The Environmental Performance Index (EPI) acts as a standard of measurement for a countries environmental performance in relation to its government policy. This baseline acts as a reference point, contributing countries can then be compared or assessed and in the case of EPI ordered and ranked. These results are significant to many audiences; the government needs to see tangible results from investments in environmental protection in order to keep allocating resources to the environment.  Private and public firms could potential see increases in costs from carbon taxes or new environmental requirements, contrary there could be a potential for a new emerging green sector where innovative investors could profit.  The populace would also be able to use the results to evaluate the government, are whether the concerns for health and environment being replicated into policy.  Overall the government can look at the ranking and use this as a benchmark on the evaluation of the current policy in place, is this a success or failure are we seeing improvements or deteriorations, and what are the plans for the future.

The EPI builds on the 2000 Environmental Sustainability Index (ESI) data-driven evaluation through quantitative metrics.  2012 EPI ranks 132 (*193 countries world wide) countries on 22 performance indicators in 10 policy categories, The 10 policies are grouped under 2 objectives “Environmental Health & Ecosystem Vitality”. 2012 EPI uses a set of core indicators that meet high standards, (direct measurement over modeled data) standardized time series and institutional commitments to maintain current and future data. Historical data has been recorded for the last ten years which allows governments to track overall performance. In each country an indicator or “proximity-to-target” value is created, this measures the gap between perceived and actual outcomes of a policy.  The generic formula for the proximity-to-target indicator calculation in the context of the global EPI is as follows:

 

(International range) – (distance to target)

              —————————————————-          x 100

(International range)

 

Data is collected from international sources, research institutions, government agencies and academia. Data analyzed comes from formal reporting, spatial data, observations and modeled data.   Raw datasets are initially cleaned, sorted, nulls recorded and general preparation from there data is transformed by dividing by GDP  – (creates comparability across countries). After the data has been transformed other distortions need to be adjusted for, logarithmic instruments differentiates between performers. Lastly the transformed and logged data is converted into indicators, the indicators are uniform and with a common unit to assess aggregate up to the index.

[(low performance benchmark – target ) – (indicator-target)]/     *100

(low performance benchmark – target )

Air Quality – Effects on Human Health

2012 EPI captures the health risks posed by particulate matter in two indicators: Outdoor air pollution and indoor air pollution.  The indoor air pollution indicator is measured % of country using solid fuels indoors (biomass – wood, charcoal etc) captures exposure to indoor smoke risks (WHO EBD study Smith et al., 2004) The target level is set at zero as per the theory that all fuel used indoors poses a threat to health.  The second measure of air quality is the particulate matter, “Using relationships between MODIS and MISR Aerosol Optical Depth (AOD) and surface PM2.5 concentrations that were modeled by van Donkelaar et al. (2010), monthly MODIS and MISR AOD retrievals were used to estimate annual average surface PM2.5 concentrations from 2001 to 2010[1]” Annual average concentrations >10 micrograms PM2.5 per cubic meter are considered hazardous therefore a measure of this average PM2.5 per annual can identify those at risk the range to the target.

Water – Effects on Human Health

2012 EPI identifies two indicators: access to water and access to sanitation as good determinates of water quality: Access to water is measured by % of the population with access to improved water (piped, well, non-contaminated water etc.) the other indicator is access to sanitation, this is measured by the % of the population with access to improved sanitation (sewer, septic, private/public)

Water – Ecosystem Effects

2012 EPI is measured by change in water quality, this is represented by the % change in river flow (pre-industrial <–> water use & impoundments) “Water withdrawals and consumptive water use are estimated separately for the sectors irrigation, livestock, households and industry. Water impoundment is based on a beta version of the Global Reservoir and Dam data set (GRanD) (Lehner et al. 2011). The percent change in river flow owing to both factors was calculated on a 0.5 degree grid cell basis Döll et al. (2009). CIESIN used these data to calculate an area weighted average of the percent change by country.  The target is 0% change.[2]”

Country                     Rank     Score                        Country                     Rank                Score

Switzerland               1         76.69               Iraq                             132                  25.32

Air (Health)                1         100                  Air (Health)                119                  38.4

Water (Health)            1         100                  Water (Health)            99                    28.6

Water Resource           17        50.8                 Water Resource           112                  10.6

EPI Indicator Name – Variable – Variable Code.

Historical EPI Ranks & Historical EPI Data Input and Products.

Air pollution (effects on humans)              Indoor air pollution              Target – 0% of population exposed

Particulate matter                Target – 10 ug/m3

Water (effects on humans)              Access to drinking water     Target – 100% of population with access    

Access to sanitation              Target – 100% of population with access

Water (effects on ecosystem)          Change in water quantity   Target – 0% reduction

 Switzerland – Iraq.  2000 & 2012

Historical EPI Ranks & Historical EPI Data Input and Products.

Switzerland Time Trend 2000-2010

Iraq Time Trend 2000-2010

The two countries that have been paired for this analysis represent the highest and the lowest achieving nations.  Having the top and bottom performers creates a scope in which you can scale other countries, (you can visualize what is needed to achieve top performance levels) Switzerland has the top ranking position and has held that position since the beginning of the analyzed data in 2000, ironically Iraq is the lowest preforming nation and has also held that position 132^nd since the beginning on the data collection in 2000, this could suggest movement within the standing is difficult and would require further investigation.

CIA National Statistics 2012

	Switzerland	Iraq
Birth Rate	9.51/1000	28.19/1000
Death Rate	8.8/1000	4.73/1000
Urbanization	74%	66%
Mortality Rate	4.03/1000	40.25/1000
Life Expectancy	81.17	70.85
Health Expenditure	11.3% of GDP	9.7% of GDP
Hospital Density	5.31/1000	1.3/1000
Drinking Water	100%	Improved 79% Unimproved 21%
Sanitation	100%	Improved 73% Unimproved 34%
Literacy	99%	74.10%
Unemployment	3.10%	15%
GDP	340.5 billion	127.2 billion
GDP real growth rate	2.10%	9.60%
GDP per capita (PPP)	$43,400.00	$3,900.00
Population below poverty	6.90%	25%
Exports	308.3 billion	78.38 billion
Imports	299.6 billion	53.93 billion
Debt External	1.346 trillion	45.29 billion
https://www.cia.gov/library/publications/the-world-factbook/geos/iz.html

To further understand the position of these two counties we look to the performance indicators set out by the EPI.   We do a direct comparison across EPI data inputs and products we see that Iraq scores significantly lower then Switzerland.  In overall effects on air and human health Iraq scored 53.8% of the target population is exposed, whereas Switzerland has 100% of the population with 0% exposure.  These results are replicated in all of the indicators between the two countries and this is to be expected with choosing the opposite ends of the spectrum. Overall Iraq preforms at a rate of 20% – 40% of Switzerland.

There will be many reasons that contribute to the spread in performance levels between countries; political stability – The role of the environment in policy, country specifications, (location, resources, population etc.) Government resources and motivation are just a few. Comparing Switzerland and Iraq from an economic and population standpoint also supports the spread in EPI ranking; overall Iraq has a higher population above poverty, lower GDP per capita higher rates of unemployment, in combination with lower levels of healthcare and access to water and sanitation these negative factors all position themselves above the environment when it comes to government support.

Iraq has significant disadvantages when it comes to maintaining a strong environmental policy performance index standing.  Iraq is suffering from 20+ years of political instability, military operations spanning back to 1980 and significant environmental damage as an externality of these three wars. There is substantial damage to infrastructure (which lowers the indicator for access to water and sanitation) increases in disease and mortality rate and economic pressure all of which take precedence over the environment.  Air quality and water resources were also lower due to wartime activity, and construction of the Glory Canal, which would change the % flow of rivers affecting the EPI specific indicator. With lack of access to water and sanitation, as well as a poor allocation of water usage these are just a few monumental problems that Iraq will have to address in order to see improvements in the EPI ranking.  Iraq does have in place environmental laws such as “The Law No. 27 of 2009 [PDF, Arabic], For the Improvement and Protection of Environment, issued in Official Gazette No. 4142 of 2010. This detailed and strict law sets forth punishments for companies and individuals that violate environmental standards. It also upheld and affirmed existing regulations that outline environmental standards in specific detail. The Kurdish region has a similar law, No. 8 of 2008 [PDF, Arabic].[3]” Unfortunately there are insufficient funds and resources allocated to the enforcement and protection of these laws.

The time trend from 2000-2010 shows a decline in all performance levels with the exception of access to sanitation, which saw a small gain.  Since the situation further deteriorated in Iraq it is understandable to see how they would retain their 132 ranking.  Currently government rebuilding and stabilization supersedes environmental concerns, to make changes Iraq will have to integrate an extensive environmental management plan with focuses on infrastructure rebuilding to gain access to water and sanitation and improved indoor air quality, as well as conservation policy to prevent water pollution, reclaim land, protect the environment.

EPI Specific Indicators Air, Water, Water Resources 2000-2010 Iraq

Switzerland does well in the EPI standing for many reasons; EPI measures performance of a country’s policies and Switzerland has had strong national environmental policies in place since the 1970s.  There is strong public and political support of resource allocation to the environment in addition to government funding and regulation.  “Opinion polls regularly identify environmental concerns among the top ten long term priorities of the Swiss population, and the protection of the natural resource base is one of the five priorities of Switzerland’s foreign policy.[4]” Switzerland has in place substantial infrastructure and technology; these benefit the populace in achieving the optimal target of 100% access to water and sanitation. There have been significant government investments in water quality and control of water. There is a successful integration between policy instruments and targeted outcomes in Switzerland, for example Switzerland banned the use of phosphates, as a result the watercourses are now of sound physical-chemical quality.

Currently new waste water management policies have been enacted to aid with existing problems, pricing systems will reduce the interconnection problems and create economic incentive for better management (similar to a carbon tax). Air quality in Switzerland is unsurpassed, “Switzerland has met or will shortly meet all its international commitments for atmospheric emissions reduction. Since the early 1980s it has achieved remarkable declines in emissions of the main air pollutants (SOx, NOx, VOCs, CO, particulates, heavy metals) and substantial improvements in air quality. These results are largely attributable to a consistent and ambitious federal strategy for air pollution abatement and to efficient implementation of regulatory measures by the cantons. Associated with the country’s economic characteristics (low energy intensity, economic stagnation in the 1990s) and energy structure (almost entirely hydro and nuclear power, relatively high energy prices), this environmental policy has ensured that Switzerland’s emissions per unit of GDP are the lowest or among the lowest in the OECD area. In addition, considerable progress has been made with the Energy 2000 action program, which is contributing to a decline in emissions of CO2 and conventional pollutants.[5]”  Overall Switzerland benefits from such things as global location, abundant natural resources, political stability and comprehensive infrastructure and with the combination of public and private support it is easy to see the strong correlation between policy and performance level.

EPI Specific Indicators Air, Water, Water Resources 2000-2010 Switzerland

In summary the two countries are drastically different, and it is these differences that cause them to end up on opposite end of the EPI spectrum.  Lessons learned from comparing these two countries included the importance of political stability and effects of war on the environment, the relevance of public and private support (legislative and financial) in implementing environmental policies, as well the role pre-existing policies play in maintain your performance level.  The EPI is a suitable measure because it sets up a critical value based on the countries own projected target, this way the government has some individual quantitative results to help analyze if the instrument or policy was successful or not. These result and standards should help guide policy planners in the future as to where society could see the most gains overall.

Reference

http://epi.yale.edu

 

http://epi.yale.edu/sites/default/files/downloads/2012%20EPI%20Full%20Report.pdf

 

http://iraqidinarnews.net/blog/2012/02/27/international-report-iraq-the-last-country-interested-in-the-environment/

 

http://www.nationsencyclopedia.com/Asia-and-Oceania/Iraq-ENVIRONMENT.html#b

 http://postconflict.unep.ch/publications/Iraq_ESA.pdf

http://jurist.org/dateline/2010/06/iraq-environmental-policy.php– IRAQ: Environmental Policy

http://www.oecd.org/dataoecd/8/31/2451893.pdf

http://www.bafu.admin.ch/dokumentation/umwelt/09249/09355/index.html?lang=en

http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P099809

http://www.indexmundi.com/iraq/environment_current_issues.html – Iraq Environment – current issues

http://www.odi.org.uk/resources/docs/397.pdf – Humanitarian action in the new security environment: policy and operational implications in Iraq

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Abstract

The objectives of this paper are to understand the factors leading to biodiversity loss and examine possible solutions to this problem. Market failure causes environmental degradation; this is one of the primary causes for losses in global biodiversity. The paper will examine four leading causes of biodiversity loss, examine the relationship between market failure and policy failure it will examine the role of measurement tools such as the Environmental Performance Index (EPI) and give some recommendations for a sustainable strategy to mitigate these market failures in the future.

 “In the model that we grew up with, governments rule physical territory in which national economies function, and strong economies support hegemonic military power. In the new model, already emerging under our noses, economic decisions don’t pay much attention to national sovereignty in a world where more than half of the one hundred or two hundred largest economic entities are not countries but companies.”

Amory Lovins

Market failure causes environmental degradation; this is one of the primary causes for losses in global biodiversity. The ongoing deterioration of the environment through the depletion of natural resources, destruction of ecosystems combined with the increased effects of climate change can only be reduced through policy instruments aimed at correcting these market failures. The paper will examine four leading causes of biodiversity loss, examine the relationship between market failure and policy failure it will examine the role of measurement tools such as the Environmental Performance Index (EPI) and give some recommendations for a sustainable strategy to mitigate these market failures in the future.

 

Scarcity is the fundamental problem that the world is facing today; with growing populations and a limited amount of natural resources how we value these goods is significantly important. Without the understanding of this initial resource problem it will be difficult to adequately respond to the pressures of biodiversity loss. Market failure can be described by the failure to recognized three problems: Uncertainty of tenure, undervaluation of land resources and under-regulation of negative externalities.  When these three questions remained unanswered and unaccounted for market failure ensues.

 

Uncertainty of tenure results from the lack of secure property rights.  When people lack ownership there is loss of incentive and motive to add value to the land. therefore deterioration continues. With unsecure property rights the roles and responsibilities are ambiguous, having land and then having property rights that are without a legal definition, that are not enforced and are poorly valued will lead to market failure.  Land owners, whether it be the government or private firms are left without confidence and have feelings of insecurity with a lack of property rights. Therefore these problems would need to be initially solved in order to not have market failure.

Secondly the undervaluation of natural resources is a common problem worldwide. The undervaluation not only discourages open markets, it also cuts market opportunity, which could possibly lower the price. Without some valuation of the natural resource we cannot show how this would effect society in a cost/benefit analysis.  There is also no measure to show the reflection of value to society. Lack of markets leads to a lack of opportunity it also leads to policy driven market distortions. Distortions such as export bans, increase profit margins, vertical price integration all lead to an undervaluation of natural resources and again market failure.  Policy instruments that may have good intent can in turn lead to an under valuation of a countries natural resource, for example, a subsidy that could encourage environmental degradation by subsidizing a harmful fertilizer “If market failures are severe, farmers could become locked into low levels of productivity, even when the technology and economic opportunity exist, since they cannot access and afford the seeds and inputs to take advantage; and thus they remain trapped in poverty, too poor to work themselves out of this condition” (Dorward et al., 2004; Duclos & O‘Connell, 2008).  Another error made by governments is inappropriate resource taxation, whereas the governments over tax the resource instead of the negative externality or producer extracting the good, ultimately leading to overuse and market failure.

Lastly what is import in moving out of market failure into successful governance and ultimately environmental protect is the adequate regulation of negative externalities. These initiatives must adhere to specific codes of conduct that are: transparent, inclusive, responsive, timely and accountable.  Policy failure occurs when this under regulation and un-enforcement takes place in the market place. As a result there is corruption and the government is seen as centralized which creates a displacement between the land and the government.  There are potential problem in the supply chain for corrupt blending, or arbitrage from rent seekers.  Market failure has a causal relationship on environmental degradation, the disconnect that occurs been physical and economic value of the resource manifests itself into market failure that will then require various supplementary environmental management plans to remedy.

 

The previously mentioned market failure can be further explained by the disconnect that occurs between resources and policy. When policies fail to incorporate the linkages of resources to: a) scarcity and price, b) benefit and cost c) rights and responsibilities, the tradeoffs that typically occurs can further exacerbate the problem.  Factors that lead to loss of biodiversity come directly from the market failure.  Now that there is an understanding of what market failure is and how it originates it will now be used as an instrument to demonstration the factors that lead to loss in biodiversity.

 

Under provision of environmental assets is a problem because it fails to attribute a value to such factors such as physical/human value, social value or natural resource value. Assets are typically under provided and create waste and deadweight loss, which are inefficient.  Most natural resources are pure pubic goods; the idea that they are limitless abundant renewable resources often creates a challenge in management of the resource as a result there is overuse and under pricing.  Subsequently the result of this under provision leads to increased environmental degradation: rapid deforestation, land degradation, soil depletion and erosion, water contamination, over fishing, depletion of biological diversity and increased air pollution are all negative effects due to market failure. This problem is further hindered by development implications and constrains on development.

There is a lack of understanding between root and proximate causes of a problem, and because of this misinterpretation inappropriate policies are implemented and typical responses from institutions are insignificant.  In some countries there is the presence of misleading measurement indicators – there is overharvesting, draconian policy and zero compliance for the preservation of what the state owns. The constraints highlight the differences between physical indicators and economic indicators. Problems arise when there is deterioration in natural capital, this can transition is a qualitative reduction in that capital, the resource then ends up depreciated and devalued.  From an economic perspective there needs to be better use of natural capital, stronger laws, rules and regulation to alleviate the negative externalities.  Generally policies that fail are counter-intuitive and inefficient, they lack investment and have high costs, in addition there is insufficient valuing of biodiversity and ultimately improvements do not occur.

Loss of biodiversity continues because there is a lack of property rights defining who owns what.  An example of a government intervention that increased the likelihood of a policy failure was the government support for the Trans-Amazonian highway through Brazil, this was a national development, resulting in extreme deforestation and encroachment issues and as a result should little sustainable economic development. (V. Dale, S.Pearson, H. Offerman R. O’Neill 2002) These property rights are essential in outlining what rights and responsibilities the property owner has, they should be enforceable, transferable and legally permissible but unfortunately this does not exist in all cases where biodiversity is threatened.  Some developing countries have the added constraint of political instability and inadequate public institutions; these challenges make it difficult to focus support on environmental sustainability programs.  Frequently there is corruption in both the public and private sector, which leads to mistrust in the government and the policies they implement further adding to market failure and loss of policies to support the environment and protect biodiversity.  Ideally governments would deregulate polices which are detrimental to the environment and the economy and correctly regulate and tax macroeconomic initiatives instead for example moving from a subsidy to an incentive. This deregulation would help in the reduction of further induced market distortions.  Consequently losses in biodiversity result from a mismanagement and misallocation of natural resources.  The government’s failure to respond to this leads to market failure.

 

There are four primary sources that will be further investigated to help explain loss of biodiversity, these direct causes: Land-use changes, pollution, unsustainable natural resources and climate change substantially impact the maintenance of global biodiversity.

 

Changes in land-use have a significant effect on the current and future stages of biodiversity levels globally.  Modifications that transform the existing ecosystem into something new are key sources of biodiversity loss. According to the World Bank, world population growth annual change 2010 was 1.1%( http://www.worldbank.org) with the growing population, demand for food and food production also increases.  Agricultural expansion in developing countries will shift land use into food production and as a result habitat is lost and converted into food crops.  This also occurs in developed nations where the food for fuel debate has developed in the past decade. “biofuels have already been shown to negatively impact biodiversity when direct conversion of natural ecosystems or indirect land conversion of non-degraded land occurs. The expansion of biofuel production in the tropics has resulted in the loss of tropical forest and wetlands, and in temperate regions biofuel production has encroached into set-aside lands. Biofuel feedstock plantations (particularly oil palm and maize plantations), have been shown to support far lower levels if biodiversity than natural ecosystems, and can cause soil erosion and the pollution of watercourses.” (A. Campbell, N. Doswald 2009)

 

Pollution is defined as the presence or introduction into the environment of a substance or thing that causes instability, disorder, damage or distress to the ecosystem. Pollution is another direct cause for losses in biodiversity it can effect the air, water and land. For example only 15% of mangrove forests in Pakistan are considered healthy, the mangroves have deteriorated due to increases in upstream pollution from the industrial sector and forest degradation.  Currently 7 of the 8 species of mangroves have become rare or extinct in Pakistan, unfortunately environmental laws are largely unenforced and there is little accountability for the pollution producers to stop polluting and little incentive on conservation. (A.Wood, P. Stedman-Edwards, J. Mang 2000) Pollution simply eradicates ecosystems and results in losses to biodiversity.

Unsustainable natural resources that are pure public goods are very difficult to manage. In 1986 the New Zealand government implemented a quota management system (QMS) it attempted to stop the overfishing of inshore fisheries; this overfishing was thought to be the result of a 1970s initiative to increase fishing and expand exports, it wasn’t until this policy was implemented did the policy failure start to subside.  Pure public goods are non-excludable and non-rival this causes people to overuse the resource to maximize their own profits, unfortunately this theory does not align with conservation theories.  Fisheries, mines, and commercial farms are annex land and extract the natural resource; this depletes the current ecosystem and reduces biodiversity.  “In case of wood extraction as a proximate cause for biodiversity loss, commercial logging is mostly mentioned and fuel wood collection is mentioned to a lesser extent. After the 1950s, increasing demand for Asian timber led to the extension of commercial logging activities.” (N.Sodhi 2004)

Climate change increases stress on the environment; it can aggravate the effects of other pressures, including loss of habitat, conversion of land, over-exploitation, introduction of alien species, and pollution.  Climate change is broadly defined as a significant statistical change in properties over time in a climate system.  As global temperatures rise fragile ecosystems that are unable to cope become extinct directly impacting ecosystem biodiversity. Climate change is having significant impacts on the health of the ocean, coral reefs, artic ice and some species that lack the natural ability to adapt will assume the negative externalities of climate change. Contrasting yet similar to the effects on the ocean desertification also negatively effect other ecosystems globally, for example “Climate change has also been implicated in the decline of amphibians in tropical montane forests. (Pounds, Fogden and Campbell 1999)  Overall increases in climate change increase the likelihood for biodiversity loss, due to increases in global temperature and vulnerable species inability to adapt loss in biodiversity is inevitable.

 

A policy should be implemented when it corrects real or perceived market failures.  To ensure that the benefits of the government intervention exceed the costs suitable planning, implementation and enforcement must occur. Before examining some ways to solve the market failure and make correct policy decisions, we will explore a realistic measurement tool currently in place to help assist countries in making environmental policy decisions. The Environmental Performance Index (EPI) acts as a standard of measurement for a countries environmental performance in relation to its government policy. This baseline acts as a reference point, contributing countries can then be compared or assessed and in the case of EPI ordered and ranked. These results are significant to many audiences; the government needs to see tangible results from investments in environmental protection in order to keep allocating resources to the environment.  Private and public firms could potential see increases in costs from carbon taxes or new environmental requirements, contrary there could be a potential for a new emerging green sector where innovative investors could profit.  The populace would also be able to use the results to evaluate the government, are whether the concerns for health and environment being replicated into policy.  Overall the government can look at the ranking and use this as a benchmark on the evaluation of the current policy in place, is this a success or failure are we seeing improvements or deteriorations, and what are the plans for the future.

The EPI builds on the 2000 Environmental Sustainability Index (ESI) data-driven evaluation through quantitative metrics.  2012 EPI ranks 132 (*193 countries world wide) countries on 22 performance indicators in 10 policy categories, The 10 policies are grouped under 2 objectives “Environmental Health & Ecosystem Vitality”. 2012 EPI uses a set of core indicators that meet high standards, (direct measurement over modeled data) standardized time series and institutional commitments to maintain current and future data. Historical data has been recorded for the last ten years which allows governments to track overall performance. In each country an indicator or “proximity-to-target” value is created, this measures the gap between perceived and actual outcomes of a policy.  The generic formula for the proximity-to-target indicator calculation in the context of the global EPI is as follows:

 

 

(International range) – (distance to target)

              —————————————————-          x 100

(International range)

 

 

Data is collected from international sources, research institutions, government agencies and academia. Data analyzed comes from formal reporting, spatial data, observations and modeled data. After the data has been transformed by dividing by GDP  (creates comparability across countries) other distortions need to be adjusted for, logarithmic instruments differentiates between performers. Lastly the transformed and logged data is converted into indicators, the indicators are uniform and with a common unit to assess aggregate up to the index.

The EPI is a suitable measure because it sets up a critical value based on the countries own projected target, this way the government has some individual quantitative results to help analyze if the instrument or policy was successful or not. These results and standards should help guide policy planners in the future as to where society could see the most gains overall.

To overcome market failure there needs to be a reform of unsuccessful government policies: new or amended laws, taxes, subsidies, direct market interventions are a few examples of improvement policies that could ease market failure. In addition to the reform the strategy must have benefits that exceed costs, there should be a distinction between direct and indirect costs as well as an outcome based versus input based cost benefits analysis.  Policies should aim to correct previous objectives that override the environment. They should also correct national competitiveness to increase sustainability of resources. The government needs to pay special attention to social equity, rent seekers and inefficient & inadequate policies; these will all need to be improved in order to stop increases in biodiversity loss.

In order to fully correct the market failure you need to also evaluate the previous policies in place, there are various market distortions that would have to be addressed. Typically taxes undervalue natural resources, for instance an export tax that causes distortionary prices in the market, the same goes for subsidies that encourage environmental degradation for example a fuel subsidies, decreased costs resulting from the subsidy lead to increased fuel use, subsequently increasing CO2 emissions. Another example is a policy supporting production is the use of quotas, this leads to wasteful or high grading extractions (deforestation, over fishing) a solution to this could be the incorporation of Individual transferable quotas (ITQ) The ITQ quotas are considered permanent but are subject to specific rules and regulations set out in the policy, such examples include restrictions on species type and fishable area. The quotas aggregate to a total allowable catch (TAC) this total acts as a safeguard to ensure that only a sustainable number of fish are harvested. The TAC can be increased or decreased depending on the health of the fish stock and the desired sustainable demands of the government. 
The benefit of this is mechanism is tradable individual property rights create the elasticity to lower production without large-scale losses in profits.  Ideally governments would like to build on what is already preexisting, more importantly decision makers will need to reflect on the nature of the problem.

Once they identify proximate and root causes of the problem they can apply a practice of good governance to the new policies implemented. This implementation should be: transparent, inclusive, responsive, timely and accountable.  Globally there needs to be a re-establishment of a link between resource scarcity and resource price, this will help stimulate efforts to seek out substitutes or green alternatives and focus attention on conservation.

A successful policy reform will include comprehensive development, planning and investment. It will remove distortionary subsidies and deregulate and reallocate rules and regulation with appropriate taxation.  It should also allocate land tenure and maximize utilization.  Policies should be decentralized and have a focus on determining a full value of the natural resource. This valuation will be difficult, valuing of natural resources is unexplored there needs to be value that reflects both a value to society as well as market value.  Once these market and policy failure have been accounted for, policy planners and decision makers can then choose reform actions to create sustainable solution that will ideally reduce global biodiversity loss.

 

 

 

 

 

 

 

 

 

 

References

D. Pimentel, M. Tort, L. D’Anna, A. Krawic, J. Berger, J. Rossman, F. Mugo, N. Doon, M. Shriberg, E. Howard, S. Lee, and J. Talbot, 1998. Ecology of Increasing Disease 
Population growth and environmental degradation Bioscience Vol. 48 No. 10. Available from http://dieoff.org/page165.htm

A. Lovins, 2002. Real Security, What is security? Where does it come from and who is responsible for it? Resurgence issue 218 Available from http://www.ngws.org/service/Articles/real_security.html

Dorward et al., 2004; Duclos & O‘Connell, 2008, Agricultural Policies for Poverty Reduction: A Synthesis. By Organisation for Economic Co-Operation and Development OECD (2012), Agricultural Policies for Poverty Reduction: A synthesis, OECD Publishing http://dx.doi.org/10.1787/9789264167698-en

Available from http://www.oecd.org/dataoecd/50/35/46340359.pdf

V. Dale, S.. Pearson, H.Offerman^†, R.O’Neill, 2002. Relating Patterns of Land-Use Change to Faunal Biodiversity in the Central Amazon DOI: 10.1046/j.1523-1739.1994.08041027. Available from http://onlinelibrary.wiley.com/doi/10.1046/j.1523-1739.1994.08041027.x/abstract

A. Campbell, N. Doswald 2009, The impacts of biofuel production on biodiversity: A review of the current literature December 2009. UNEP-WCMC, Cambridge, UK Available from http://www.cbd.int/agriculture/2011-121/UNEP-WCMC3-sep11-en.pdf

A.Wood, P. Stedman-Edwards, J. Mang 2000, Root Causes of Biodiversity Loss. Earthscan Publication Ltd. UK. Available from http://books.google.ca/books?hl=en&lr=&id=haIGoPpqTRgC&pgis=1&redir_esc=y

N. Sodhi, L. Koh, B. Brook, P. Ng (2004). Southeast Asian biodiversity: an impending disaster. TRENDS in Ecology and Evolution Vol.19 No.12

December 2004. Available from http://rmbr.nus.edu.sg/news/pdf/sodhietal-tiee2004.pdf

Pounds, J.A., Fogden, M.P.L., and J.H. Campbell 1999. “Biological response to climate change on a tropical mountain.” Nature 398(6728): 611-615. Available from http://www.eoearth.org/article/Talamancan_montane_forests?topic=49597

A.Slingenberg, L. Braat, H. van der Windt, K. Rademaekers, L. Eichler, K.Turner 2009. Study on understanding the causes of biodiversity loss and the policy assessment framework, In the context of the Framework Contract No. DG ENV/G.1/FRA/2006/0073 Specific Contract No. DG.ENV.G.1/FRA/2006/0073

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Anuar Tuleshov

Nicole Hannay

Economic Instruments – Charges and taxes

Sweden Nitrous Oxide Charge

Introduction

One of the most destructive creations of human-made-pollution is acid rain, sulphur dioxide (SO2) and airborne emission of nitrogen oxides (NOx) are the main components of acid rain, this rain causes significant widespread damage throughout Sweden and the rest of the world. Acid rain is especially harmful to vegetation and wildlife. The consequence of airborne emission (NO2) could be further eutrophication of forestland and marine ecosystems. This reaction that the ecosystems are forced to endure act as a response to increases in additional external affluences (nitrates & phosphates). Consequently that leads to high concentrations of unnatural nutrients, especially phosphates and nitrates. These typically promote excessive growth of algae, as the algae die and decay high levels of organic matter and the decomposing organisms deplete the amount of available oxygen. This depletion causes the death of other organisms and is felt the entire way up the food chain resulting in overall losses in biodiversity.

Sweden initiated a new agency in 1967; the Sweden Environmental Protect Agency (SEPA) it was founded with the purpose to implement environmental policies.  Acid rain or any kind of acidification is harmful to Sweden because most of its areas are covered by granite bedrock, which is very vulnerable and can be heavily affected by acidification. The main problem Europe is facing is that even if a country for example, Sweden will reduce its pollution their environment will still be affected by pollution that was produced in the nearest country or elsewhere. This has made the producers of acid rain elements, nitrogen oxides (NOx) and sulphur dioxide (SO2) important factors as environmental policy targets in Sweden (and Norway). In 1985 the Swedish Parliament established a target to reduce nitrogen oxide emissions to 30% below their 1980 level by 1995. By 1991 emissions had been reduced by over 70% (OECD, 1997) the objective was met in 1998 (Hőglund, 2000). Existing regulatory policy was not deemed sufficient to meet the target, thus the NOx charge was introduced. This policy was initiated in 1991 and implemented by the government in 1992.

Changes were taking place as early as 1990 when some companies took the initiative to reduce emissions in anticipation of the charge. In 1992, the initial year of the charge, emision levels dropped 36%. (R.Branlund, B. Kristron 1997)

 

Primary sources of nitrogen oxides (OECD, 1997, pp43):

• road transport 41%;
• industrial machinery and processes 27% ;
• power generation 11%

 

Main goals

In combination with the reduction of the pollution, the policy aimed to rise and foster investments in new technologies that will further reduce emissions. Moreover, the policy was introduced in order to improve the existing policy and its regulatory measures. (Barde & Smith, 1997) and ‘to allow cost-effective implementation of measures to reduce emissions below the levels required under the permit procedure’ (OECD, 1997). The NOx charge has been directed at reducing emissions from the power generation sector and large combustion plants in industry, and is thus aimed at a relatively small proportion of total emissions (OECD, 1997).

Coverage and how it works

The mechanism can be considered partially implemented because only large combustion plants had to pay the compulsory charge. There were also high costs of metering and abatement, which were unreasonable for small plants, thus small plants were excluded. If a tax without refunds had been applied to only a subsection of some industry then this would have been unfair compared to other firms in the same industry. In this case, if the tax were applied only to the large plants, large companies would have an incentive to set up several small combustion plants instead of one big one and this is typically not environmentally friendly or economically feasible.  As the system progressed and turned out to be effective, costs for abatement and metering have dropped and the criterion for inclusion has been lowered twice: in 1996 plants producing at least 40 GWh useful energy per year were included and in 1997 the boundary was lowered to 25 GWh. In 1992, only 200 plants were subject to the charge, compared to 400 plants in 1998.

SEPA has approved technology for measuring pollution. Firms should measure their emissions by this equipment otherwise standard assessment was used for measuring. There is a form that all firms and plants must fill out. This form was pertaining to their NOx emitted and energy produced. SEPA audits the firms and randomly selects a number of firms each year for inspection. The goal is to make an inspection of each firm every fifth year. In the beginning of each calendar year the plants send in the form declaring their respective emissions and energy produced. The firms have to pay their net charge before October 1st and SEPA refunds the plants before December 1st each year. Each firm can have several production units, which are monitored separately. This two-month period keeps cash flow problems to a minimum. The policy instrument was well adopted and firms reduced emissions. (incentive effect) (Sterner, 2003)

Tax & Taxation Rate.

The tax rate emissions charge that is applied to firms is 40 SEK per kg NOx that operate beyond 10MW, approximately 66.6% of plants and industrial factories were subject to the tax. The NOx charge is in place to help combat the effects of the power-generating sector, hence the rate for large and medium firms emissions. The rate was set at 40 because the range showed costs varing from 20-80 SEK per kg. Taxed plants have been able to reduce emissions on an average cost of 10SEK in the initial year.

Revenue from the tax are rebated back to taxpayers, the rebated amount is established on the amount of energy generated.  Firms record and measure the NOx emissions generated in within the year and submit the information to SEPA.  Total revenue and refunds are calculated on a per MwH rate, the charge shifts the income from high to low emitting plants creating a balance. “In 1992, for example, approximately 15,300 metric tons on NOx emissions were subject to the charge, generating about 610 million SEK ($90 million). As a result of the revenue and rebate calculations, over 100 million SEK ($15 million) was transferred from high-emitting to low-emitting facilities.” (yosemite.epa.gov)

(for 1992 reductions of 9,000 metric tons) Source: Swedish Ministry of the Environment and Natural Resources (1995), p. 47.

Overall it is an idyllic policy, unfortunately as is the nature of the environment and air pollution until all producing countries sign on to the same initiative results we be inconclusive.  Not all NOx emissions are captured in the charge; companies still operate just below the threshold and avoid the tax. Until the minimum level is lowered firms will use this as a loophole.  Generally speaking emission levels have decreased in Sweden since the implementation of this NOx charge, that is ultimately a benefit to Sweden nationally as well as a benefit to the global community.  Other countries could benefits from the research and development and advances in technology Sweden has made and future policy planners and implementers can look to Sweden for a successful model for this type of tax

References

UCD Environmental Policy Research Manager

http://www.economicinstruments.com/index.php/air-quality/article/73-

Barde, JP. and Smith, S. 1997. Do Economic Instruments Help the Environment? The OECD Observer, No.24, Feb/Mar 1997, pp22-26

http://www.oecd.org/publications/observer/209/ART_IDXE.HTM

Hőglund, L. 2000. Evaluating Economic Instruments for Environmental Policy, OECD 1997, pp43-46 (order form at http://www.oecd.org//env/policies/publications.htm#eistrpub ) Review Meeting First Draft Update Taxes Report: Agenda Updated

R.Brännlund and B. Kriström  Energy and Environmental Taxation in Sweden: Some Experience from the Swedish Green tax Commission Invited Paper ”Environmental Implications of Market Based Policy Instruments” Gothenburg, Nov 20-21, 1997

http://www-sekon.slu.se/~bkr/gbg.pdf

Parry, I. W. H. (1995). Pollution Taxes and Revenue Recycling. Journal of Environmental Economics and Management, November 1995, 29 (3).

G. Harrison, and B. Kriström, 1997 Carbon Taxes in Sweden, i Skatter, miljö och Sysselsättning, SOU 1997:11, underlagsrapporter till Skatteväxlingskommitténs slutbetänkande.

http://yosemite.epa.gov/EE/epa/eed.nsf/fa6512c6e51c4a208525766200639df2/f5f2680e0a67338385257746000aff2d!OpenDocument