Chapter 6 : The Market Approach

Market instrument that imposes an up-front charge to pay for potential damages and refunds it for returning a product for proper disposal or recycling

Targets the potential vs actual polluter

The deposit is intended to capture the MEC of improper waste disposal (IW) in advance

Assessing the model :

Pros

Promotes responsible behaviour

Requires minimal supervision by government

Help slow the use of virgin raw materials by improving availability of recycled materials

Deposit/Refund Systems in Parctice

Are used worldwide

Other applications include systems used to promote responsible disposal of used tires,old cars and batteries

Fee that varies with amount of pollutans released

Based on " Polluter-Pays Principle"(PPP)

There are 2 types :

Product charge

Fee added to price of pollution-generating product,which generates negative externality

Impose product charge as per unit tax on product

Emission/Effluent Charge

A fee imposed directly on the discharge of pollution

Typically implemented through a tax

2 models to be analyzed:

Single polluter model

Multiple polluter model

Pros

Cost-effective solution is obtained

MACs are equal

Abatement statement is met

Cons

Tax authority will not know where MACs are equal

Monitoring costs potentially higher

Firms might evade tax by illegally disposing pollutants

Effluent charge in practice

Some countries use effluent charges to control the noise pollution generated by aircraft

London city imposes toxicity charge (T-charge) in certain zones on the usage of old cars

Establishes a market for rights to pollute by issuing tradeable pollution credits or allowances

Pollution credits

These are tradeable permits issued for emitting below an established abatement standard

Pollution allowances

These are tradeable permits that indicated the maximum level of pollution that may be released

Pros

It is cost effective as MACs become equal for all firms

Trading establishes the price of a right to pollute without government trying to search for a price

Trading system is flexible

Cons

Pollution Trading Systems in Practice

Trading of greenhouse gas allowances are part of Kyoto Protocol

US has an allowance-based trading program to control sulfur dioxide emissions