Parliament, the Government, the Ministryof the Environment or other authorities. In contrast to the first case, this regulation containsonly basic incentive instruments such as: taxes, tax allowances, pollution charges or fees,

grants or soft loans. These instruments can influence the private sector if they are used at alevel which corresponds to the problems and actual situation.

The basic difference between the first and second option is that in the second option theprivate sector has the possibility of choosing solutions which are in accordance to theireconomic or other priorities. The responsibility of achieving the goals is divided between:

the Parliament or other authorities (the responsibility for the effectiveness of theinstruments), and

the private sector (realization of the measures).

Incentive regulation has a negative and positive side. The negative side means, generally, thatthe private sector must pay. For example, it must pay for its pollution, but it can avoid orreduce this payment, if it pollutes less. In the case of the positive side, the private sector hasthe chance to receive the specific economic advantages for environmentally-friendly behavior.In practice, the positive side exists, but to a lesser extent.

Both these possibilities create more opportunity for decisions at the level of the private sectorthan in the first option and the private sector has the possibility to choose the most effectivesolution.

2.3. The Private Sector Develops its own Sustainable Behavior

The last option, self regulation by the private sector, is set by the owners or management ofthe private sector. In this case, the private sector is soley responsible for sustainability. Thisoption does not guarantee that the main targets in the environmental policy will be achieved.This is the main reason why this option can not be implemented independently (not only inthe Czech Republic, but in countries all over the world).

In practice this option has the following limitations: the private sector must adhere to the firstoption (legal framework), and must work within the second option (incentive instruments).The question then arises, "how much space will remain for the private sectors decision

making and strategies which relate to the environment?". This is the first basic problem.

The second problem is the economic aspects of sustainable development behavior. In the realconditions of the Czech Republic, the private sector is mainly concerned with the economicadvantages of this behavior. Environmentally-friendly behavior would not be efficient in mostcases, and the private sector would simply refuse to do more.

As an example, we can use the additional costs for cleaning technology. If these costs arentrequired by the regulation or if there are no economic advantages in the incentive instruments,the enterprises will not expend these costs. These costs either create higher prices for theproducts and a disadvantage in the market or a lower level of profit.


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Practical experience shows that environmentally friendly behavior is not advantageous indifficult market conditions and free competition. Therefore, the private sector will assess itsactivities for all of these proposals from the standpoint of the economic aspects above all. Theenterprises will refuse all proposals with high economic impacts and with the risk of a loss.

Since the third option is the most difficult, we can examine its result from an economicstandpoint. Environmentally-friendly behavior based on the sustainable development of theprivate sector is possible only in relation to:

the basic environmental regulation, economic conditions (both in the country or region and in the real enterprise), economic advantages or minimization of the economic risks, other aspects of the production process.

These results means that the private sector can use the principles of its own sustainabilityespecially in the following cases:

a) if general environmental regulations allow flexibility for the economy and technology inthe private sector, and/or

b) if the approach to sustainable behavior includes all aspects of the production process,because this is the most economically efficient approach.

3. Conclusions

If we consider the three main options of the approaches to sustainable (environmentally-

friendly) behavior and their relationship to the economy, we can see that: The first option, legal and administrative, is set by the authorities, therefore the private

sector has only a small space for their own initiatives. The economic impact is largeand it is set beforehand during the preparation of the regulation.

The second option, incentive instruments, is also set by the authorities, but the spacefor the private sector is higher. The economic impact could be more flexible andinclude active participation from the private sector.

The third option, ones own activities, depends only on the activities of the privatesector. It must follow the basic legal regulation and work with incentive instruments.The rest of the activities it will consider, above all, from the economic aspects and

advantages.

In the field of the economic aspects of the practical application of private sector sustainabilitywe need to solve, above all:

An adequate proportion between all three options of the possible relationships betweenthe private sector and the environment. They can vary among countries according totheir conditions (environmental, economic, etc.).

Improvements in the economic conditions of the private sector, especially theproblems associated with the economic disadvantages of sustainable behavior.


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B. What Policy Should be Implemented with Respectto Controlling Air Pollution Emissions from MotorVehicles in the Czech Republic

1. General Problems of Air Pollution from Motor Vehicles

The combustion of gasoline or diesel oil gives rise to more than 165 kinds of harmful(injurious) and poisonous substances, which pollute in the form of exhaust gases in the air.Many of these substances are very dangerous, because:

they have a direct impact on the health of the citizens, they have negative influence of the food chain, of the effects of acid rain, of the direct damages to forests, and

other kinds of damages.

2. The Specific Problems of Air Pollution from Motor Vehicles in theCzech Republic

The Czech Republic is a typical country with declining urban air quality levels. The situationis worse than in developed countries and the effects are delayed for about 5-10 years. Theshare of the main pollutants by the citizens and area are provided in the following table:

solid SO2 NOx CO CxHy

1980 - kg/cap.1) 123 208 71 87 13

1992 - kg/cap.1) 48 147 67 101 20

1980 - t/km2 2) 16 27 9 11 2

1992 - t/km2 2) 8 24 9 11 3

1) kg/cap = kilogram per capita

2) t/km2 = ton per square kilometer

The main pollution arises from the combustion of bad quality coal and from motor vehicles.They cause most of the problems especially in the cities centers, residential areas andprotected natural areas. The contribution of motor vehicles pollution can be seen in thefollowing table:

Nox CO CxHy

1980 total 731 895 135


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1980 mobile 39 375 18

% m/t 5,3 41,9 13,3

1992 total 698 1045 205

1992 mobile 211 210 73% m/t 30,2 20,1 35,6

The main reasons for these problems above are:

the increasing number of cars, bad technical conditions of the cars, small quantities of nonleaded gasoline, big interstate transport using trucks, small number of road systems through or around the cities and for long-distance

transport.

3. The Present Regulation in the Field of Motor Vehicles

3.1. Basic Administrative Regulation

The basic rules are set by the General Environmental Act and The Act on the Protection of theAir Against Pollutants (The Clean Air Act). These regulations set, above all, the basicprinciples of behavior and basic principles of regulation, such as:

the rights and obligations of citizens to protect the atmosphere from pollutingsubstances, and to restrict the causes and mitigating consequences of air emissions,

types of pollutants (more then 80), definition of pollution sources (small, medium,large, and mobile), and pollution limits (these specific limits are given in furtherregulations and measures),

basic enforcement criteria and penalties for polluting the atmosphere.

The specific limits for mobile sources are set by other regulations. Newly produced cars mustmeet EEC emission limits for pollution. All cars in operation must follow a strict inspectionof emission limits, introducing regular obligatory engine tuning for all motor vehicles.

3.2. Economic Regulation

The economic instruments commonly used to regulate mobile sources of pollution are the taxsystem (the basic tax system is comparable to the system used in the European Union). In thearea of motor vehicles we can specify:

Road tax, which is imposed on business vehicles registered in the Czech Republic(private vehicles are exempted from the payment) in accordance to their size. This taxcontains other exemptions from paying for:

vehicles with efficient catalyzers, electrically powered vehicles, vehicles regularly used for public transportation in the urban transportation system, combined transportation.


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Some other measures in the tax system which are formulated, above all, as taxallowances:

5 % of the value added tax (standard rate is 22 %) for the purchase of: automobile catalyzers, equipment with electric motors, passenger cars and other motor vehicles constructed

primarily for the transportation of passengers, including passenger vans and racingcars, producers of electromobiles are exempt from income tax, the consumer tax is set at different rates according to the types of: automobile gasoline (level of lead), automobile oil. Express highway fees - as annual payment for all vehicles which use the express

highways (the level of fee is in accordance to the vehicle type and weight). Financial support of some measures, such as: the maintenance of the roads with funding from the "road fund" which is created from

the road tax, support for the building of the new highway network from the revenue of the express

highway fees, support of specific measures from the State Environmental Fund (the sources are from

the pollution charges).

4. Targets of the Present Environmental Policy for Motor Vehicles

The reduction of emissions from mobile sources of pollution, caused mainly by automobiletraffic, will issue from a combination of the following basic approaches:

The reduction of emissions from automobiles by the application of technical measures. The reorganization of the traffic route system with respect to atmospheric protection. The reduction of excess traffic in the centers of towns and recreational areas through

technical and organizational measures. The giving of preferential treatment to mass transport ahead of individual means of

transport. The increase of combined freight traffic.

While technical and economic solutions are being implemented, radical steps leading to afaster renewal of the automobile fleet are also necessary.

Heavy trucks and buses should be equipped with separators for soot. In the next stage, we willconcentrate on the construction of an engine that reduces the emission of NOx. A graduallystricter emission limit is prepared for mobile vehicles using compression ignition engines.

A significant step towards reducing atmospheric pollution caused by buses in towns, is the re-orientation of mass transportation systems towards electric traction. In towns where trolleybuses stopped being used years ago, modern trolley buses will probably be used again.

5. The Reasons for the New Approaches in Environmental Policy

We need to solve the problem of air pollution from motor vehicles through environmental

policy because this problem:


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is very important and the damages are extensive, concerns not only specific areas (many of the problems are global), has many factors which we need to incorporate into the solution, concerns many other fields such as transportation, demands a complex solution.

Although the present environmental policy has some approa

Documents

Economic Instruments for Environmental Protection