From an ecological point of view, economic instruments are to be preferred to other instruments of environmental policy, the command and control regulations in particular, for several reasons: They are more cost efficient in the short term in a static sense. While command and control regulations impose an emission ceiling or even a certain technology on each polluter, independently of the size of the individual firm's marginal costs in reducing emissions, economic instruments, like taxes or marketable permits, assign a "price" to the use of the environment and leave the distribution of the reduction in the emissions to the market process. In the long term, economic instruments provide dynamic incentives to reduce costs further and, moreover, have ecologically positive effects by inducing environmentally friendly technical progress: taxes as well as pollution permits assign a price to the pollution which remains after the short-term adjustment. Sometimes this price is given by the tax on the remaining pollution, sometimes the price is the opportunity costs of pollution, because less pollution would enable firms to sell their certificates in the market. In both cases the economic agents have an incentive to seek out new ways of avoiding the pollution of the environment. In comparison to command and control measures, economic instruments have the further advantage of lower administrative costs (this applies especially to product taxes, less to direct, so-called measured emission taxes which are rarely imposed). Finally, the authorities regulating pollution are confronted with incomplete information as to the emission reduction potential and its costs; in this respect, too, economic instruments via direct regulation are more efficient. Although economic instruments also suffer from some weaknesses, these are in general outweighed by the above mentioned advantages. When economic instruments are introduced slowly, not in a shock-like fashion, the macroeconomic aggregates are hardly affected, but the distribution of the costs of avoiding pollution and of the tax burden is changed, as is the distribution of the benefits of environmental protection. If this distribution proves undesirable, the design of economic instruments can be changed with the goal of ameliorating adjustment costs, of granting transitory assistance, and of exempting certain sectors. Environmental taxes, in particular, open up many possibilities, with regard to exemptions as well as to the recycling of tax receipts. Environmental policies appropriate for a sustainable economic development cannot be policies which regulate individual substances or emissions in isolation. Environmental taxes are an instrument to guide economic development in a certain direction, using economic incentives in coordination with other policy areas. Fiscal, technology, and environmental policies, in particular, are well suited to support each other.
Anreizorientierte Instrumente der Umweltpolitik; Economic Instruments of Environmental Policy
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