The Emperor's new clothes

One of the strongest contrasts between the UK's environmental policy and those of its northern European neighbours has been in the field of economic instruments. While emission taxes, effluent charges and noise and product levies have been introduced in profusion in the Scandinavian countries, Germany, France and the Netherlands since the 1970s, the only such tool of any note operating in the UK is the tax differential between leaded and unleaded petrol. This is not, as Environment Secretary Michael Howard has conceded, a record to be comfortable with.

Mr Howard returned from the Earth Summit in Rio fired with a new enthusiasm for economic instruments, and it was at his instigation that the Government's second anniversary report on the 1990 White Paper on the environment announced a new presumption in their favour (see pp 20-21 ). But it appears likely that Mr Howard will have little progress to report on the third anniversary, and possibly even on the fourth. This will be attributable more to the logistics of the matter than any failure of will. But it will nevertheless serve to highlight the desperate lack of new ideas in the second anniversary report to address major environmental issues in the water, energy and transport fields. A presumption in favour of something which cannot be implemented for three years can hardly be regarded as a substitute for serious policy decisions.

A number of themes will need to be watched as the consultation papers promised by the Government on its favoured economic instruments are issued over the next few weeks. At no point, for example, has there been any hint of what might be done with the revenues from environmental taxes. The receipts from some of those introduced in the Netherlands, Germany and France have been recycled, directly or indirectly, into environmentally beneficial activities, including grants, subsidies and other incentives for polluters to clean up. The purists among environmental economists dislike these practices because they distort the market, but it should not be overlooked that they have helped to make economic instruments more acceptable to business.

Another important question on which Mr Howard has been characteristically equivocal is whether economic instruments will merely supplement or replace existing or prospective regulation. The system of sulphur trading which is now being considered for power stations and other large combustion installations, for example, could be used to reinforce regulatory decisions taken by HM Inspectorate of Pollution - but it could also be deployed in such a way as to weaken its role in demanding progressive improvements in emission standards as the cost of abatement technology declines or its capability improves. It would be idle to pretend that the conflict does not exist, or that a sulphur trading system could not end up determining the objectives of policy rather than being a policy tool.

Experience also suggests that economic instruments do not always realise their theoretical potential. After well over a decade of experimentation, the USA has still to show that it has struck the right balance between market mechanisms and regulation in its air pollution control policy. To give precedence to economic instruments against this historical background seems just a mite premature.

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