Catalog

	Table of Contents
p. 38 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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Using Market-Based Instruments

The lack of effective MBIs in the Asia and Pacific region is conditioned by institutional and financial considerations and only rarely by technical constraints. Many agencies have been afraid to propose more sophisticated market-based instruments such as tradable permits in the belief that they are too complex to administer. Less complex instruments such as emission charges are often structured only to achieve regulatory levels, failing to provide incentives for the continual improvement that is at the core of cleaner production. Incentives such as tax and tariff waivers for implementation of cleaner production are opposed by financial agencies, who are loath to forego any source of revenue. Government policy should be to tackle these constraints in a systematic manner, progressing from simple to more complex MBIs as they gain greater experience.

In adopting policy instruments that seek to co-optimize environmental and economic goals, national governments will often wish to address other societal goals, such as a desire to increase access to electricity in rural areas and to ensure minimum service provision to low-income households. In the past, these goals have been used as a rationale for sweeping perverse incentives such as subsidized energy and water prices for all users, rich or poor, households or industrial. Policy integration requires the adoption of sharper policy tools that can achieve social welfare aims without distorting resource and pollution prices.

Co-optimizing economic and environmental priority decisions begins with ensuring that the tools of environmental policy offer the opportunity to achieve environmental goals at lowest possible social and economic costs. It is critically important that the capacity of firms, farms, and households to respond to these environmental policy tools not be presumed. Eliminating subsidies on resource use, for example, will not generate anticipated optimizing behavior if economic actors lack the access, information, capacity, and financial resources needed to respond. Policy integration at the scale of individual firms, and households requires that attention be paid to overcoming information gaps and other sources of market failure.

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