Transcript Topic 4 Decentralised Policies

Public Policy Instruments
and Environmental Policy
Analysis
Topic 4:Decentralised Policies
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Development of EU Environment Policy
•http://www.youtube.com/watch?v=uTEMFKKuKxE&feature=Play
List&p=8A7578AB6100828C&playnext=1&playnext_from=PL&ind
ex=1
•What are the main categories of environment policies operating
in the EU?
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Learning Objectives
After this topic, you should be able to
•Discuss the effectiveness of the different types of decentralised
policy options available to governments to combat environmental
damage
•Specifically specify the appropriateness of liability law in
reducing and preventing environmental damage
•Assess the usefulness of ‘moral suasion’ in limiting and reducing
environmental damage
•Discuss the usefulness of decentralised policies over other types
of strategies in cases of environmental damage to biodiversity, air
& water quality and climate change
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What are the major public policy instruments
available?
Three major types
1. Decentralised Policies
2. Command and Control Strategies
3. Incentive Based strategies
The effectiveness of each type of policy depends on a unique
set of characteristics
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What are Decentralised Policies?
•These are policies that essentially allow the individuals
involved in a case of environmental pollution to work it out
for themselves
•Advantages of decentralised policies
• Strong incentives
• Knowledge of damages and costs
•Two approaches
• Liability & Compensation
• Moral Suasion & voluntary action
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Liability & Compensation
Fig 1: Effect of Liability Laws
€
MD
r
a
d
b
0
c
e*
MAC
e1
Emissions
(tons/year)
Liability laws work by making
polluters liable for the damages
they cause
Suppose actual emission rate is
e1 and a liability law is
introduced requiring polluters to
compensate those damaged
At e1, total damages =
b+c+d=total compensation
If polluter reduces emissions to
e* damages reduced to b
Effect of the law is to internalise
the environmental damage that
were external before the law
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How is Liability Assessed?
There are two primary ways
(1) Common Law approach
(2) Statutory Law
Key Q. How effective are these in identifying the efficient level of
pollution, e*?
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1.1 Common Law
•This is the law as interpreted by court decisions
•Difference between ‘strict liability’ and ‘negligence’
•Strict Liability- polluters responsible for damages regardless of
circumstances
•Negligence holds the polluter responsible only if they did not
take appropriate steps to avoid the damage
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Case Study: Shell V Wiwa
•http://www.youtube.com/watch?v=htF5XElMyGI
•Case Study: Shell V Wiwa http://wiwavshell.org/about/shellsenvironmental-devastation-in-nigeria/
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Effectiveness of Common Law
•Difficulties with common law
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•
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•
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Standards of proof
Causal chain of events
High transaction costs
Balance of power between plaintiff and defendant
Time frame
•This approach is generally effective only when there are
relatively few people involved, casual linkages are clear and
damages are easy to measure
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1.2 Statutory Law
•Legislature enacts a law requiring the payment of
compensation when a polluter causes damage
• Example: Maritime Oil spills :Deep Horizon Oil Spill (see
article for details)
•https://www.youtube.com/watch?v=QiF-X-Ez9Bs
http://www.eoearth.org/view/article/161185/
http://www.theguardian.com/environment/2014/jun/05/b
p-deepwater-horizon-spill-report-failures-risks
https://www.bing.com/videos/search?q=Deepwater+Horizo
n+Explosion+Documentary&Form=VQFRVP#view=detail&mi
d=090B7A21F8AB85C27042090B7A21F8AB85C27042
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Deepwater Horizon 2010 Oil
Spill
• April 22 2010 a massive explosion on the oil rig operated by
BP killed 11 people and resulted in 172mn gallons of oil into
the Gulf of Mexico
• A formal investigation found that the cause of the explosion
was due to bad management and negligence
• Very significant economic and environmental consequences
• Economic impacts included fishing and tourism, damage to
shipping channels, oil pipelines and port facilities and
industrial facilities
• US Oil spills are governed by the Oil Pollution Act 1990 which
sets an upper limit of $75mn in liability for the responsible
party
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Effectiveness of Statutory Laws
• In the case of the Deepwater Oil Spill statutory law failed due
to:
• Very small upper limit for damages
• OPA outdates and damages not indexed to inflation
• Limiting Liability offers an implicit subsidy to the oil sector- once
damages go over a certain level it is tax payers and the public that
ultimately end up paying the vast difference (actual cost $60bn)
• Limiting Liability offers little incentive to improve safety
technology
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2. Voluntary Action
•These are cases where individual and firms engage in pollution
control behaviour in the absence of any formal, legal requirement
to do so
•Two types of voluntary action
• Moral suasion
• Informal community pressure
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Moral Suasion
•http://www.youtube.com/watch?v=ktLG5Iw_kC8&feature=playe
r_embedded
•http://www.youtube.com/watch?v=EVh15aUt8c&feature=player_embedded
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Moral Suasion/ Informal
Community Pressure
Compliance tends to rely on moral suasion
Relies on moral argument and restraint
Problem of free riders
Examples: voluntary recycling; litterbug campaigns etc…
Communities may put informal pressure on polluters to
reduce their emissions
• Loss of reputation
• Loss of markets
• Declines in stock values
For more on this, check out
http://pubs.acs.org/doi/full/10.1021/es011272k?cookieSet
=1
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Summary
• Topic addressed 2 approaches to decentralised public
policy approaches to environmental issues: liability law;
property rights and voluntary action
• The threat of liability action can lead polluters to
internalise external costs and hence produce efficient
levels of emissions
• Only works in simple cases and where causal effects are
clear
• Voluntary action such as moral suasion can be useful in
encouraging ethical behaviour
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Required Reading
•Field & Field ch 10
•Directed websites
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