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WORKSHOP ON ECONOMIC INSTRUMENTS FOR SUSTAINABLE DEVELOPMENT
CHAIRMAN'S REPORT
 Pruhonice, near Prague Czech Republic, 12-14th January 1995

1 INTRODUCTION 1.1 Background

The workshop on Economic Instruments for Sustainable Development, held at Pruhonice, Czech Republic, between the 12th and 14th January 1995, was set up at the instigation of the Czech government. The workshop was held under the auspices of the UN Commission for Sustainable Development (UNCSD) and reports to the UNCSD Financial Working Group (FWG) meeting to be held during March 1995 in New York.

This paper will also be submitted to other relevant bodies, such as UN ECE committee on Environmental Policy and OECD EPOC. It will also be presented by Deputy Minister Bizek to the Oslo Roundtable on Sustainable Production and Consumption and the Ministerial Conference leading up to the Sofia Environment for Europe conference.

The main purpose of the workshop was to initiate and stimulate international discussion on the use of economic instruments (EIs) as mechanisms and tools for environmental management. The workshop produced findings and recommendations which will be passed on to the FWG for their consideration. The FWG will then prepare proposals for international demonstration projects, which can be implemented to examine and refine the practical use of economic instruments. These proposals will then be presented to the UNCSD.

This paper, representing the proceedings of the workshop, contains the main findings and recommendations (Section 2) of the workshop. They were presented to the delegates for their approval and adoption as the official report for submission to the FWG during the final session of the workshop.

1.2 Workshop participation

88 representatives from 23 countries, various UN organisations, commercial enterprises, financial, academic institutions and NGOs attended the workshop. Of the 23 countries represented, 11 countries were from OECD member states, 8 from Eastern and Central Europe, 2 from the Far East and the Pacific rim, 1 from South America and 1 from Africa. A list of the delegates and their organisations is attached in Annex 1.

The chairman of the workshop was Deputy Minister Bizek and the co-chairman of the workshops sessions were: Maciej Novicki, Hans Alders, Willem Kakebeeke, See-Yan Lin and Bedrich Moldan.

The chairman of the workshop reporting committee was Bedrich Moldan and the reports of the sessions and the main findings and recommendations were compiled by the following rapporteurs: Randall Bluffstone, Zbigniew Bochniarz, Tibor Farago, Scott Farrow and Theo Panayotou. The secretary to the reporting committee was Stephen Pritchard.

1.3 General comment

The agenda for the workshop was based upon the assumption that the delegates understood the fundamental economic tenets, namely that EIs should be designed within the framework of objectives defined by the internalisation of environmental externalities and in relation to other tools such as environmental evaluation, natural resource accounting and environmental performance indicators. It is also assumed that it is understood that EIs are an important element of a set of instruments which include laws, regulations, eco-auditing, voluntary agreements etc.. The agenda for the workshop is attached in Annex 2.

2. MAIN FINDINGS OF THE WORKSHOP

This section of the report contains the main findings of this workshop. The main findings are considered to be a distillation of the keynote addresses, main presentations and case studies and have been adopted for submission to the FWG.

The findings were compiled by the reporters assigned to each session. Their findings were then divided into four sections: globally relevant findings; findings relevant to transition economies; recommendations to the CSD and other international institutions; and recommendations to national policy makers. They are reproduced in the following subsections:

2.1 Globally relevant Findings

These findings are the significant findings drawn from the key note addresses, papers and case studies presented to the workshop. They are considered to be globally relevant and as such represent broad statements that the chairman would like the CSD FWG to note as the basis for further examination and development.

2.1. 1 The overriding benefit of EIs is their promise of more flexible, cost effective and efficient approaches to environmental management.

2.1.2 EIs should be used to achieve specific and sustainable national and international development goals. The design and setting of these goals should be based upon environmental science, economics and social considerations. EIs may be used to reduce the cost of achieving such goals.

2.1.3 Although EIs are primarily applied at national and local levels, they can be adopted in an equally efficient manner at international and regional levels.

2.1.4 The distributive effects upon different social and economic groups associated with EIs should be considered and, where appropriate, compensation mechanisms put in place.

However, distribution effects should not be allowed to compromise environmental and economic goals.

2.1.5 The possible impact of EIs on international competitiveness is a major concern of enterprises and policy makers.

2.1.6 EIs can help to reduce the financial burden of achieving sustainability whilst enhancing the opportunity to mobilise new financial resources.

2.1.7 EIs can provide incentives for private firms to develop new methods of controlling pollution, so utilising information about pollution control methods that is not usually available to regulators.

2.1.8 Existing trading experience could be applied to a non-binding pilot programme in international CO2 emission trading within the context of relevant international conventions. The purpose of the pilot programme would be to carry out research, collect information and gain experience in this area.

2.1.9 Opportunities exist to implement some form of charge on air transport which is consistent with the "polluter pays principle".

2.2 Main findings relevant to transitional economies

These findings are the significant and important findings drawn from the key note addresses, papers and case studies presented to the workshop; they are considered to be particularly relevant to countries whose economies are in transition. As such the findings represent observations and comments that the chairman would like the CSD FWG to note with a view to recommending to the CSD that these findings should be incorporated into a report on these economies.

2.2.1 The transition to a market economy provides a window of opportunity for these economies to increase the scope and use of EIs in environmental management.

2.2.2 Progress in implementing economic reforms will facilitate the introduction of rational allocations of resources and reduce environmental pollution by clarifying property rights, removing subsidies and addressing environmental liabilities, provided that environmental concerns are properly integrated into economic reform.

2.2.3 The following factors favour the introduction of EIs in countries with economies in transition:

  • Privatisation and restructuring of enterprises;
  • Removal of state subsidies and soft budget constraints; and
  • Price liberalisation and increased market competition.

2.2.4 The following factors constrain the introduction of EIs in these economies:
  • Low political support and limited public interest;
  • Little willingness to pay for environmental services;
  • Insufficient institutional development;
  • High rates of inflation make indexation necessary;
  • Limited capacity to design and implement EIs; and Limited enforcement capability.

2.2.5 In Central and Eastern European (CEE) countries, emission charge rates are typically low, but attempts are being made to raise them as part of the harmonisation process with the EU.

2.2.6 There is significant variability in these emission charges (e.g. air charges) among CEE countries. For example in Poland charges for SO2 and NOx are several times that of other countries in the region.

2.2.7 National environmental funds are used extensively in CEE countries as depositories of earmarked funds for environmental expenditure at national, and increasingly, at local levels. These funds play an important role in improving the state of the environment.

2.3 Recommendations to the CSD and other international institutions

These recommendations are the result of the workshop's debate of the main findings. The chairman considered that they were sufficiently important as to warrant particular consideration by the CSD FWG with a view to passing them onto the CSD for further study and circulation.

2.3.1 All stake holders (inter alia: inter-governmental organisations, industry, NGOs, consumer groups and economic and environmental policy makers) should be invited to participate in the debate about the choice, design and implementation of EIs.

2.3.2 EIs should be part of an integrated package of measures that seek to address, within the context of sustainable development, not only merely the symptoms of environmental degradation but also their underlying causes.

2.3.3 Support the development of clear definitions and concepts for EIs and in particular clarify the distinction, in practical terms, between taxes and charges.

2.3.4 Support real case studies to investigate the impact of specific EIs. The case studies should document the performance of EIs in terms of cost savings, distribution and competitiveness and their relationship to regulatory frameworks.

It will be necessary to adopt a case by case approach in order to select and design the most appropriate EIs for specific environmental problems in the context of specific groups of countries (e.g. developing, developed and transitional). Off the shelf approaches are unlikely to work.

2.3.5 Promote new applications for existing instruments and the development of new and innovative instruments for sustainable development.

2 3.6 Encourage the implementation of a non-binding and voluntary pilot programme of international CO2 emission trading.

2.3.7 Further evaluate the framework, modalities, technical and legal aspects of some form of charge on air transport in order to internalise air transport related environmental costs.

2.3.8 Participants considered the workshop stimulating and recommend that such workshops should continue at international, regional and national levels.

2.4 Recommendations to national policy makers

These recommendations are the most significant and important points to come out of the key note addresses, papers and case studies presented to the workshop and the subsequent discussions. These recommendations are considered to be particularly relevant to national policy makers. As such the workshop's chairman recommends that the FWG take particular note of them, with a view to recommending that the CSD should officially adopt them.

2.4.1 Integrate environmental considerations into market reforms, and macro economic and sectorial policies. In particular, governments should reform the structure of national budgets and public expenditure to better reflect the priorities of sustainable development and environmental liabilities into their privatisation programmes.

2.4.2 National and local governments, in conjunction with other stakeholders, should support the experimentation with alternative, new and innovative EIs. Based on this experience an appropriate mix of policy and instruments should be developed.

2.4.3 OECD countries should collaborate with developing countries, and with those whose economies are in transition, to develop and implement EIs. The governments of the countries extending market elements into their economies should retain and improve existing EIs and consider broadening their use.

2.4.4 Governments of CEE countries should support efforts to speed up integration with the EU, as this will also stimulate sustainable environmental improvement.

2.4.5 Governments are invited to consider participation in, and where appropriate promote, the implementation of a non-binding and voluntary pilot project for international CO2 emission trading.

2.4.6 Opportunities provided by the "Environment for Europe" process should be used to further the application of EIs at local and national levels and make them compatible with the UN/EU regions.

2.4.7 The structure of national budgets and public expenditure should reflect the priorities of sustainable development.

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