Market Based Instruments
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This document provides an overview of market-based instruments (MBIs) for environmental regulation. It discusses the need for MBIs and examples like cap-and-trade programs and environmental offsets. Cap-and-trade programs set a limit on pollution and allow trading of permits between companies. Offsets allow pollution in one area if equivalent reductions are made elsewhere. The document also examines MBIs compared to traditional command-and-control regulation and examples of MBIs used in India, including a case study of the US Acid Rain Program sulfur dioxide cap-and-trade system.
Market Based Instruments
- 1. Market Based InstrumentsGroup 4Birendera Jit SinghChandershekherJoshiChirag SharmaDhruvTandonGauravAgarwal
- 2. AgendaMBI OverviewMajor MBIsMBI Vs CACMBIs in Indian ContextCase StudyReference
- 3. MBI OverviewNeed of MBI?What is MBI? Excitement Vs Burden
- 6. Market Based instrument
- 8. Economic or Price- based policy instruments It is WIN – WIN deal for Society and Industry.Types of MBIDfdfs Price Based
- 9. Changing tax
- 11. Giving Subsidies
- 12. Right Based
- 13. ‘Cap’ and ‘Trade’
- 14. Offset scheme
- 15. Market Friction
- 16. Disclosing information such as Eco-labelingExample of MBI
- 17. Major MBIs – Cap and TradeBenefitsFeaturesCertainty of Environmental Thresholds
- 18. Environment vs. Development Coexistence
- 20. Resource Capping – Issue Rights – Rights Trading
- 22. Challenge for New EntrantsRisks and LimitationsDisruptive change for Existing businesses
- 23. The Govt. Factor
- 24. Challenge to control ComplianceDfdfsCarbon Emission Trading
- 25. SoX Emissions CappingExamples of Cap and Trade
- 26. Major MBIs – Environmental OffsetsBenefitsFeaturesReflect true costs and benefits
- 27. Environment vs. Development Coexistence
- 28. Compensate Negative by Positive
- 29. ‘No Net Loss’Risks and LimitationsCost to secure an offset site
- 30. Operational Costs at Offset siteDfdfsBio-Diversity Offsets
- 31. Water Regeneration OffsetsExamples of Environmental Offsets
- 32. Major MBIs – Market Friction basedBenefitsFeaturesImproves Market Efficiency
- 33. Increases Penetration and Transparency
- 34. Attempt to Reduce Market Friction
- 35. Increase Information Flow
- 37. Reduce Transaction CostsRisks and LimitationsInitial Cost to Establish the channel
- 39. Trading Water Entitlements over the InternetExamples of Market Friction based Instruments
- 40. MBI Vs CAC CACs AdvatangesMBIs AdvantagesWhen there is uncertainty about the effects of pollution.
- 41. Beneficial as a starting point.
- 42. Allows firms greater flexibility
- 43. Possible lowest cost to society
- 44. Political costs of standards are lower. MBIs DisadvantagesInappropriate for emissions with local & global impactsDfdfs‘Optimum' standard is difficult to determine.
- 46. Penalties too low and enforcement tends to be weak.
- 47. legislation does not keep up with the change.
- 49. Political costs may be high.CACs Disadvantages
- 50. Indian Govt incentives for industries Common Effluent Treatment Plant (CETP)The CETP scheme is similar in concept to the Municipal corporation’s treating sewage of all individual houses. It’s a good solution because it achieves the ‘Economics of scale’ in every area – be it staffing, monitoring, waste disposal or recycling.Central Government subsidy- 25% of the project capital cost,
- 51. State Government subsidy- 25% of the project capital cost,
- 52. Loans from financial institutions- 30% of the project capital cost, and
- 53. Entrepreneurs’ contribution- 20% of the project capital cost. Accelerated depreciation Air p
- 54. Air pollution control equipment (100%)
- 55. Water pollution control equipment (100%)
- 56. Solid waste control equipment (100%)
- 57. New commercial vehicle acquired as a replacement for a condemned vehicle of (over 15 years old)
- 58. between 1.10.1998 and 1.4.2000 – 60%
- 59. between 1-4-2001 and 1-4-2002 – 50%
- 60. between 1-1-2009 and 1-4-2009 – 50%SO2 Case StudyUltimate GoalReduce the emission of SO2 or the emission of GHGs which in turn reduces air pollution.Yearly cap decreased with an ultimate target of 50% of 1980 levels by 2010 (17.5 million tons of SO2 were emitted in 1980).Began with the largest emitters (1995) then expanded to cover all fossil-fuel electric power producers (2000)Facts & FiguresB = 10*C:
- 61. Compliance cost: one-half or less of what was anticipated in 1990.Some savings from trading
- 62. Primary source of savings: flexibility in choosing abatement strategy in the firm Most of the estimated benefits have come through reduced risk of premature mortality by reducing exposure to sulfates.Allowance Prices (1995-2004)
- 63. SO2 Case StudySO2 Allowance MarketAn allowance scheme launchedThe industry is allocated a fixednumber of total allowances
- 64. Firms are required to holdone allowance for each ton of sulfur dioxide they emit.
- 65. Firms are allowed to transfer allowances among facilities or to other firms or to bank them for use in future years.SO2 Allowances Transferred Under the Acid Rain Program
- 66. SO2 Case StudySO2 Emission Trading Business ImplicationsGrowth potential – new business and trading opportunities. - Need for brokers/traders, agencies to track the transfer of permits and allowances. - Regulatory system to monitor and verify individual emissions levels of participating companies or countries. Profitable – Permit trading provides a source of profit for businesses through speculation.
- 67. Environmentally sound – Environmental quality is not sacrificed because the overall number of permits and allowances is lower than the total emissions level set by the regulatory agency.
- 68. SO2 Case StudyStart-up costs expensive in order to set up a comprehensive permit trading system that is practicable and easy to operate.Obstacles and Implementation Issues(a) to develop own regional emissions trading scheme for SO2 or NOX following the USEPA approach (b) operate as a trading hub for emissions trading of air pollutants (SO2 and NOX) and/or GHG.- Even a combination of (a) and (b). Possible opportunities areAllowance Prices (1995-2004)
- 70. http://europa.eu/legislation_summaries/energy/european_energy_policy/l28191_en.htm
- 71. http://www.docviewer.org/view.php?url=http://www.anzsee.org/anzsee2005papers/Connor_A_web.ppt&t=Evaluating potential for incentive based policyhttp://www.rff.org/rff/documents/rff-resources-151-marketapproaches.pdf
- 73. Winston Harrington and Richard D. Morgenstern (2004) Economic Incentives versus Command and Control: what’s the best approach for solving environmental problems?MOEF (2010). Towards an Emission Trading Scheme for Air Pollutants in India – A concept note. Possible opportunities are
- 74. Q & A
- 75. Thanks