is difficult to identify the single greatest threat to the environment,
mainly because experts have
different opinions on the subject and new scientific
information is always coming to light. There are some problems that
rank high on any list of environmental issues among these are global
warming, over development and
exploitation of natural resources. Today, the challenge
that lies before us is to make the state alongwith businesses
proactively contribute towards eliminating the above-mentioned problems
(rather than striving to reduce its
impact), through a regulatory mechanism keeping with the
prevailing market structure.
the age of globalisation and liberalisation, economic benefits drive
organisations. In otherwords, anticipation of potential
economic benefits makes organisations across the world
proactively change their policies and strategies of doing business.
Hence, if organisations are made to see that the age-old concept of
inverse relation between economics and
environmental benefits is obsolete, they will
proactively move towards environmental friendly practices. Thus, economics will not only force the change but also sustain the change.
lies the use of
"economic instruments" which aim to prevent pollution by
harnessing the power of market incentives. To understand the underlying
logic of economic instruments, one must understand why pollution arises
in the first place.
Economists perceive pollution as a 'market failure',
which arises because 'polluters'- are not faced with the full
consequences of their production, consumption or disposal choices. The
underlying premise for economic instruments
is to correct this market failure by placing a cost on
the release of pollutants. This will internalise the 'externalities'
into the decision making process. Placing a charge, on every unit of
effluent released, transforms the
manufacturer's decisions regarding how much and how he
will produce. Now the manufacturer must minimize total production costs
that consist not only of labor, material, machinery and energy inputs,
but also of the effluent
generated. The potential benefits of economic
instruments can be understood through the concept of 'carbon-tax'.
The rationale behind 'carbon tax' is to reduce the carbon dioxide emissions that come from fossil fuels. *A
carbon tax would essentially be a product charge placed on fossil fuels
in proportion to their carbon content.
Coal which has a higher carbon content than oil and
natural gas would thus be taxed relatively more. The rising prices of
these fossil fuels would induce companies to use oil and gas in favor of
coal; to use more renewables instead
of fossil fuels; and to be more efficient in their use
of energy generally. Hence, a carbon tax not only reduces the impact of
environmental damages through fossil fuels but also creates the
potential required to eliminate it in
the future through adoption of renewables. Also, as the
scale of fossil fuel use in the economy is high, any carbon tax could
raise significant amounts of tax revenue, which could be used to make a
significant reduction in existing
corporate taxes for relatively greener companies,
thereby contributing to an increase in the bottom line.
consequence, the key benefit of economic instruments is that they would
allow a given pollution target to be
met for lower overall cost than traditional regulations -
a considerable advantage given the perceived high financial burden of
regulatory compliance. In addition, they provide potential revenue
sources for state or federal
governments. Hence, the solution lies in internalising
the externalities of businesses by viewing environmental problems as not as problems but opportunities for further growth.
* Economic instruments for pollution control and prevention -- A brief overview, Duncan Austin, World Resources Institute,
September 1999 (www.wri.org)