An example of an externality is when a factory produces waste pollution which may be dumped into a river, ultimately contaminating water. The cost of such action is paid by society-at-large, when they must clean the water before drinking it and is external to the costs of the factory. The free rider problem is when the private marginal cost of taking action to protect the environment is greater than the private marginal benefit, but the social marginal cost is less than the social marginal benefit.
A Non-Toxic Environment
The tragedy of the commons is the problem that, because no one person owns the commons, each individual has an incentive to utilize common resources as much as possible. Without governmental involvement, the commons is overused.
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Examples of tragedies of the commons are overfishing and overgrazing. Environmental policy instruments are tools used by governments to implement their environmental policies. Governments may use a number of different types of instruments. For example, economic incentives and market-based instruments such as taxes and tax exemptions, tradable permits, and fees can be very effective to encourage compliance with environmental policy.
Bilateral agreements between the government and private firms and commitments made by firms independent of government requirement are examples of voluntary environmental measures. Another instrument is the implementation of greener public purchasing programs. Several instruments are sometimes combined in a policy mix to address a certain environmental problem. Since environmental issues have many aspects, several policy instruments may be needed to adequately address each one.
Furthermore, a combination of different policies may give firms greater flexibility in policy compliance and reduce uncertainty as to the cost of such compliance. Government policies must be carefully formulated so that the individual measures do not undermine one another, or create a rigid and cost-ineffective framework.
Overlapping policies result in unnecessary administrative costs, increasing the cost of implementation. The current reliance on a market-based framework is controversial, however, and many environmentalists contend that a more radical, overarching approach is needed than a set of specific initiatives, to deal with climate change. For example, energy efficiency measures may actually increase energy consumption in the absence of a cap on fossil fuel use, as people might drive more fuel-efficient cars.
Thus, Aubrey Meyer calls for a 'framework-based market' of contraction and convergence. The Cap and Share and the Sky Trust are proposals based on the idea. Environmental impact assessments EIA are conducted to compare impacts of various policy alternatives. Moreover, it is assumed that policymakers make rational decisions based on the merits of the project. Eccleston and March argue that although policymakers normally have access to reasonably accurate information, political and economic factors often lead to environmentally destructive decisions in the long run.
The decision-making theory casts doubt on this premise. Irrational decisions are reached based on unconscious biases, illogical assumptions, and the desire to avoid ambiguity and uncertainty. Eccleston identifies and describes four of the most critical environmental policy issues facing humanity: Synergic to the environmental policy is the environmental research and innovation policy. The European Commission has in the last decade started to experiment with new regulatory tools for environmental policy.
The aim is to find inclusive and flexible mechanisms that put more responsibility on producers, but also leave more leeway for individual solutions that could improve efficiency. In addition, a voluntary approach might raise environmental awareness in companies and encourage the use of environmental management systems. Voluntary environmental agreements are currently used at national, regional and local level in all Member States. However, at EU level meaning that the agreement is concluded between the Commission and a European industry federation it is still a novelty.
Since , some ten agreements have been concluded. In the 5th Environmental Action Programme, the Commission stated that: This reflects the growing realisation in industry and in the business world that not only is industry a significant part of the problem but it must also be part of the solution. The new approach implies, in particular, a reinforcement of the dialogue with industry and the encouragement, in appropriate circumstances, of voluntary agreements". The Communication on voluntary environmental agreements aims to create a framework for the use of environmental agreements.
It is issued in response to criticism from the European Parliament on how the Commission has handled voluntary agreements in the past. The main area of discussion is what legal form an environmental agreement should take. The Communication of 17 July, highlights the potential cost-effectiveness and flexibility as the main positive aspects of voluntary agreements. It states that industry's willingness to act proactively should be strongly encouraged and supported.
A Non-Toxic Environment - Swedish Environmental Protection Agency
It sets out three possible types of agreements at EU level:. In addition to the form of the agreement, there are also other aspects that should be considered when concluding an agreement:. Policy areas in which EU level environmental agreements could play a role are for example the PVC strategy, integrated product policy, climate change and waste management.
It agreed with the distinction made by the Commission between two types of environmental agreement self-regulation andcoregulation , but asked the Commission to define a clear set of criteria fordetermining the choice between those two instruments. In addition, it has pressed for more quantifiable targets and more transparent monitoring systems. UNICE , the employers' organisation, is positive about voluntary agreements, but wants them to retain as much flexibility for industry as possible.
In the following, an introduction to VAs presenting the current state of affairs in Europe shall lay the fundament for discussion. This entails a clear description of the different types of VAs that are currently in effect. A look back may be worthwhile to clearly determine whether this new policy regime is to be developed further or abolished altogether.
Finally, the paper shall conclude with a summing up of the strengths and weaknesses with respect to performance and costs of VAs in general. Recommendations as to the future approach of environmental issues in Europe may be presented there.
To begin with, different kinds of voluntary agreements shall be outlined. Accordingly, there are principally three main types of VAs. Unilateral agreements are simple in-house measures taken by individual companies in order to protect the environment independent from external influence. Public voluntary schemes, on the other hand, involve public authorities which set up a regulatory system usually aimed at industry. Therein, certain environmental standards may be reached, and the process may be monitored and substantially assisted e.
Hence, participation is not mandatory. Non-participation will not be levied with additional burdens whatsoever.
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During the course of this paper most attention shall be paid to the remaining type, negotiated agreements. In fact, both the public body and industry jointly define specific targets. Nonetheless, one may well assume that this only results in the lowest common denominator. Business economics - Controlling. Business economics - Economic Policy. Business economics - General. Sociology - Methodology and Methods.