Economic Incentives for Sustainable Development

Guy SalmonEcologic Foundation

15 June 2004

Ecologic’s work on incentives for sustainable

development

NZ Business Council for Sustainable Development commissioned a report from us

FRST has funded two projects:- understanding barriers to adoption

- comparing NZ with Nordic countries.

Economic Incentives for Sustainable Development

Sustainable Development is about economic growth that takes proper account of environmental effects and is socially responsible

Economic incentives help to reconcile these potentially conflicting objectives by making it easier to achieve them simultaneously

Price and trading mechanisms – firm about outcomes, flexible about how to get there.

Advantages of IncentivesIncentives give businesses and

individuals choice about how to complyThis lowers the total compliance costIt also stimulates innovative approachesCan pre-empt conflict with stakeholdersMainly useful for environmental goals

but can also be used where social goals are important.

A Value Proposition for Business

More accurate pricing discourages waste generation & excess resource consumption

This releases more resources for growth

With revenue recycling, eco-efficient households and businesses can be better off than they were before.

A Value Proposition for Business

Creates sustainable business opportunities

Strengthens the competitive advantage of sustainable business

Tradeable Resource Recovery Certificates

Tackle our waste mountain Level the playing field

Tradeable Resource Recovery Certificates

Certify TRRCs where sustainable resource recovery has occurred Oblige waste disposers to surrender TRRCs at the landfill gate Allow sale & purchase of TRRCs Increase the recovery obligation with experience.

Congestion PricingSingapore: 95% of cars = 45kph +Melbourne: 13-19 minutes now saved

on average tripLondon: Including bus service

upgrade, traffic reduced by 20%26 other cities have announced plans.

Congestion Charges

How it works: the marginal driver faces the costs he/she imposes on other road users

We should develop our own approaches for NZ cities

HOT lanes to provide a trial?

Congestion Pricing:Equity Issues

Impact depends on specifics of local design, and use of revenues

Existing system not equitableShould be able to achieve improved

equity outcomes with better pricing.

Tradeable Water PermitsPotential to improve resource use and

enable allocation to new usersPossible now – sec 136 RMAOnly Oroua Plan and Proposed

Waikato Plan have adopted TWPsBarriers to wider adoption?

Tradeable Water Permits Need to consider potential for localised

impacts, eg from intensification Amend RMA to separate allocation decision

from the effects management decision Then trade allowances subject to consents Question of resource rent should be faced.

Tradeable Water Permits TWPs are not appropriate in every case,

but – Nelson, Canterbury waters overcommitted

– new users cannot access water Waitaki River – Project Aqua vs irrigation Water markets could address Dr Cullen’s

concern that projects with nationally important benefits should progress

Markets a better approach than “waters of national importance.”

Ensuring A High National Benefit Project Can Prevail

Highest net national benefit should prevail in allocation decisions

If such benefit exists, market will deliver But sec 5 requirements, eg to avoid, remedy

or mitigate adverse effects, should apply equally to all projects whether national or local

Kyoto Carbon Charge and Associated Tax Reductions

Aim is to influence growth toward less emissions-intensive path

Revenue from up to $25/t CO2 charge in 2007

Plus revenue from sale of forest credits

Revenue:

~ $380m @ $10/t

~ $940m @ $25/t

Kyoto Carbon Charge: Potential Tax Reductions

6% reduction in company tax, or

2% cut in GST, or

3% cut in lowest tax rate, to 16.5%, or

1.5% cut in all personal income & company tax.

Energy-efficient households and businesses would come out ahead.

Cleaning Up Urban Air

28 dirty cities & 970 deaths/year from airborne particulates (e.g. PM10)

Cleaning Up Urban Air

Emission trading for large point sources & charges for householders could provide flexibility and funding

Revenue could be used for subsidies to low income households to change over to clean heating

Additional legislative powers would be required.

Where To From Here?

Leadership Legislation

Design Debate