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Clearing the air

One often hears the call to ban all harmful emissions and/or to use the power of governmental regulatory enforcement to punish all lawbreakers. Unfortunately, such "cease and desist" practices, which fall under the rubric "command and control," have not always worked even in developed countries.

Abdullah Shibu
THE recently concluded conference on river pollution held at the Daily Star premises was an important step for bringing some important policy issues to the national spotlight. In the past, both the government and our civil society had identified our major environmental problems, and the government had taken some steps to mitigate them. The effectiveness of these initiatives has been mixed.
Given these twin macro-level problems, i.e., unmitigated environmental degradation and well-intentioned but ineffective policies adopted in the past, we need to take a fresh look at our environmental policy. What policy instruments need to be in place to steer us towards a cleaner environment?
Pitfalls of "one size fits all " policy A few years ago, I worked as an Environmental Economist for USAID and UNDP on the National Environmental Action Plan (NEMAP) of Bangladesh. During my conversations with the department of environment and other stakeholders in Bangladesh, it was clear to me that all parties accepted the fact that the cost of implementing many of the available technological solutions and alternative lifestyles were considerably higher than the "business as usual” practices.
For example, to reduce emissions, if a "scrubber" is fitted to a sulphur-emitting power plant, the cost of generating electricity goes up. Similarly, the cost of growing food using cleaner technologies is higher than current practices that rely on chemical fertilisers and pesticides. The unanimous verdict was, "we need cleaner technology, but the cost is too high."
Fortunately, this last conclusion is not as pessimistic as it might first appear. Historically, all developed countries that have assessed the costs and benefits of cleaner standards and practices, basically reached the same conclusion in the first round of what is known as Regulatory Impact Assessment (RIA), if that is any consolation.
Secondly, many countries today face similar ecological issues, and Bangladesh can pick and choose from policy instruments that have been tested in earlier times or in other countries. The theme heard at various international forums is universal: How can developing countries promote cleaner environment and balance the needs of faster economic growth at the same time?
In this context, one often hears the call to ban all harmful emissions and/or to use the power of governmental regulatory enforcement to punish all lawbreakers. Unfortunately, such "cease and desist" practices, which fall under the rubric "command and control," have not always worked even in developed countries. In US, Congress passed the Clean Air Act in 1970, and the Environmental Protection Agency (EPA) subsequently issued numerous rules and regulations to control pollution. However, they were largely ignored by the polluters. Many powerful industries, such as automotive, agrobusiness and power generation, resorted to lobbying for exemptions, or sought leniency in courts when faced with fines.
The cost of implementation of many of these regulations was high and often outweighed the resultant benefits. Another problem with many of these so-called "command and control" measures is that they often do not discriminate between large factories and the smaller ones. Larger units enjoy the "economics of scale," but this fundamental principle is sometimes overlooked when policy issues are debated and regulators try to enforce a "one size fits all" policy.
In my earlier work at Harvard University on the tanneries in South India, it was amply clear that the industries would not buy into a policy of "one size fits all," and did their utmost to bypass any such initiative. Such heavy-handed practices also breed corruption. After all, if it costs you Tk.5 crores to comply with a regulation whereas you can pay Tk.50 lakh to buy a compliance certificate, one does not have to be a rocket scientist to figure out which course will be preferred by the perpetrators.
The experience of US paper and pulp industry is also extremely illustrative in this respect. This industry was discharging wastewater that was found to contain dioxin, a known carcinogen. It was given a time frame to take actions but to no avail. The crucial question facing the EPA was: how to provide a regulatory framework that was enforceable but also cost effective. Eventually, an incentive-based system allowed the industry to voluntarily meet the deadline and standards adopted by EPA. Suffocating the world.
Incentives-based policy
Incentives-based policy instruments include tax, subsidies, and tradable permits. While many might shudder at the thought of using tax instruments to promote a cleaner environment, policy makers around the globe are now gradually warming up to the use of these Pigovian Taxes (named after economist A.C. Pigou) to curtail consumption of fossil fuel and to affect human behaviour.
The current crisis in the world economy has given global leaders and policy makers in all countries a chance to take a hard look at the major economic and regulatory institutions and their role in the economic development of a country. We all recognise that some of the major challenges in the coming years are global warming, cleaner air, water, and earth, and the promotion of greener technology.
A carbon tax
A few years ago, while working as a TOKTEN consultant for the National Bureau of Revenue in Bangladesh, I suggested that our policy-makers consider a market-based policy to reduce carbon emissions. According to my estimates, a
taxofTk.500 per ton of coal and Tk. 1,000 per MT of crude oil would enable Bangladesh to raise Tk. 193 crores in additional revenue. Some of the factors that make a carbon tax a serious contender are its international acceptability, high elasticity and transparency. It is also easy to implement, and offers an incentive for the development of alternative and renewable sources of energy in Bangladesh.
Dr. Abdullah Shlbli, is Managing Partner of NAS Enterprises, LLC, an international consulting firm. He has worked at Harvard University and the World Bank.