Market approaches to delivering environment policy: progress in developing environmental taxes and charges in the UK

AutorRobin Wilson
Cargo del AutorHead of Environment Protection Economics United Kingdom Departament of Environment

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This conference is primarily concerned with the use of fiscal instruments. However it is widely recognised that these are only part of the developing armoury of market based approaches to delivering policy. and I shall be concerned to put consideration of taxes in the context of the wider questions about environment policy instruments.

- what role do economic instruments have to play in achieving environmental objectives;

- should they be seen as substitutes or complements for regulation;

- where they do have a role, whether taxes or charges should be the preferred approach;

- how can environmental policy concerns be incorporated into economic policies, especially taxations;

- what are the practical and political issues which arise in implementing specific environmental instruments or reform of taxation and other policies.

There is now widespread recognition of the potential for market based approaches to delivering a broad range of policies. There is also a f air measure of agreement regarding the theoretical advantages of environmental taxes and other economic instruments. But agreement in theory or principie may not necessarily change practice. Many of the factors which slow, or ultimately limit the extent to which environment taxes may be applied, will apply to other market based measures. Administrative structures have evolved over the years, and are often firmly grounded in regulatory approaches. It may be difficult to reformPage 208 or adapt these, and often prohibitively expensive to set up additional systems to administer charges, taxes or other new measures. There is also much investment in regulation by the regulated. It is perfectly understandable that industry may see an "environmental" tax as just another burden, or will be reluctant to support new methods for enforcing their environmental commitments. After all, they have (generally) responded well to heavy regulatory demands, and have changed capital equipment and operating methods to meet them. However convincing may be the theoretical case for taxing residual pollution and the greater efficiency of market based approaches, the costs of change will be high. This is not simply a case of "vested" interests protecting their own.

There are many political and practical obstacles to the easy implementation of new instruments, not least the distributional implications which have a high political importance. In this respect taxes tend to be particularly visible. Additional charges which impinge on poor families, rural motorists, or particular industries will never be other than highly controversial. A whole range of institutional issues must be resolved: who should levy the tax, and in what form; what powers should the relevant body have to determine the rate; and how should the funds be used; what other legal and liability instruments best support the new tax? But similar difficulties attend any proposal for new policy instruments.

And we should not forget that much environment legislation is driven by European or other international agreements. These are often not concluded in terms which restrict choice of instrument. Many take a "targeting" approach, or require legal determination of emissions or other paremeters of pollution. It can be difficult to satisfy these requirements with a more flexible, market led approach. But increasingly these factors are born in mind in negotiating new agreements.

Resolving these issues takes time. But the UK Government amongst others is committed to extending the use of economic instruments, and our Chancellor of the Exchequer has made clear that he favours arising taxes on polluters. Finance Ministers are always grateful for new sources of revenue, but taxation of environmental "bads" is also an obvious extensión of good taxation principies which seek (among other things)...

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