In Section 4.3 we noted that environmental regulation is introduced to cope with the problem of external costs. These external costs can appear in a variety of contexts including congestion on the roads. When an extra vehicle uses a stretch of road the decision of the driver is determined by a ‘private’ cost–benefit calculation. Presumably the benefits from the trip outweigh the costs incurred by the person taking it – including the running costs of the vehicle and the time costs incurred. No account is taken of the additional delay experienced by other road users occasioned by the private decision to use the road.
Suppose now that you are working for a firm which uses a fleet of heavy lorries. The government announces that it is considering the introduction of tolls onto all motorways and that these tolls will be sufficiently large to reduce congestion substantially. Some firms are worried that these ‘extra costs’ imposed by government will affect them adversely and are preparing to lobby vigorously against the scheme. You are asked to advise your firm on what effects the new system is likely to have on its operations.
Set out the factors which will determine whether the overall impact of tolls will or will not be advantageous to the firm.
How will your calculations be affected by assumptions about how the toll revenue is used? Consider for example:
A general reduction in income tax
The abolition of the road fund licence for goods vehicles
A reduction in business rates
A subsidy on the transport of goods by rail
A government department argues that the congestion tax will have important beneficial effects on emissions of carbon and nitrogen oxides. Are road tolls appropriate instruments for this purpose?
Section 4.4 investigated several instruments of environmental policy and all were seen to have different gainers and losers associated with them. Perceptions of fairness are important in this area as in most other fields of government policy. Table 4.2 records the results of a survey by the Department of the Environment on public attitudes. Respondents were asked which methods of finance they supported for solving environmental problems.
| % | ||
| 1986 | 1989 | |
| The government and councils should find the money by cutting back on other areas of public spending. | 36 | 34 |
| Industry should find the money by charging us higher prices for any products we buy that cause pollution when they are made | 27 | 31 |
| The government and councils should find the money by making us all pay more taxes and rates. | 15 | 18 |
| Nothing should be spent on solving environmental problems because Britain can't afford the money. | 3 | 2 |
| None of these/don't know | 19 | 16 |
| Total | 100 | 100 |
Source: Department of the Environment (1989) Table 10.6, No. 12
Which of the above suggested methods of finance are compatible with the polluter-pays principle?
Assuming the government could prevent the entry of new firms, would an output reduction subsidy be compatible with the polluter-pays principle?
Would a system of pollution rights ensure that polluters paid?
The choice of abatement option will often raise difficult policy problems. Consider the options for reducing sulphur dioxide emissions from power stations reported in Table 4.3. The figures refer to the estimated capital and running costs associated with reductions of emissions in the mid-1980s.
1Flue-gas desulphurisation process. The option quoted is for installation on one 3 × 660 MW station.
2Allows for incidental benefits and sale of by-products.
Source: Royal Commission on Environmental Pollution Report (1984) Table 5.1
On the basis of the figures quoted, the generating companies will clearly prefer to import low sulphur coal. Are there any disadvantages associated with this policy for the electricity generating industry or the government?
Suppose the government provides subsidies in the form of soft loans or grants for the construction of FGD plants and this is criticized for being contrary to the polluter pays principle. Write a short defence for the companies.
Is there a case for delaying until new less-polluting technology is developed?
