Concern for the Environment⤒🔗

Pollution Probe, the Green party, etc., — are by now familiar words to most people. Concern for the environ­ment is something that is generally shared by all — as a minimum, all will pay lip service to it. Christians will cer­tainly accept such concern as a neces­sary part of Christian stewardship. The question before us is, however, how to translate that concern into practical policies.

Must we, personally, carefully scru­tinize our purchases and buy only en­vironmentally sensitive products, e.g., plain toilet paper rather than colored or cloth diapers rather than dispos­ables? Or, must our focus be on rally­ing our governments to regulate the polluters? In fact, is dirty water and air such an inevitable by-product of our free enterprise economy that we must quickly switch to a socialistic economic system?

In her recent book Counting the Cost: ¹presents a most in­teresting and useful analysis of these issues. She contends not only that in­dividual action to fight pollution is fruitless, but also, that the most effec­tive solution is to use the free enterprise system to provide disincentives to the polluters.

Individual Action Futile←⤒🔗

Klay argues convincingly that pol­lution is a question of aggregate rather than individual action. At a ballgame, if one person stands up, he will get a better view than those around him in the stands. As soon as others join him, only the very tallest have any advan­tage. However, any public-spirited citi­zen who refuses to stand up contributes little to an overall better view; he only hurts himself.

So it is with individual efforts at buying only pollution-free products. The result is insignificant and those participating will soon be discouraged. Besides, how are we to know which products produce unacceptable levels of heat, chemicals and waste? Or, which manufacturer uses processes that espe­cially damage air and water resources? Recent news reports suggest we may soon have a government agency pro­viding its mark of approval. But even then, individual consumption choices are likely to be less than satisfactory.

Free Enterprise←⤒🔗

Nevertheless, something needs to be done. For, it is generally recognized that in a free enterprise economy the polluter can get away without taking account of such externalities. That is, in making a voluntary decision to pro­duce fancy toilet paper, the producer does not have to consider the effects of the extra bleach he disposes in his waste water; without government con­trol, somebody downriver will pay the cost. Note, however, that some waste is an inevitable by-product of production — not only in capitalist countries. Klay points out that the U.S.S.R. and China also have faced extreme pollu­tion problems.

To control pollution, society has chosen primarily for a rule-based ap­proach. Regulators choose the "best adequately demonstrated control tech­nology" and mandate that these be in­stalled. Companies exceeding permitted emission levels incur fines and other penalties — frequently after extensive court cases.

Charges for Air and Water Use←⤒🔗

For over two decades, economists have, however, suggested an alternative means of control. Rather than setting maximum permissible emission levels, it is suggested that a per-unit charge be applied to all noxious waste emissions. Application of such charges or disin­centives will automatically cause the polluters to choose the most effective way to reduce pollution.

Cost-Saving←↰⤒🔗

The primary advantage of this "charged-based" system over the "rule-based" approach is that it is signifi­cantly cheaper. For example, one form of current water-control is to require all polluters to meet the same effluent reduction standard. For instance, they may be required to reduce biochemical oxygen demand (BOD) — the effect that the organic waste has upon the oxygen in the water — by 8001o. The cost of reducing the BOD emissions may, however, be quite different among different types of industries. Klay notes, in one instance, that pollution could be reduced by an additional pound for less than three cents in the beet-sugar refin­ing industry but would cost fourteen cents in petroleum refining. In fact, cost per kilogram of BOD removed may be thirty times greater in one in­dustry than in another.

Under a rule-based system, both industries would be required to cut back by, say 80%. However, the same total reduction in waste could be achieved at a much lower cost by cutting back all the pollution in beet-sugar refining and only some in oil refining. If both industries were charged an equal charge per BOD of emission, this cost-saving solution would probably be achieved. Each industry would decide themselves whether it now pays to continue to pol­lute or whether they would be better off installing pollution-control pro­cesses. At some level of charges, the sugar refiner would find it profitable to install the necessary equipment. The market would determine which companies would move first. Klay suggests that the cost of attaining the already legislated U.S. goals in air and water quality could be reduced by $250 bil­lion dollars, if such a charge-based system were instituted — a very signifi­cant amount indeed!

The money raised by effluent charges can, of course, be used to ad­minister the monitoring system. With­out such charges, all these costs must be paid from general taxes. Isn't it bet­ter to make the polluter pay these costs?

Consumption Choices Affected←↰⤒🔗

Another advantage of the charge approach is that the consumer will pay more for the extra pollution incurred in making the product. In this way, the consumer will get the proper price sig­nal. For instance, a paper company which produces paper towels will be charged more for the extra effluent produced in making white towels than for the less bleached brown towels. If these charges are passed on to the con­sumer, more consumers will buy the cheaper brown towels and thus total pollution will be reduced. Instead of counting on the individual consumer's moral concern to buy environment sensitive products, a difference in market price will get the same result.

To get maximum advantage from these price signals the government could also expand the use of higher retail sales taxes (or manufacturers' taxes) for products such as non-biodegradable disposable diapers and non-returnable bottles that put excessive pressure on waste-disposal facilities. The recent in­crease in tax on leaded gasoline in On­tario is an example of such a financial incentive to good buying practices.

Improved Technology←↰⤒🔗

In the third place, improved pol­lution control technology is likely to be adopted faster if charges are instituted. In a rule-based system, regulators must choose the best technology and must prove that it is feasible — sometimes through lengthy hearings etc. However, these regulators are not the most knowl­edgeable about the available technology, nor are they motivated to seek out the most cost-efficient alternative. Rather, the producers themselves are the most informed and best motivated in this respect.

But, if the bureaucrats specify a particular technology, such as scrubbers in coal-fired electric generating sta­tions, no incentive is left for producers to search out less expensive or more ef­fective alternatives; in fact, they would have to make a major effort to get the regulators to accept another choice.

In a charge-system, however, the producers would be encouraged to find the best way to reduce the level of those charges. Regulators would, and should, be interested only in whether pollution is reduced — not how the job is done. In turn, given an ongoing in­terest in improvements, manufacturers of pollution control equipment would be encouraged to come up with better and cheaper technologies. The opera­tion of the free market would encour­age those most knowledgeable to make the best decisions!

Administrative Simplicity←↰⤒🔗

The charge system would also be much simpler. Regulators would not have to be concerned with the many de­tails of the various control alternatives available. Rather, they would merely have to set per unit rates for all major pollutants and set up adequate moni­toring facilities.

Rates can be set on an experimen­tal basis. If the desired level of pollu­tion abatement is not attained, the rates would be increased. In fact, rates that gradually increased over a number of years could be specified in advance in order to encourage gradual improve­ment. A dilemma faced by current reg­ulators would then be avoided. That is, currently, if it is decided that certain equipment must be installed by a given date, the company may have no choice but to close down since the new equip­ment might be uneconomic for an old plant. The regulator then faces an all­-or-nothing decision — shut down the plant or waive/defer the regulations. On the other hand, if a gradually in­creasing fee is set, the business will only gradually become less economic and the company can adequately plan for an eventual shutdown if no alternative technology is found.

An interesting alternative to spe­cified charges is an auction of a limited number of licenses to discharge. The market then automatically sets the cor­rect price. This option provides a unique possibility for lobby groups, who think the government has set the permissible discharge levels too high, to collect money and enter the bidding to buy and hold discharge rights unused. They could then reduce the amount of dis­charge both directly and also indirect­ly, by raising the price of permits and thus encourage industry to move faster towards improved control.

Establishment of adequate moni­toring or metering devices required to calculate the amount charged to com­panies will be the most important task of the regulators. However, if a de­mand for meters develops we can ex­pect suppliers to come forward to meet that demand. Moreover, to properly assess penalties under our current rule-based approach, adequate monitoring devices must also exist.

It Works←⤒🔗

A number of countries — includ­ing France, Great Britain, Holland and Czechoslovakia — provide evidence of successfully using effluent charges. Al­though notably unsuccessful in their use of regulations to reduce water pol­lution during the 1960s, French river-basin authorities were able to improve results dramatically in the early 1970s when they began to collect charges on polluters. In the Ruhr Basin of Ger­many, which includes 40 percent of Ger­many's industry, water control charges were introduced prior to World War II. In fact, the volume of effluents there exceeds the average flow of river water during low-flow periods. That is, all the water is used at least once before being spewed out again! Yet, with the help of effluent charges, the quality of the water is such that fishing and other recreational uses is possible.

Pollution control through charges on waste disposal is, therefore, an ef­fective alternative to rule-based systems. The free enterprise system by itself is an imperfect economic alternative be­cause, among other things, it permits uncontrolled pollution. However, the advantages of the system can, through pollution charges, be harnessed in such a way that the market itself can deter­mine the most stewardly, cost-effective way of improving the environment. In addition, insofar as pollution charges are passed on to the consumer, con­sumers will be able to automatically make responsible consumption choices. Pollution charges can, moreover, lower administrative costs and reduce stifling bureaucratic controls. Christians con­cerned for the environment, but also rightly concerned about the national budget, should encourage their govern­ments to move toward wider imple­mentation of pollution charges.