International Incentives Report

This report reviews experiences outside the United States with economic instruments for managing the environment, including air and water quality, water quantity, solid and hazardous wastes.

Why is the Report Important?
Worldwide experience with these instruments is extensive, and a number of survey reports cover portions of this topic. However, some instruments are discussed in detail for the first time in this report. The intention is to offer some depth of treatment for a relatively few examples to provide the reader with an understanding of how the instrument is designed and how it performs, particularly in the context of developing nations. This report draws on other survey literature that covers a portion of this topic, but seeks to avoid redoing their analyses.

There is substantial evidence of growing use of economic instruments for managing the environment. A 1997 report to EPA provides a useful benchmark against which to assess changes. Not only are more countries applying economic instruments but also they are doing so in a more sophisticated manner. Many problems from older applications have been corrected. For example, charge rates have risen to more nearly cover the cost of water deliveries in several nations.

Key Topics and Features

• Direct fees and taxes are the most used market mechanisms internationally, as was the case in 1997. Noteworthy trends include more applications and higher rates, as well as some acceptance in parts of the world where charges heretofore have been difficult to implement. In several nations where it is socially and politically unacceptable to use prices to allocate water, fees to pay for delivery costs are slowly gaining acceptance.
• Deposit-refund systems are little changed over the past seven years, both in terms of applications and in deposit amounts.
• Trading regimes are shifting to capped allowance systems from more open-ended mechanisms. Marketable permits systems have gained greater acceptance worldwide, particularly for the control of greenhouse gas emissions. New applications of marketable permits for conventional pollutants in nations such as Chile, China and Slovakia are noteworthy.
• Greenhouse gas emission control is an important and rapidly growing application of economic instruments. In 1997 just a handful of nations imposed carbon taxes. Now many more nations rely on carbon taxes and greenhouse gas trading regimes are in place. One can now place buy or sell orders in organized markets for the right to emit these gases.
• Reductions in environmentally harmful subsidies are a noteworthy trend that has been encouraged by international lending institutions. Leading lenders often make the elimination of environmentally harmful subsidies a condition for lending. A related phenomenon is an agreement by a group of large international banks active in lending to developing nations not to lend for environmentally damaging projects.
• Liability for harms caused to the environment is increasingly being used as a tool to limit polluting and environmentally damaging activities. While cases of this type go back to the 19th Century in England, only relatively recently have cases of environmental damage in developing nations found a sympathetic hearing in the courtroom.
• Information is used in many new applications, including product labeling, categorizing firms according to their environmental performance, and disclosure of pollution releases.
• Voluntary programs now exist in a host of programs to encourage firms to improve their environmental performance. Much greater attention is also being paid to rewards that can be offered in such programs.

Who was involved?
The Report was developed by EPA’s National Center for Environmental Economics (NCEE) working with the Environmental Law Institute.

The National Center for Environmental Economics

The National Center for Environmental Economics was created to be a federal source of cutting-edge work in environmental economics and assist EPA Program Offices, Agency economists, and regulatory policy makers with high quality economic analyses. It carries out original theoretical and empirical research and is staffed by economists, other scientists, and policy analysts.

What’s on the Web?
A copy of the new report can be downloaded from this page, but it is not available in any other form. The 1997 report to the US EPA including the earlier review of the international use of incentives is also available as well as a 2001 EPA report on the use of economic incentives for protecting the environment in the United States.

Contact Information

Alan Carlin (NCEE, Project Manager)	202-566-2250	carlin.alan@epa.gov