The Canadian and US government spend billions annually to try to cut pollution problems and stabilize them. Numerous copies of environmental protection plans have been drafted through in hope to achieve an appropriate government intervention action between polluting companies and them. Three methods of anti pollution actions presented by the government are direct regulation, pollution taxes and tradable permits.
It is true that government programs, such as direct regulation, pollution taxes and tradable permits have their advantages and disadvantages, but when benefits outweighing the negatives in a program, such as with tradable permits, industries will willingly comply and find the incentive to make an anti-pollution action effective. Most governments, such as Canada, try to reduce the amount of pollution created in their country through setting pollution limits through a flimsy action called direct regulation.
The first and most common form is the restriction amount on the quantity of emission that’s permitted to be given off per mile of a vehicle along with the number of harmful chemicals and other pollutants released into the air by factories and other machinery. The same standard is followed for all new automobiles no matter the brand. Even the reduction of carbon monoxide is the same as in Southern Ontario as it is rural Saskatchewan. The purpose of setting the same set of standards is to prevent provinces from relaxing in its emission standards in order to attract new industry.
Another action that is part of direct regulation is the installment of mechanisms, such as “scrubbers,” in coal- fired utilities in order to decrease the amount of emission being released. The prohibition of specific behaviors, such as the burning of wood stoves and leaves in the backyard, are other characteristics of direct regulation. The largest advantage to direct regulation is that it ensures standards to limit the total quantity of pollution given in a certain area. Despite the fact that it sets standards, direct regulation is not very useful.
For starters, it is hard for the government to state an appropriate and exact amount on standards that should be set. Not only does it cut pollution but it also cuts jobs and businesses. Direct regulation over emissions produced by automobiles, are only effective with new cars and it is the older more poorly maintained cars that are the biggest offenders. In the US, 10% of cars on the road are responsible for creating half the number of pollutants caused by cars. $14 billion US in the US alone was spent in trying to control car emissions in 1988 with little result.
Federal standards have been set on the amount of pollutants permitted per mile of a car but not the number of miles that can be driven. Same standards set throughout a geographical area also create a problem. For example, when looking back at the identical set amount of carbon monoxide regulation in Saskatchewan and Southern Ontario it is unfair to see that province specifications for quantity of emissions released throughout Canada are the same regardless of size or production of output needed to be generated. This causes an inefficiency problem since the percentage of emission reduction will always be smaller that it could be.
Regulators estimate from the maximum output level then set the standard. Also, when they look at all firms collectively and since smaller firms can’t cut as big a percentage in emissions as bigger pollutant firms, and vice versa, it also explains the inefficient standards. What the actual focus should be to compose the standard is to look at each firm’s marginal cost curve individually and get the firm to reduce their unit pollution marginal. An additional reason that firms should be looked on individually is because direct regulation states the same amount must be cut all firms.
Unfairness can be caused since often one firm over another firm is able to cut a pollutant source easier than another. There has even been a problem defining the standards set by the government. Regulations have been said to be overly severe and many firms have fought regulations with provincial governments rather than finding a solution to their pollution problem. Nickel Corporation in Sudbury, Ontario, has a common ongoing case against the Ontario Ministry of Environment to set more lenient standards. INCO, North America’s largest sulfur dioxide emission co. , is one of the many firms who were successful in winning more lenient regulations.
Initially, INCO was prohibited to have more than 15% of 1970 emissions in 1980. INCO slacked and by 1980, emissions were 65% over 1970’s level and guidelines instead permitted INCO’s emissions to be at a 30% level. Since this occured, criticism has been made about the ease in punishment taken to offenders. This system is lenient and has made potential polluters takes into account the probability of being caught and the severity of the penalty before deciding how to behave. This is not a good sign, and ultimately, an inefficiency is provided by direct regulations.
Additionally, “regulators will often mandate today’s best technique tomorrow, even if something more efficient comes along. ” 1 Thirdly, the expense in monitoring and enforcing regulations are too slow and costly as regulators must check all the places one by one while measuring how much and many of what type of pollutants are being given off with expensive equipment. After all this, regulating agencies must decide on a suitable punishment for the offenders and especially find an appropriate mechanism to punish polluters with. This costly procedure of checking reduces the effectiveness of the controls.
In 1988, $100 billion US was invested on direct regulation in the States and although there were marginal results, the pollution decline was far from full. Environmental charges placed on the final amount of the pollution given off are known as pollution taxes. The intention is to measure the pollution being produced using a meter and at the end of the month, charge the company for the appropriate amount. This program is efficient as it internalizes the pollution problem within a firm since the firms will look to reduce production of pollution since profits are being cut by pollution taxes.
In Rohr valley in Germany, taxes on effluents have proved taxes on emissions successful as large corporations have made more economical sense in withdrawing pollutants from their discharges. Companies are free from regulators appointing them with pollution reduction methods, therefore this promotes efficiency as firms will provide themselves with equipment they find best suitable for the company. Another advantage is regulatory agencies estimate damages done to the environment by firms and accordingly adjust tax rates so money received will be used for reparations.
Taxes are a good method since they force firms to internalize pollution externalities and self-efficiency is caused. The largest problem is that a reliable reasonably prices pollution meters does not exist for many chemicals and the only way to measure pollution is go through expensive laboratory tests. Only when measurements are accurate in pollution output, is pollution taxes an efficient anti- pollution enforcement. For automobiles, it is impossible to install a reliable monitor to every non-public transit vehicle in order to measure pollution created.
Liberal leader, Preston Manning in Toronto has promised a 20% reduction in green house gas emissions through taxes. Even though Manning is looking out for the environment, Canadians disapprove and criticizes that Manning “fail(s) to provide the hard science to justify its plan or how many jobs will be lost. “1 Final product of items have to be taxed and with automobiles the price of gas would sky rocket and efficiency completely depends on a consumer’s reaction. Pollution controls discourage growth in companies. Setting the tax rate itself may prove to be a problem.
Regulatory agencies adjust price accordingly to the marginal social damage caused per unit of each pollutant and it is difficult to obtain a proper estimate when society is not at its prime point of production. If taxes are too high, then too many resources will be devoted to pollution control. On the other hand, when taxes are set too low, then too much pollution will be produced. The word tax itself strikes a problem. Pollution tax is like a sin tax and the government in a moral sense is giving the freedom to pollute the environment in return for money.
The idea of introducing an additional tax into a country is extremely unpopular and even the Senate Committee admits “a high degree of opposition in the implement of carbon tax “2 along with Canadian Environment Minister Christine Stewart, who deemed the method to be unreliable. People see the new tax as a “tax grab” for citizens therefore making pollution taxes an unpopular program. In contrast, firms enjoy the independence on deciding how to handle their own pollution problems along with being free from the burden of tax measures as the anti-pollution program, tradable permits, allow.
Firms will be more agreeable with a policy they like therefore becoming more efficient. Not only does tradable permits exclude the major negativity of direct regulation and pollution taxes, but this program also includes both positive effects from direct regulation and pollution taxes. Tradable permits sets standard in the quantity of pollution being given off, internalizes pollution in firms and gives firms the power to independently adapt and fix their problems. Tradable permits, is the right that the government grants to give off a specific amount of specified pollutants.
With this method, firms are allowed to trade, buy or sell these rights. If one firm wanted to pollute more, then they would buy the right to pollute from another firm. This gives firms who are momentarily unable to control pollution to the designated level, more time such as Alberta. When the quantity of permits are running low, firms are able to take this as a sign to realize that their time is short in clean up especially after the time frame set by the Kyoto summit for 150 nations.
No matter how much is traded, sold or bought, the total amount to of pollution remains constant and firms are unable to off set the amount of pollution intended. In itself, this creates efficiency in the method of preservation and equilibrium is the constant point. Another advantage is technology has little effect on permits and in fact, permits work faster then technology- specific regulations. Knowing the possibility to sell leftover permits creates incentive for firms to save past standards and be rewarded with additional revenue.
Over time, tradable permits take on a value in the market and this represents real cost to polluters therefore creating additional incentive for polluters. With so much incentive caused for businesses by tradable permits, the program could only by effective. Although tradable permits are more beneficial in society they own their set of problems but solutions often are found. Within firms, permits are valuable assets therefore hoarding of permits may be found. As a solution, scheduled reduction for permits will depreciate over time therefore there is no reason to keep permits long term.
Permits are provided free of charge to existing firms which can create a financial disadvantage to new firms since they will have to purchase their share of tradable permits before opening. In answer, auctioning permits give equal opportunity in obtaining amounts of permits required and once again efficiency will be gained as it internalizes pollution. Also, this will increase the volume of trade and incentives shall rise proving the system practical. A minor problem within regulatory agencies is whether or not values and the nature of trade will maintain constant.
However, this is an internal agency problem that straightens out once the system is in effect. Lastly, a small problem possible is that firms in regions with low abatement costs may sell larger costs firms their excess permits. This could create greater amounts of pollution in a region but if health, safety standards are set up then firms will never reach extremes with pollution production regardless of numbers of permits. An alternative is to prohibit this sort of trading between companies.
Nonetheless, much success has been found in tradable permits. The US widely practices this method of anti-pollution control and has found a notable return has been achieved. In 9 years over 1974- 1985, an estimated amount of $4 billion US has been saved from not installing pollution controls. Since EPA has allowed trading in the right to emit carbon monoxide, sulfur dioxide, and nitrous oxides, firms have independently found large amounts of savings. Suncor Eng. Inc paid $10 million US for credits from Niagara Mohawk Power Corp. of Syracuse, NY.
This is yet another success story as the plant became more efficient and improved tremendously through selling permits which allowed then to receive extra received. Even Canadian Hydro purchased $22million dollars worth of credits in order to give themselves more time to meet Kyoto summit requirements. With the Kyoto summit in effect, cleaning sped up causing increased its efficiency. Many incentives are created by tradable permits towards businesses and no doubt the environment has benefited. With the market systems we live in today, government intervention is necessary and existent.
The public constantly expresses the want for stronger environmental actions to occur and the government has responded and acted. Through various government interventions, we see less output level of pollution. Tradable permits are extremely effective in reducing pollution output in a country but unfortunately, only several countries practice this. Regardless tradable permits are a fine anti-pollution policy to follow and eventually after many other successes, other countries are bound to see the great values tradable permits can present to a country.