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	Table of Contents
p. 37 of 57 BACK | NEXT I. The Changing Environment II. Driving Forces of Change III. Options and Opportunities IV. Toward Policy Integration Mounting Pressure for Policy Responses Policy Integration Entry Points for Policy Integration Managing Economic Fundamentals Establishing a Regulatory Regime Resource Pricing Using Market-Based Instruments Removing Pricing Barriers to Technology Adoption Intrasectoral Policy Integration Intersectoral Policy Integration International Trade and Investment Governance A Framework for Policy Integration Toward an Action Agenda V. Call to Action

Asian Environment Outlook 2001 : IV. Toward Policy Integration : Managing Economic Fundamentals

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Resource Pricing

Optimizing for both economic and environmental performance will not occur as long as resource prices fail to reflect environmental costs. Energy prices influence how efficiently a nation uses energy (Schipper 1997; Kaufmann 1992). When energy prices are low relative to the price of capital and labor, technologies are developed that are energy-intensive and labor-saving. Higher energy prices stimulate the development of more energy-efficient technologies and, when possible, the substitution of other inputs for energy. Just as stopping unaccounted water use (such as through leakage and theft) from urban water supply systems may be the best investment for water utilities, eliminating perverse subsidies may be the best investment for governments. Industries are accustomed to paying market prices for inputs, but if they are able to access inputs at no price, there is a strong incentive to substitute these inputs for those with a higher price. This is precisely what happens when ecosystem services, such as those provided by waste sinks (in the air, on land, and in the water), have no market. It is not that these services have no value; rather, the "owners" of these services (represented by the state) have not created a market and therefore a price for their use. The first step is to conduct a comprehensive government audit of all subsidies for energy and resource use and for pollution.

There are now good models in the Asia and Pacific region for integrating values and charges on resource use and pollution. An economic resource value model was developed in the Philippines to provide a value to coastal resources (see Figure 4-1). Other options exist for applying a broad-based pollution charge. For wastewater generators, the preferred approach is to charge for metered water consumption and to collect this charge in combination with a water tariff (see Figure 4-2). For example, in the PRC, all piped water supply consumers pay wastewater charges regardless of whether they are connected to the public sewer system. This approach links charges to wastewater generation and therefore provides an incentive for polluters to make economically and environmentally optimal decisions regarding wastewater generation. This approach also provides a way to cross-subsidize low-income households in order to maintain affordability. In addition, because of the transparent link between water consumption and wastewater generation, a pollution charge based on metered water consumption is viewed as more acceptable than other types of charges.

In some cases, setting the pollution charge on the basis of metered water consumption is either impossible or undesirable. In some urban areas, the proportion of waste generators with piped water connections may be relatively low. In other areas, linking the pollution charge to water tariffs may be undesirable because of deficiencies in the application and collection of water tariffs. In these cases, it may be preferable to integrate the pollution charge with other existing charges or taxes such as property taxes.

However, because property tax application and collection methods are deficient in many DMCs, the implementation of a pollution charge may need to be coordinated with policy reforms in the property tax structure. For industrial and some commercial waste generators, the water tariff structure can also incorporate differences in wastewater pollutant loading. Volume- and pollutant loading-based fee structures promote improved resource efficiency and are generally perceived as being more equitable and therefore more accepted by waste generators. However, a highly complex pollutant loading fee structure, especially one requiring extensive monitoring and regulation, should not be used until the government can implement this structure efficiently . In the case of solid waste management, volume-based user fees can be more problematic, especially when governments are unable to adequately control illegal dumping. However, volume-based charges are generally viable in the case of nondomestic customers that generate large quantities of wastes or hazardous wastes.

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