Using market forces to eliminate toxic substances

An IndEco article

By: Peter Boyer, IJC

If products that pollute were to cost more, at what price would people switch to an alternative?

A recent report looks at how economic instruments could help rid the Great Lakes BasinEcosystem of long-lasting toxic substances such as dioxins, furans and PCBs. In the 1978 Great Lakes Water Quality Agreement, the Governments of the United States and Canada stated that it is their policy to virtually eliminate the discharge of any or all persistent toxic substances, including these chemicals.

Economic instruments are incentives to influence the demand and fate of substances that create emissions over a product's life cycle, or to reduce emissions directly. Examples include effluent charges, taxes, subsidies, deposit-refund systems, marketable emission allowances, liability insurance, performance bonds and financial enforcement incentives.

Using economic instruments to implement public policy can offer advantages because they allow the market to find the most efficient means of reducing total pollution. They are most effective when it is desirable to phase out activities or products over time, and when an immediate ban would require large societal and economic adjustments.

The economic concepts behind this approach find their roots in the work of British economist Arthur Pigou in the early part of this century. Numerous economists in the United States and Canada have since refined these concepts. Both countries now benefit from practical experience in applying economic instruments to achieve environmental goals, particularly with the marketable allowance systems in the United States.

The new report, Economic Instruments for the Virtual Elimination of Persistent Toxic Substances in the Great Lakes Basin was prepared by Hickling Corporation under the direction of the Economic Subgroup, an ad hoc expert group of the International Joint Commission's Virtual Elimination Task Force. The Commission has previously noted that using economic instruments and competitive markets could be an effective way of reducing toxic pollutant loads to zero. However, the Commission has yet to consider, or take a position on the recommendations in the Economic Subgroup report.

The report provides a comprehensive overview of the use of economic instruments in the United States and Canada. Assessments of incineration and polyvinyl chloride (PVC) production, activities that result in the discharge of persistent toxic substances, model how a program of economic instruments could complement the regulatory framework. The study considered applying fees to both inputs (chlorine in PVC) and outputs (emissions from incinerators), and estimated what fee would encourage substitution of products or activities.

The study also assessed the effectiveness and cost of various actions to reduce emissions of persistent toxic substances from municipal solid waste incinerators. Reducing the toxic-substance content of products had the lowest cost, while collection and recycling programs had moderate costs. Installing better pollution control technology on incinerators resulted in greater reductions but much higher costs. These findings suggest that a mix of economic instruments might usefully be phased in. However, emissions of persistent toxic substances could be reduced by 25 percent at no cost.

An input tax of one dollar per kilogram of PVC could encourage a switch to available substitutes for many applications involving construction, packaging and consumer products that would account for a full 40 percent of PVC use. The report goes on to say that at a much higher tax of $10 per kilogram of PVC, few uses of PVC would remain economical. The report also concluded that PVC use could be reduced by 25 percent at lower or no increased production cost because numerous substitutes are already available at lower cost.

The report points out that the potentially significant public revenues generated at optimal tax rates could be used to finance or subsidize a variety of remediation and pollution prevention and control initiatives. However, the study did not attempt to assess the overall net social impact or provide a benefit-cost analysis of the production shifts that would result from implementing a virtual elimination policy.

The report urges the International Joint Commission to encourage pilot programs to test economic instruments. Such pilot programs, the report concluded, would facilitate understanding and provide empirical data on the environmental and economic effectiveness of using economic instruments to virtually eliminate persistent toxic substances. Other recommendations address program opportunities, research needs and implementation issues.

A copy of Economic Instruments for the Virtual Elimination of Persistent Toxic Substances in the Great Lakes Basin may be requested from the Commission's Ottawa, Washington or Great Lakes Regional Office. For more information about the study, contact Peter Boyer, Social Scientist, via the Internet at boyerp@ijc.wincom.net or at the International Joint Commission's Great Lakes Regional Office.


Sommaire

Si les produits polluants devaient coûter davantage, à partir de quel prix les consommateurs se rabattraient-ils sur une solution de rechange? Dans un rapport récent, on examine les instruments économiques qui pourraient contribuer à débarrasser l'écosystème du bassin des Grands lacs des substances toxiques persistantes telles que les dioxines, les furannes et les biphényles polychlorés.

Ces instruments incitatifs permettent d'influer sur la demande et le devenir des substances qui, au cours de la durée de vie d'un produit, sont libérées dans l'environnement, ou d'en réduire de façon directe la libération. En font partie, par exemple, les redevances et les taxes antipollution ou sur les effluents, les subventions, les systèmes de consigne, les quotas d'émission négociables, l'assurance responsabilité, les garanties d'exécution et les incitatifs financiers à l'application des règlements. Le recours à ces moyens pour appliquer la politique gouvernementale serait avantageux parce qu'on permettrait au marché de trouver le moyen le plus efficace pour réduire la pollution totale.

Le rapport donne un aperçu complet de l'arsenal d'instruments économiques utilisé aux États-Unis et au Canada. Les études de cas sur l'incinération ainsi que sur la fabrication du chlorure de polyvinyle, activités qui se traduisent par le rejet de substances toxiques persistantes, montrent comment un programme qui s'appuie sur des instruments économiques pourrait servir de complément aux règlements.


Revised: April 8, 1997