international experiences in progress revision1.pdfIntroduction1.1 Purpose and Relation to Earlier Reports1.2 Definition of Economic Incentives1.3 Types of Economic Incentives Discussed1.3.1 Fees, Charges and Taxes1.3.2 Deposit-Refund Systems1.3.3 Pollution Trading Systems1.3.4 Subsidy Systems1.3.5 Information Disclosure1.3.6 Liability1.3.7 Voluntary Mechanisms1.4 Organization of the ReportCharges, Fees and Taxes2.1 Pricing Mechanisms for Water2.2 Industrial Effluent Fees2.2.1 France2.2.2 Germany2.2.3 The Netherlands2.2.4 Malaysia2.2.5 Philippines2.2.6 ChinaOther Developing Countries2.3 Air Emission Fees2.3.1 Japan2.3.2 France2.3.3 Sweden2.3.4 China2.4 Municipal and Other Waste Charges2.5 Product Charges2.6 Preferential Taxation of Environmentally Friendly Products and ActivitiesDeposit Refund Systems and Performance Bonds3.1 Deposit-Refund Systems3.1.1 South Korea3.1.2 Yukon Territory, Canada3.1.3 Germany3.1.4 Automobile Body Deposits3.2 Performance BondsTrading Mechanisms4.1 Trading of Air Emission Rights4.1.1 Particulate Trading in Santiago Chile4.1.2 SO2 Trading in Slovakia4.1.3 Emissions Trading in China4.1.4 Ontario Canada Pilot Emissions Reduction Trading4.1.5 NOx Trading in the Netherlands4.1.6 EU Greenhouse Gas Emissions Trading4.2 Tradable Salinity Credits in Australia4.3 Tradable Water Rights4.3.1 Australia4.3.2 New Zealand4.3.3 ChileSubsidiesSubsidies for Improving the Environment5.2 Subsidies for Environmentally Friendly Agriculture and Land Management5.3 Subsidies for Resource ConservationEnvironmentally Harmful SubsidiesDeveloping CountriesOECD ReviewInternational Lending: The Equator PrinciplesLiability6.1. Ok Tedi Mine, Papua New Guinea6.2. Yanacocha Mine, Peru6.3 Coral Reef Damage Assessments6.3.1 Egypt6.3.2 Puerto Rico6.3.2 AustraliaInformation Provision7.1. Performance Rating of Firms7.1.1. Indonesia7.1.2. Philippines7.2. Pollutant Release and Transfer Registers (PRTR)7.3 Product LabelingVoluntary Agreements8.1 Covenants and Agreements8.2 Industrial Estates and Eco-Industrial Parks8.2.1 Kalundborg, Denmark8.2.2 Nanhai, Guandong Province, China8.3 Waste ExchangesConclusionsBibliographyAbout the ReportEndnotesEPA-236-R-04-001 November 2004 INTERNATIONAL EXPERIENCES WITH ECONOMIC INCENTIVES FOR PROTECTING THE ENVIRONMENT Office of Policy, Economics, and Innovation Office of the Administrator U.S. Environmental Protection Agency Washington, DC 20460International Experiences with Economic Incentives for Protecting the Environment November Revision 1, January 2005Executive Summary 2004 i EXECUTIVE SUMMARY This report reviews experiences outside the United States with economic instruments for managing the environment, including air and water quality, water quantity, solid and hazardous wastes. It represents an update and extension of one chapter in the 1997 report by Anderson and Lohof to the US Environmental Protection Agency. That report found widespread use of economic instruments for managing the environment, including some applications not observed in the United States. Seven years later, this report identifies new instruments, more widespread application of older instruments, and greater acceptance of incentive-based mechanisms in environmental management. This report can also be regarded as an addition of international experience to a 2001 EPA report on the US experience with using economic incentives and follows the same basic organization. Market Based Instruments (MBIs), and Economic Incentives (EIs) more broadly, have a number of advantages over traditional command and control (CAC) methods for controlling pollution. One, these tools give those responsible for sources of pollution (hereafter referred to as “sources” or “polluters”) an incentive to reduce pollution below permitted amounts when it is relatively inexpensive to do so. That feature, in turn, provides a motivation for sources to become smarter regarding pollution control options and costs. Technological improvement and innovation will be stimulated, resulting in greater opportunities to reduce pollution at low cost. Finally, EIs are uniquely well suited to many of the pollution problems the world now faces. The more widely dispersed and smaller the sources, the more difficult it is to rely on traditional CAC methods of source-specific limits, inspections and enforcement. EIs harness forces of the market to give all sources, large and small, the motivation to find the least cost means of limiting their polluting activities. In principle, environmental inspections and enforcement become less necessary as sources pursue their own self-interest and control pollution. These features are especially important in developing nations where resources to deal with pollution are severely limited. EIs also are widely used for allocating natural resources to competing users. Long ago, farmers in England recognized the problem of communal grazing lands. Without charges to control use, or fences to delineate private property, the common grazing lands were over grazed and unproductive. Similarly, groundwater tables in many parts of the world are declining rapidly because the water is free except for the cost of operating one's pump. The guiding definition of EIs for this paper is quite broad: any instrument that provides continuous inducements, financial or otherwise, to encourage responsible parties to reduce their releases of pollutants or make their products less polluting. This definition includes fees, charges and taxes, charges on polluting inputs and outputs, tradable permits, subsidies, deposit-refund systems, as well as reporting requirements, and liability for harms. Some voluntary mechanisms also are included. Worldwide experience with these instruments is extensive, and a number of survey reports cover portions of this topic. However, some instruments are discussed in detail for the first time in this report. The intention is to offer some depth of treatment for a relatively few examples to provide the reader with an understanding of how the instrument is designed and how it performs, particularly in the context of developing nations. This report draws on other survey literature that covers a portion of this topic, but seeks to avoid redoing their analyses.International Experiences with Economic Incentives for Protecting the Environment ii November Conclusions There is substantial evidence of growing use