Evaluation of how Market-Based Policies deal with Global Environmental Problems - Essay Example

EVALUATION OF HOW MARKET- BASED POLICIES DEAL WITH GLOBAL ENVIRONMENTAL PROBLEMS Evaluation of how Market-Based Policies deal with Global Environmental Problems Course Institution Instructor Date Evaluation of how Market-Based Policies deal with Global Environmental Problems Introduction Market based instruments or policies use prices, markets, as well as other viable economic oriented variables in order to offer incentives among the polluters; hence, reducing the negative environmental impacts . They incorporate the cost of production through activities such as charges or taxing products. Alternatively, they can create property rights, facilitating the development of a proxy related market (Bosshardt 2006, pp. 148-149). The main examples of market based instruments include emission trading, reductions of market barriers, subsidies, discharge fee or charges, tradable permits, taxes, licenses, and property rights among others. For instance, taxes help in determining the maximum costs of having control measures. Therefore, it motivates the polluters to reduce cases of pollution at lower costs as compared to the tax rate. The tax approach is seen to be flexible since it can be easily adjusted to create better incentives. Taxes also incur reduced compliance costs as compared to permits. However, the downside to this is that they are less effective when it comes to ensuring reductions of the targeted quantities (Zhang 2013; Ingram, Ericksen & Liverman 2012, pp. 20-21). Therefore, this discourse will give a clear limelight to some of the abovementioned market-based policies, evaluating on their effectiveness in combating environmental challenges, their disadvantages, limitations, and viable recommendations. It is evident that the instruments though beneficial have numerous limitations that should be scrutinised closely in order to come up with sound solutions to curbing the environmental menace. Discussion Most policy makers are advocating for the reduction of regulations in an effort to make sure that the market fully protects the environment. Various scholars such as Zhang (2013, pp. 87-88) argue that the market based policies help in aligning the financial incentives of a given organisation with the environmental goals. They are also cost effective, allow the use of modern technologies, and offer a strong impetus for firms to innovate rapidly and implement cheaper and sound pollution control related technologies. Consequently, there is a better chance for economic growth and a chance to have the relevant stakeholders adopt more stringent oriented standards to cater for the environment. Zhang (2013) goes on to allege that asserts such policies are better than the well known Command and Control mechanisms since unlike the latter that sets a similar criterion to all firms, which is expensive, the former equates the heightened amount, which organisations use in reducing pollution. In order to have a better idea of how these market policies work and their rate of effectiveness, it is important to examine some of them into greater detail and examine their advantages as well as disadvantages It is also vital to have insights into some of their limitations in order to have a clear picture on measures that can be incorporated to make sure that they are fully embraced. Therefore, some of the policies that this paper will evaluate are the discharge fee system, government subsidies, reduction of market barriers, the deposit refund, and tradable permits. One of the main market instruments or policies is the discharge fee system, which considers a tax or fee on the generated pollution. This method is effective in a situation whereby the costs of reducing pollution is equal to the amount of charges paid. However, it should be noted that the amount used up to the point where the costs are higher than the tax vary among firms due to differences in physical configurations, production designs, and assets among other factors. The instrument is beneficial in guaranteeing substantial savings on the costs incurred to control pollution as compared to other instruments such as the Command and Control that forces companies to reduce their rate of pollution at the same rate or use similar equipment. The tax or discharge programs have been in use in an effort to reduce the production of toxic chemicals and enhance sound mechanisms of dealing with solid wastes through charging people based on the garbage they discard (Stavins & Whitehead 2007, pp. 106-107). The policy of deposit refund has also encouraged recycling in various nations. For instance, in Norway, approximately 90% of soft drink and beer bottles are recycled. As a result, such method does not only help in increasing money in the recycling process but also motivates people to choose measures that are safe for the environment (Zhang 2013). However, there is a downside to adopting the discharge fee instrument in curbing environmental problems. This is a conventional method that has been proposed by various economists since they are not necessarily concerned with the level or rate of pollution but are focused on determining its impacts. This approach has numerous limitations, considering that calculating of the costs incurred as a result of the negative impacts of pollution is a strenuous task. This means that choosing the suitable level of tax can be tedious and complex. Moreover, the non-economists that are focused on protecting the environment hardly think on such grounds rather they focus their attention on the deposition levels or target discharges. For that reason, choosing of the right quantities and the use of taxes in order to guarantee affirmative results is definitely uncertain. The prices will likely continue to be changed in order to get the necessary or desired quantity (Nadeau 2006, pp: 129-131). Therefore, the discharge tax or fee approach cannot be said to be an entirely viable solution to environmental problems though its advantages exceeds the drawbacks. Another market based policy is the use of tradable permits. Although the emissions permit tends to achieve similar results as those of the discharge charges, it avoids the challenge that comes with trying to predict the outcome or dealing with the uncertain responses by organisations. Under this policy, the policy makers are able to target the level of pollution that will be permitted by a firm, industry, or a nation. Subsequently, firms that generate the pollution receive permits that allow them to share costs and those firms that keep the allotted levels at a minimum are able to sell the surplus issued permits to other companies (Prakash & Potoski 2006, pp. 13-14). Therefore, such an approach encourages organisations to reduce emissions in order to gain financially and avoid facing legal penalties as well as related expenses. As a result, the goal of the policy, which is to reduce nitrogen oxides and sulphur dioxide by ten million tons is half-way achieved. For instance, over 350 firms in Southern California have decided to participate in the tradable permit policy or program in an effort to reduce emissions (Stavins & Whitehead 2007). According to Zhang (2013), the emission permits approach is a cheaper alternative and has been widely employed in the US. However, it allows the formalising of discharge rights; thus, allowing the public to pollute. Despite such flaw, it is undoubtedly clear that the instrument is effective in dealing with environmental problems and has more advantages than disadvantages. Reducing of market barriers is also another major instrument that helps in decreasing or doing away with pollution. For instance, through creation of a market with regard to water rights, there is better facilitation or distribution; thus, effective utilisation of water resources. Another way in which market barriers can be eliminated is by promoting environmental related issues and offering public information to the people in order to affect their choices as far as consumption is concerned. For example, the use of labels such as ‘dolphin-safe’ informs the consumers that tuna are usually captured without necessarily damaging the dolphins. Consequently, such market solution informs the public that labelled tuna contributes directly to protecting the environment; hence, achieving higher sales (Roe & Sheldon 2007). This is a great approach since it creates solid incentives to help in the preservation of the environment for human beings, flora and fauna. It also aids consumers in making informed buying choices that are environmentally friendly. There is also the reduction of subsidies approach, which ensures economic development and sustainability. For instance, the sale of cheap timber leads to over logging and low-priced water projects in regions such as California heightens wasteful irrigation; hence discouraging the conservation of water (Zhang 2013). Ackerman and Gallageher (2005, pp. 3-5) affirm that market related policies have had an undeniable effect on the environment and instruments such as emissions trading have played a major role. This is because they have reduced the costs related to pollution abatement by heightening flexibility, using of the market to pursue environmental objectives, and decreasing the burden that comes with regulation of the bureaucracy. Nevertheless, they require high capital as well as transaction costs; therefore, most people perceive them as inappropriate. It is evident that market oriented solutions have numerous advantages. Nonetheless, it is unfortunate that they do not achieve as much as they are set out for and often end up failing because they are not supported fully. Most stakeholders have a perception that such policies will not work since firms are likely to cheat; hence, receive little or no publicity. That is why there is a need to come up with a fines and monitoring system to make sure that the aforementioned instruments work appropriately (Woodward 2010). It is also generally assumed that organisations will end up purchasing permits instead of reducing pollution. In that case, the solutions require regulations and principles in order to ensure compliance. It is regrettable that there has been less development of new environmental regulations since it is only the Clean Air Act and Safe Drinking Water Act that has been authorised fully; thus, market mechanisms have been unpopular. Most of the environmental firms have also been hesitant in implementing market-based policies since they are concerned that high flexibility in regulation will reduce the rate of environmental sustainability (Stavins & Whitehead 2007). Although most firms and industries have adopted the instruments due to their cost-effectiveness and flexibility, most businesses have not lobbied for their adoption. This is because they prefer the Command and Control standards since they offer economic rents unlike the market instruments that require a lot of time to learn; therefore, incurring costs. Critics claim that the benefits that emanate from such instruments are invisible to customers and the costs that are imposed in terms of fees are too visible (Ackerman and Gallageher 2005). With regard to the advantages noted in each of the instrument discussed, it is evident that market-based instruments are flexible, cost-effective, and should be implemented in order to achieve the set environmental goals. In order to fully implement the policies, policy makers need to come up with efficient ways of enhancing the system and show how it can lead to economic advantage for a firm. As a result, once the consumers realise that the market-oriented mechanisms are beneficial, they will embrace them. On the same note, in order to wipe out suspicions and distrust on the system, it is imperative to promote the way in which the programs are designed. This will counter resistance, calm fears, and guarantee cost savings. To accomplish this, there is a need to realise that these instruments are not a general guarantee to all environmental issues but they are essential in making meaningful progress towards that direction. There should also be reliable regulations and honesty in order to make sure that the system works for the long term. The transaction fees also ought to reduce in order to enhance trading and the instruments should extend worldwide by making sure there is a transition from individuals, nations, and the world (Callan & Thomas 2012, pp. 98-99). It is sound to argue that to a large extent, the market solutions are effective and can be appropriate in dealing with environmental challenges, mostly those that are related to climate change. They can be used in addressing issues at the local as well as the state level such as land use, waste management, and ways to improve the quality of air. They can also be utilised at a global level in reducing carbon tax or emission of greenhouse gas since they are inexpensive (Stavins & Whitehead 2007). Conclusion Environmental problems such as pollution are economic challenges that emanate from poorly developed property rights and incongruously priced products or resources. The market -based policies are designed to fight such problems and they are paramount since they are considered cost-effective and are highly flexible. However, the instruments have diverse limitations and ought to be enhanced in practice to ensure full implementation. Stakeholders should improve on the designs, decrease the transaction fees, and modify or adjust the solutions in order to fit in with the modern technologies. Despite the few limitations that have led to its lowered publicity, such market mechanisms are in a better position to tackle most of the environmental issues as compared to other common alternatives such as the Command and Control solutions. By shifting the mindset, coming up with new and required skills, and overcoming the challenge of resistance among the competing groups, it is possible to make the market-based instruments effective. This will make certain that they wok collectively for everyone’s benefit and bring sustainability closer to the common consumers. Policy makers and respective companies should not overlook the prospect to preserve the environment for present and future generations and harness market forces, using sound instruments. 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