Conventional Command and Control Regulation - Essay Example

Command and Control and Economic Instruments Student’s Name Subject Professor University/Institution Location Date Command and Control and Economic Instruments Introduction Increasing concern for climate change is making environmental matters to be on the front position of majority of European countries’ policy agenda. Taxes, tradable permit, charges as well as other economic instruments may play a key role in attaining cost-effective management of greenhouse emissions. However, their prospective scale and revenue generation bring a number of broader fiscal and economic policy implications. Command and control strategies are basically directives to decision makers obligating them to impose certain standards as a way of protecting the environment from pollution resulting from the activities of a firm. The most common form of such standards is performance standards and technological standards which specify uniform restrictions on the extent of pollution that an organization can produce (McKibbin & Wilcoxen 2002, p.107). This paper will give assessment of the strengths as well as weaknesses of command and control policies and economic instruments like emissions taxes. Conventional command and control regulation Strengths According to Johansson (2000, p.34), one of the strengths of using command and control strategies to control pollution is that, they give an apparent outcome, whilst being relatively easy to monitor conformity. This is because; limits are set for every firm on the maximum amount of pollution it is expected to produce. If a firm exceeds such limits, it will be liable to pay a fine due to the violation of the set policy. Moreover, there is a high likelihood that, the goal to lessen emissions will be achieved since firms are afraid of being fined and thus they will try as much as possible to control their emissions. In addition, command and control directives are useful where the pollutant in question is so toxic that its impact of the environment as well as the well-being of people prevails over any concern about economic efficiency. When controlling pollution from very toxic substances, very strict policies are put in place so as, to ensure that firms abide by the policy. Strictness can take the form of very huge fines or law suits. In such a case, no firm can risk violating the policy since the consequences of its actions can have very adverse effects on the success of the firm. For instance, a law suit against a firm for environmental pollution can ruin the reputation of a firm which may in turn lead to losing customers hence the collapse of business. Furthermore, in controlling pollution, command and control strategies help enhance accountability when dealing with firms. This is because; different firms are given different limits and thus only the violators of such limits are held liable. As a result, cases of firms being fined because of the activities of other firms are minimized. More so, the degree of pollution is highly dependent on the extent and type of business activities that are carried out by different firms. Therefore, command and control forms a fair way of controlling pollution since fine is charged in accordance with the size and extent of activities of a firm. Accordingly, large firms pay huge fines while small firms pay less and also firms dealing with highly toxic materials pay more while those handling less toxic substances pay a lower fine (Pearce 2011, p.938). Weaknesses OECD (2001, p.12) asserts that, one of the weaknesses of command and control directive is that, it allows comparatively little flexibility when it comes to compliance efforts. This is because; such regulation has a likelihood of forcing all business organizations to assume equal proportions of the burden of pollution control, despite the cost. Additionally, in case there is a momentous diversity of abatement overheads, command and control techniques may not be beneficial since different regulations will need to be set to suit different firms, which is a more expensive process. Unless all firms are subject to equal pollution abatement charges, identical emissions’ standards may not reduce the overheads of lessening emissions. Moreover, technology keeps of changing day after day with new techniques being invented at a very high pace. As a result, it becomes very hard for policy makers to stay up to date with the highly effective regulation methods. The use of outdated methods by the pollution regulatory bodies will make it difficult to detect the violation of pollution limits by firms and thus accruing abatement costs to the firms will not be possible. Rittenberg & Tregarthen (2008, p.456), command and control directives limit the ability of a firm to ascertain the uppermost cost-effective way of continuing with production activities as it reduces pollution. This happens because every individual firm has a distinct cost structure and thus, a uniform standard enacted by a central government body does not give firms, time and flexibility to deal with their specific externality issues. This results in economic inefficiency. Besides, it is impossible or difficult for government to be acquainted with every polluting firm’s cost structure. Such knowledge is needed if the command and control policy is to succeed. Furthermore, even if conventional techniques result in an effective solution, the polluting organizations can accuse the techniques for unfairness. Consequently, regulators ought to split the duty of pollution reduction in different proportions among the polluting firms, in order for the conventional techniques to be effective in most of the markets. In addition, gathering the necessary information by regulators is a very expensive undertaking and, they time and again have to gather the information from the same sources they are governing. This creates the likelihood of dishonest or inaccurate reporting. With such kind of reporting, the command and control policy are likely to be ineffective since it is quite challenging to impose abatement costs on the firms based on false information (Rittenberg & Tregarthen 2008, p.458). Emissions trading or emissions taxes Strengths Tietenberg (2006, p.87) maintains that, the use of economic instruments such as emissions trading or emissions taxes in controlling pollution from firms has several benefits. To start with, it results in constant efficiency gains by reallocating abatement costs. Where abatement costs of pollution differs across individuals and firms, economic instruments like emissions trading and environmental taxes have the possibility to reduce costs due to two reasons. The first reason is that, other policy tools cannot totally distinguish amid polluters with diverse marginal abatement costs, and hence may oblige some to assume abatement with elevated costs. These instruments give each polluter a reason to abate in every least-expensive manner, thereby attaining a given abatement level at lower overall abatement cost. Secondly, economic instruments have the ability to evade the requirement for the governing authority to obtain detailed information in relation to individual source of abatement costs that lowers the administrative costs of the authority. In addition, regulatory policies that stipulate that polluting firms ought to use particular equipment or keep emissions lower than a particular limit may attain compliance. However, they do not persuade polluters to strive for further reductions past the specified limit. In fact, where policies are discussed based on specific cases, polluters may be afraid that any readiness to exceed the required limits may just lead the supervisory body to allocate the organization a tougher restriction in future. In case of environmental taxes, they give a constant incentive for polluting firms to try to decrease emissions, even lower than the present cost-effective level. This is because; the tax is applicable to every unit of resultant emissions, generating an incentive for developing new technologies, whose marginal cost is below the rate of tax (Clinch 2001, p.101). Drawing from Kochtcheeva (2009, p.2), the use of environmental instruments in pollution control brings about robustness to agreed erosion. Efficient execution of regulations needs firm-by-firm compromise of individual technology or abatement requirements. The regulating body is reliant on the governed organizations for information concerning their abatement overheads, and there is likelihood of being drawn into conversation and compromise with the organization. The regulated organizations, then manage a key constituent in the procedure by which policies are devised, and might be capable of extracting a price for cooperation of the regulator, in form of less severe abatement objectives, or other alterations that work in their favour. On the other hand, identical environmental taxes attain a cost-effective sharing of abatement, putting into consideration the various abatement costs of every firm, while assuming a tough, non-negotiated form. Every firm is subject to a uniform pollution tax charge. The controller does not need to take into account the conditions of all concerned firms, and hence individual firms have little capacity to bargain more favourable conditions. Therefore, the risk is considerably lessened that the negotiation process would wear down the environmental efficiency of the regulation. Weaknesses Reitze (2001, p.33 argues that, despite the many benefits that accrue from the use of economic instruments to manage pollution, such instruments have some drawbacks. In the first place, if pollution harm varies depending on the emission source, then an identical pollution charge is likely to lead to inefficiency, and thus a source-by-source directive may be required to attain a more effective outcome. Accordingly, an environmental duty should not be forced to apply an equal rate to every source, and might thus attain the effective outcome through properly differentiated duty rates. Nonetheless, after the tax charge is set separately for every source, it may become susceptible to lobbying manipulation from the controlled firms. Besides, some types of environmental levies must apply at a standardized rate, even in cases where damage differs between locations. Additionally, in most cases, the instruments are incompatible with the decision-making structures of firms. Apart from very small organisations, most business decisions can be professionally decentralised. Specific functions of the organisation may be granted the responsibility for making decisions that need particular know-how or comprehensive information, subject to only general orders or procedures from the top management. The decentralisation signifies an efficient distribution of work, but it means that all features of the operations of a firm are not inevitably considered. The internal management of the organisation should be designed in order for interrelated decisions to be categorised together, while distinct decisions are split. For environmental levies to induce effective polluter reactions, firms ought to gather information on both tax payments and technology choice. Firms deciding whether to carry out additional pollution abatement should ensure a balance between marginal tax savings and the marginal abatement costs. This kind of interaction might not otherwise be given first precedence in the in-house operations of a firm, and might require considerable modifications of the decision-making arrangement of the organization so that pollution-control and tax technology decisions are together (Sterner 2003, p.66). Sterner (2003, p.68) further argues that, environmental taxes can be applied to carbon fuels’ contents, transport or energy in general. Yet a bigger percentage of low-income family funds are spent paying for electricity, transportation and heating fuel. Therefore, environmental levies are habitually regressive. To worsen the matter, the benefits from environmental conservation may accumulate to high-income families who are very ready to give for the protection of the public. Clean surroundings might be a luxurious good. Environmental regulation reforms should be vigilant to apply an assortment of changes which justify and balance the allocation effects. Conversely, this distributional issue is not attached to environmental taxes only; a similar problem occurs with mandates which oblige generators to put in costly scrubbers, or automobile manufacturers to include costly pollution control apparatus. Conclusion Concern on climate change has made environmental issues to form major discussions in majority of European countries. The two mostly applied methods of controlling pollution from firms are command and control and economic instruments like emission levies. The strengths of using command and control are apparent outcome, easy to monitor and achievement of the goal to lessen emission. It is also effective in managing very toxic pollutants and enhances accountability. The weaknesses of command and control are less flexibility; it is a costly process, ever changing technology, different cost structures for firms and unfairness accusations. The benefits of using economic instruments include; constant efficiency gains, incentive for lessening emissions, and robustness to agreed erosion. The drawbacks of economic instruments are; geographically differing change, incompatibility with the decision-making structures of firms, and distribution effects. List of References Clinch, J 2001, Assessing the Efficiency of Integrated Pollution Control Regulation, Dublin, University College Dublin. Johansson, PO 2000, Valuing Environmental Damage, Oxford Review of Economic Policy, 6(1), 34-50. Kochtcheeva, LV 2009, Comparative environmental regulation in the United States and Russia : institutions, flexible instruments, and governance, Albany, SUNY Press. McKibbin, W & Wilcoxen, P 2002, The role of economics in climate change policy, Journal of Economic Perspectives, 16(2), 107–29. OECD 2001, Environmental Policy: How to Apply Economic Instrument, Paris, OECD . Pearce, D 2011, The role of carbon taxes in adjusting to global warming, The Economic Journal, 101(407), 938-48. Reitze, AW 2001, Air pollution control law : compliance and enforcement, Washington, DC, Environmental Law Institute. Rittenberg, L & Tregarthen, TD 2008, Principles of microeconomics, New York, Flatworld Knowledge. Sterner, T 2003, Policy instruments for environmental and natural resource management, Washington, DC, Resources for the Future. Tietenberg, T 2006, Emissions Trading: Principles and Practice, Washington, DC, Resources for the Future Press. Read More