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Supportive Public Policies
How to Make Public Policy Solutions Work

Policy Requirements
To be effective, policies must acknowledge that different goals are possible and that some are more desirable than others. These characteristics need emphasis because neither are part of mainstream economics, the dominant policy arena. Current economic theory and practice views growth as measured by increasing GDP as the ultimate and indisputable goal which will solve all environmental and social problems. Likewise, the market is placed in a hallowed position, raising it to the stature of a fundamental law.
                  "There is no alternative (to market capitalism)"  Margaret Thatcher, Prime Minister of UK
Alternatives Not Only Possible But Necessary
Such a view is in sharp contrast with the fundamental laws of physics, and the determinants of human well-being.  Economic growth is only one of the contributors to well-being, and only if it is limited by the laws of science. Markets are useful for efficiently allocating certain types of goods and services, and totally inadequate for allocating other goods and services that are equally important for human well-being.
Economic growth and market dynamics, on their own, will only exacerbate ecological degradation and social inequities (see Rules for Respecting Limits, and Ranking Priorities in Sustainable Or Unsustainable).  Evidence suggests that global throughput currently exceeds both sustainable scale and optimal scale (see Understanding Scale; Sustainable Scale; Causes of Scale Problems).
What policies will reverse the current processes causing this ecological overshoot (see Ecological Footprint), and bring us to a sustainable future?  Before considering specific policy options, let us first review policy design principles that will encourage effective policy development.

Critical Policy Design Features
Six policy design principles to achieve optimal scale and social justice have been identified:1
1. Economic policy (which affects the level of material throughput) always has more than one goal, and each independent policy goal requires an independent policy instrument. The three goals proposed for economics are:

The absence of independent policy options in neoclassical economics for these distinct goals precludes the possibility of achieving ecological sustainability within the current neoclassical paradigm. Separate policy approaches are needed for each goal. How should these policy instruments be developed? This question is addressed by the remaining principles.

2. Policies should strive to attain the necessary degree of macro-control with the minimum sacrifice of micro-level freedom and variability. Sustainable limits of material throughput, or certain levels of just distribution, for example, require macro-control in assuring that limits or standards are respected. It is these goals that are important, not the particular means of achievement.
Precisely how this is accomplished may vary from nation to nation and community to community. Centrally planned command and control policies are not needed.  Markets can be useful in providing some level of micro-variability, but on their own cannot provide macro-control to ensure goals are attained (although this is precisely what neoclassical economic theory and practice assumes).

3. Policies should leave a margin of error when dealing with the biophysical environment. Ecosystem dynamics involve considerable uncertainties, and could involve irrevocable changes to increasing throughput demands. Adopting a precautionary approach would establish a safety margin between the demands we place on ecosystems and our best estimates of their capacities.
Adoption of the Precautionary Principle is an essential step for ecological sustainability. This principle is included in several international and national environmental treaties and policies, but short-term economic considerations often overshadow its implementation.

4. Policies must recognize that we always start from historically given initial conditions. The world as it is today is our starting point and the basic institutions of governance and the market must be gradually transformed to meet our policy goals. Gradualism respects what exists and what we have to work with, but it should not be an excuse for either inaction or diverting us from the goal of optimal scale.

5. Policies must be able to adapt to changed conditions. Conditions change, surprises occur, theories and policies are tested in the real world, and feedback provides new learning and insights. The process of ADAPTIVE MANAGEMENT [glossary term]– changing policies as we learn more – should guide policy design and implementation for achieving ecological sustainability and social justice. In a world empty of material goods it made sense to increase what were scarce – material goods to improve human well-being.  Success at accomplishing this now requires a change to dealing with what is becoming scarce because of that very success – natural capital and the ecosystem services they provide.
6. The domain of the policy making unit must be congruent with the domain of the causes and effects of the problem with which the policy deals. The idea is to deal with the problem at the smallest domain in which it can be solved. Problems should be addressed by institutions on the same scale as the problem. Garbage collection is a local problem and requires local policies. Climate stability and energy use are global problems and require global policy instruments.

Global Perspective Essential
Policies at the global level, and the institutions to develop and implement them, are among the greatest organizational challenges we face in reaching optimal scale. Global environmental organizations such as UNEP, ECOSOC, Commission on Sustainable Development, and environmental convention bodies are among the weakest of all international organizations. They generally require consensus rather than a majority to set policy, and enforcement mechanisms are often absent. 
Consensus is difficult because national interests often conflict, leading to compromises that fall short of the scientifically determined requirements (see Climate Change). The fact that such international negotiations, led by diplomats, are generally held in secret make it more difficult for civil society to monitor what is happening and have an influence on the proceedings (see Institutions for a Sustainable Future).
Options Available
Fortunately there are a variety of policy options available that could be used to achieve optimal scale, many already in use in related areas (see Supportive Public Policies). There are also many alternative means available to implement such policies in public and private sector activities (see Economics For Community; Sustainable Business Practices; Institutions for a Sustainable Future, and Lifestyle Solutions).  
The magnitude and seriousness of sustainable scale problems have not yet been appreciated by governments or citizens, and without clear policy directions to target optimal scale as a priority, application of these options is spotty at best. A major hurdle that remains is acceptance of the reality that sustainable scale for human activities can only be achieved by acknowledging and respecting the biophysical limits of the ecosystems upon which we depend.  Demonstrating that this can be accomplished in ways that satisfy the full range of human needs will hopefully help us overcome this obstacle.

What follows are some of the alternatives available to achieving optimal scale, identifying opportunities for contributions from various sectors.
A regulation is a rule or order prescribed by an authority which controls or directs some activity, often in relation to a standard or target. Environmental awareness in the 20th century led to a large number of regulations to protect people and the environment. Bans, quotas and standards of various sorts have been ordered by governments, and fines or penalties are generally prescribed for violations. 
DDT was one of the earliest substances banned; individual paper factories have limits or quotas set for the amount of wastes they can discharge into a river; and emission standards have been prescribed for many industries. Other regulations require the use of prescribed technologies (eg best available control technologies, or BACTs, may be required to reduce pollution; the type of equipment used to harvest fish may be prescribed to limit habitat destruction).

Regulating Depletion Easier Than Emissions
Regulations can address the depletion (input) or emission (output) end of the throughput flow. It is generally easier to control depletion activities, mainly because there are considerably fewer of them (fewer mines and oil wells than factories and automobiles). If input is limited directly, then output is also limited, indirectly. The quality of throughput must also be considered, as even small quantities of some substances can be highly toxic.  In general, focusing on depletion rather than emissions is preferable.

Ecosystems Respond to Quantity, Not Prices
Another issue regulators must face is whether to focus on prices or quantity. If prices are used to limit throughput, for example by taxing them, then quantity of throughput can be affected, but only indirectly.  In order to ensure that quantity remains within sustainable scale, constant adjustment in prices would be required as demand shifts with the impact of prices and other variables.
If taxes are used to limit use, greater demand stimulated by scarcity and a growing population will lead to higher prices and higher consumption. Taxes would have to be raised to again limit quantity to the desired target. Such a system is not very efficient. As markets do not always respond in rational ways to prices, there would always be the risk of exceeding sustainable scale, making the result ineffective as well.  And some market goods are relatively INELASTIC [glossary term], and different taxation levels are unlikely to affect demand for them.

Focusing on quantity in regulations provides greater certainty in controlling quantity within sustainable limits.  Once those limits are set, prices can vary in the market, but the quantity of throughput will not be affected. As ecosystems respond to quantity and not prices, the quantity approach to regulation is to be preferred, allowing market efficiencies to adjust prices.

Focusing on quantity rather than price is also consistent with the requirement that scale issues be determined prior to distribution or allocation issues (see Ranking Priorities in A Sustainable Scale Perspective). In addition, the quantity focus makes it clear that limits are real and important, and it avoids the illusion that if we are willing to pay high enough prices we can get as much as we want.

Strengths and Weaknesses of Regulations
Regulations can be quite effective at limiting pollution, and are helpful in managing renewable resources by respecting biophysical limits. But such command and control mechanisms are not always the most efficient ways of achieving the desired ends.  Regulations have their own limitations as well.  There are the issues of micro control, and property rights. In addition, once regulatory goals are achieved there may be no incentives to additional improvements.

Command and Control Problems
Regulations are generally command and control processes that involve micro control, violating the second rule of effective policy design, i.e. providing as much micro freedom as possible to achieve macro goals (see Critical Design Principles in Supportive Public Policies).  Industries have often resisted command and control regulations, not only because the rules increase costs, but also because they interfere with how companies design their operations.

Respecting Property Rights
Property rights present another challenge for regulations. Regulations which focus on depletion rather than emissions are generally preferable as outlined above. Regulating depletion involves focusing on sources rather then sinks.  However, resources are generally owned, whereas sinks are not. Regulations which limit depletion therefore can be viewed as interfering with property rights, and are often resisted on such grounds.

One way of reconciling the attractiveness of focusing on depletion and recognizing property rights is to acknowledge that property rights are a “bundle of rights.” What the resource owner is asked to do is give up one stick from the bundle – the right to determine the rate of extraction of the owned resource. The owner still receives payment for the resource and otherwise enjoys the rights of ownership.

Policy and Property Rights
Property rights are social institutions that entitle one individual to a right, and create obligations for others to respect the right.  The third party involved is an authority (the state) to ensure that the obligations are fulfilled. There are three types of property rights that are useful to keep in mind when considering how policies might be designed to ensure a scale perspective:

1.  A property rule exists if one person is free to interfere with another, or free to prevent interference. Putting up a “no trespassing” sign indicates the right to prevent access.

2.  A liability rule exists if one person is free to interfere with another, or to prevent interference, but must pay compensation for interference. An example is when a state appropriates land from an owner, but pays compensation.

3.  An inalienability rule exists if a person is entitled to either the presence or absence of something, then no one is allowed to take it away for any reason. The right to a safe and healthy environment might be such a right.

These rights are independent and may act in combination.  It is also helpful to keep in mind that property rights need not be private property rights.  Properties may also be collectively owned or owned by the state.  Recent international treaties such as the Montreal Protocol and the Kyoto Accord recognize the need for property rights owned by the global community.

Another potential limitation of regulations is that they may be designed so as to discourage any improvements beyond the limits or standards set, even if more improvements are ecologically desirable and technically feasible.
What follows are examples of some of the policy instruments available to assist in the implementation of a scale perspective.


What Are They?
A ban is a regulation that removes a substance from circulation, thereby eliminating throughput of a particular type. A ban is the simplest solution to establishing sustainable scale when the absorptive capacity of an ecosystem for a particular substance is zero (see Sustainable Or Unsustainable). If an emitted substance cannot be absorbed or broken down through natural process, it accumulates in the environment where it causes damage. DDT, leaded gasoline, and CFCs were all found to cause damage to critical ecosystems (see Sustainable Scale), and all have been banned in many developed countries.

When, Where and How Have Bans Been Used?
Some of the earliest bans can be traced back more than 2500 years, when hunting certain animals was banned in India. Bans can take many forms: they can be total or partial; they can focus on production or consumption; they can be temporary or permanent; they can be graduated in time or magnitude; they can be supported by incentives or penalties.

Many substances have been banned, and bans are used in a wide variety of situations – from local, seasonal bans on hunting and fishing, to global treaties imposing bans on specific compounds or activities. Just a few of many global examples include:        

Are Bans Effective?
Bans can be very effective policy instruments. The Montreal Protocol has resulted in a dramatic reduction in the production and use of various ozone depleting compounds.  DDT and leaded gasoline have largely been removed from use in many developed countries.

Bans are a potentially powerful solution to serious ecological problems, and allow for considerable flexibility in design.  The ultimate test of success is if they reduce throughput to a safe level below that required for regeneration of absorptive capacities of critical ecosystem services, including the microenvironments within biological organisms necessary for health.

Bans also have the advantage of a long history at the local and regional levels, so policy makers can make use of previous experiences to apply them in new situations.

Bans are easier to implement if there are healthy alternatives to the banned substances. Banning CFCs was resisted by producers until an alternative compound was developed.  Another obstacle to bans is the immediate financial costs to users. Leaded gasoline, for example, is more expensive than unleaded, so it continues to be used, especially in poor countries although the harmful health effects are well known.
Are There Limitations?
Bans also have limitations to their effectiveness. A general limitation is that they are usually applied only after catastrophic environmental damage or loss has occurred. This can be corrected with determination and some foresight if we can learn to apply bans preventively. The resistance to bans stems from parties with commercial interests from both the production and consumption side, and may include such diverse groups as poor farmers avoiding malaria, residents of wealthy countries who often unknowingly rely on many contaminated products, and multinational corporations who produce the substance.

Zero Throughput A Difficult Target
Even with successful applications there have been difficulties achieving zero throughput due to cheating and technical and political slippage. Despite the general success of the Montreal Protocol, black market compounds are still traded, and there are requests for exemptions for some compounds.  The United States, for example, recently asked for an exemption from the banning of methyl bromide (already included in the agreement) which is used by strawberry producers in California. 
If bans cannot achieve zero throughput, sustainable scale will eventually be exceeded, regardless of the level of reduction achieved; exceeding sustainable scale may be significantly delayed but not avoided. When no alternatives are readily available, or if they are available but costly, then it is difficult to obtain agreement from the many nations involved, many of whom have competing interests in the matter.

Data Uncertainty
Lack of complete scientific understanding about the impact of certain substances can also be an obstacle to implementing a ban. Many substances that are known carcinogens or enzyme disruptors, for example, which might be considered for banning, have little or no research examining their safety. Tens of thousands of such substances are currently in use, and it is not feasible to conduct definitive research for all of them. 
The long term impact of these substances on human and ecosystem health may take decades to understand.  Some of the more dangerous of these substances might be considered for banning, applying the precautionary principle.  At the very least, a sustainable scale perspective could be used to consider bans of new substances prior to their being introduced, especially those which are used in frivolous ways.
Bans in the Future: Preemptive Bans?
Bans are essential to maintain sustainable scale when emissions cannot be absorbed or broken down.  Research and design approaches that seek alternatives for existing substances for which critical ecosystems have zero absorptive capacity are urgently needed. If alternatives are not available, changes in market and social values may be required to accept doing without the non-essential but dangerous substances.
The greatest challenge from a sustainable scale perspective may be learning to accept preemptive bans - banning certain classes of substances from being introduced, unless it can be reasonably demonstrated that the substances are biodegradable or can be totally recycled. Strengthening the enforcement mechanisms and penalties for banned substances is also important, especially when critical global ecosystems are affected. If ecosystem capacity to absorb certain substances is at or near zero, then any leakages into critical ecosystems (see Critical Natural Capital) are unacceptable.


What Are They?
Quotas are partial bans.  They involve regulatory limitation of the absolute amount of a substance into the human economy; they are a strategy to establish the maximum allowable throughput of a substance, and could be very effective in ensuring specific substances only enter the economy at a sustainable level. 
Quotas may be preferable to a complete ban if there is evidence that some levels of throughput can be safely absorbed by the ecosystems they affect. This safe level of throughput allows the benefits of the substance to be made available. Quotas should not be used unless there is adequate proof that safe levels are indeed possible, and often there are disputes about this issue.  The two categories of quotas are depletion and pollution or emission quotas.

Depletion Quotas
A depletion quota recognizes there is some value in having the substance in the human economy, but that there are also associated problems with having too much. Sometimes, depletion quotas are imposed strictly for economic reasons, as when OPEC puts a quota on oil depletion.  This is very different from imposing a depletion quota for ecological reasons, whereby the quota or limit is determined by the impact of throughput levels on ecosystem functioning.  Depletion quotas may be set for renewable or non-renewable resources (see below).
Quotas on Depletion vs Emissions
Imposing limits on resources at the point of depletion or extraction is generally more efficient than imposing limits on emissions, as there are generally more sources of emissions.  Limiting depletion indirectly limits emissions.  However, there are also many ecological, as well as social justice, issues involved with depletion of various natural resources.  Mining and logging operations can disrupt habitat for many species, contribute to soil erosion and flooding, and displace people living on the land.  
The depletion process itself is a sustainability issue, irrespective of any emissions from the materials depleted in terms of their impact on ecosystems.  Standards (see Standards) regarding depletion processes may be as important as depletion quotas in terms of ecosystem functions (e.g. there are now standards regarding the use of certain techniques for harvesting fish quota set).
Depletion Quotas: Renewable Resources
Depletion quotas for renewable resources such as fish and game are some of the oldest regulatory actions. Depletion quotas allow the species to reproduce at an adequate level to replace the stock taken.  This maintains a somewhat constant stock of the renewable resource without exhausting it, and in theory maintains an optimal scale.  Depletion quotas are used on a variety of renewable resources such as wild animals, fish, timber, water, soil, etc.

Depletion quotas for renewable resources are increasingly important as the human appropriation of nature continues to expand.  Determining how a host of renewable resources can in fact remain renewable and not be exhausted by human use, is a daunting task. To date we have not had notable successes with setting quotas for various fisheries, which collapsed despite the quotas established.  These experiences point out the difficulties we have in understanding various ecosystem dynamics and the importance of applying the precautionary principle when setting quotas in conditions of uncertainty.

Depletion Quotas: Non-renewable Resources
From a sustainable scale perspective there should be no depletion of non-renewable resources.  However, reliance on many of these resources is widespread, and depletion quotas could be a useful approach to eventually reaching the goal of zero depletion or throughput.  Such an approach would also require that some of the profits from depletion were used to find a suitable substitute. 
The use of carbohydrates to replace petroleum in the manufacture of certain plastics is one example of the possibilities.  From a sustainable scale perspective, the transition to renewable substitutes should occur as quickly as technically possible.  At the very least, it should occur before the known reserves of the non-renewable resource are totally depleted. This would ensure, in theory, that an equivalent resource would be available for people in the future (for an example of where this is not happening, see Energy).

Pollution/Emission Quotas
Quotas may focus on pollution or emissions as well as depletion. An emission quota sets a limit on the amount of emissions of a particular substance that is permitted. Pollution may be a problem generated by the use of naturally occurring substances, such as fossil fuels, or man-made substances, such as DDT. The Kyoto Protocol uses emission quotas to limit the amount of greenhouse gases from a variety of sources (see Climate Change).
Quotas are also important policy tools for dealing with manufactured substances. Modern chemistry has developed thousands of substances which nature has never been exposed to, and for which it has not evolved methods of adaptation.  Many of these substances are toxic, such as plutonium and DDT, or quickly degrade ecosystems once they enter the economy (see Ozone, and Toxic Substances for examples).  
Birth Quotas: A Novel Application
The size of the human population is a major factor in the overall scale of the human economy (see Population, and The IPAT Equation).  One approach to reduce the scale of the human economy is to reduce the size of the human population.  A novel approach to encouraging a decline in population toward some (to be determined) global target is the concept of human birth quotas.2 Once a total target was set, the total number of births desired could be determined and quotas issued to every woman.  These quotas could then be traded or sold if different women wished more or fewer children than their quota allotment allowed.
Big Picture Quotas
To create a sustainable world, Herman Daly has proposed the idea of a STEADY STATE ECONOMY [glossary],3 one which does not focus on continuous economic growth but on qualitative development, once a sustainable scale is reached.  To achieve such a state would require the following quotas:
Obviously there are tradeoffs among these quotas; with a limited and sustainable level of throughput (stock of goods), the level of “sufficiency” will vary depending on the size of the population sharing such goods. The concept of optimal scale (see Sustainable Scale) as a key policy priority recognizes the interplay between these quotas, and recognizes the importance of defining these quotas through a consensus process. Quotas will play a key policy role in achieving sustainable scale.

Are Quotas Effective?
Quotas have proven essential to limiting environmental damages from potential overuse of renewable resources, as well from man-made substances such as DDT. Quotas could be used as policy instruments to set limits on the use of certain non-renewable resources as the first step to eventual elimination. Quotas can be particularly effective where the jurisdiction in which they are applied have and use strong enforcement powers.

Are there Limitations?
When moving from a total ban to a partial ban or quota, there is always the issue of how much is enough and the competing views on this from different perspectives. A potential problem with quotas is that the scientific data may not be available to accurately identify sustainable throughput levels.
There are many examples of inadequate quotas allowing continued ecosystem degradation, or even collapse, as with various fisheries. Where there is uncertainty, political decisions often favor the higher levels of throughput (contributing to more economic growth) rather than applying the precautionary principle and starting with lower levels of throughput (lower quotas).  Such an approach could gather more data regarding ecosystem impact and adjust the quotas in the future.  All quota mechanisms would be strengthened by including such a monitoring and adaptive management approach.
Free Air Miles
Setting quotas in one jurisdiction does not affect emissions from elsewhere. Transboundary pollution is an increasing feature of global environmental problems, and the challenge of establishing quotas is made more complex.  For problems of a global nature, complex international negotiations can take years, delaying the implementation of agreed quotas.

Political vs Scientific Quotas
Because of the political nature of these international agreements regarding quotas, the quota levels can be based on political rather than scientific considerations.  Quotas can be set which exceed sustainable scale.  This has occurred with certain fisheries, and in the case of greenhouse gas emissions.  When critical ecosystem functions are at stake the precautionary principle is available to compensate for scientific uncertainty.  Too often it looses out to political expediency and economic interests.


What Are They?
Standards are prescribed levels of performance enforced by law. A wide rang of such standards were enacted in the latter part of the 20th century as a response to growing awareness and concern over environmental pollution. Various national environmental protection agencies were established around the world from the 1970’s on, and implemented a wide variety of environmental standards to control pollution.  
Ambient Standards
Ambient standards regulate the amount of pollutant present in the surrounding (ambient) environment such as parts per million (ppm) of dissolved oxygen in a river, sulfur dioxide (SO2) in an air shed, or ground level ozone levels.  Measures are often an average (e.g. over a 24 hour period, or per year), as concentrations vary by time of day and by season (e.g. due to weather changes).  The level itself cannot be directly enforced, therefore the sources of the pollution must be found and regulated to be sure that the ambient standard is met. The U.S. Clean Air Act, for example, sets ambient standards for six criteria pollutants in a region.  If a region is in violation, they must come up with a plan to attain compliance. 

Emission Standards
Emissions standards regulate the level of emissions allowed such as emissions rates (pounds of SO2 per hour), concentration (ppm of biochemical oxygen demand (BOD) in wastewater), total quantity of a pollutant, residuals per unit of output (SO2 per kWh of electricity), residual content per unit of output (sulfur content of coal), or percentage removal of pollutant (90% of SO2 scrubbed).  Emissions standards do not guarantee a specific ambient level of pollution.  Weather conditions affect the concentrations and human behavior affects pollution levels.

Technology Standards
Technology standards require polluters to use certain technologies, practices, or techniques.  Whereas emissions standards require polluters to meet a goal for the level of pollution, but give the polluter freedom to choose the technology used, technology standards require a specific technology. 
For example until 1990, electric utilities were required to install scrubbers with 90% efficiency ratings.  The U.S. requires catalytic converters in autos.  The 1972 Water Pollution Control Act Amendments set a goal of zero discharges by 1985, and used technology based effluent standards (TBES) – a combination of a ban and a standard.  The EPA determines the “best practicable technology” and sets standards assuming that firms are using that standard.  Often, as in the Clean Air Act, the government mandates that the Best Available Control Technology (BACT) be used.  However, BACT is often not clearly defined.

Banning certain technologies is another way of establishing a standard. Clear cut logging has been banned in certain jurisdictions and long line drift nets have been banned for certain fisheries. The generation of electricity with nuclear fission has been banned in some European countries.
Strengths and Limitations
Like the many other policy tools, standards can be very effective are reducing pollution of various types; they are often used in conjunction with other policy instruments such as bans or quotas. There are many flexible approaches to standards, and considerable experience has accrued with regard to their use.
One of the potentially negative aspects of standards is that they have often been of a command and control nature; that is, they prescribe not only, or even necessarily, a goal, but a specific means of achieving that goal.  This “one size fits all” approach is not always the most effective or cost-efficient. 
Enormous amounts of financial resources have been expended by business and industry to comply with environmental standards by retrofitting existing infrastructures.  In addition to resisting the imposed costs these standards require, business and industry have also objected to being told precisely how to achieve the desired goals.  If standards can be set in terms of clear, measurable goals, business and industry prefer to have the flexibility of working out the methods for achieving those goals.
Another problem with the command and control standards is that once achieved there is no incentive for exceeding the standard and providing even greater environmental protection even when this is possible.  Incentives to exceed standards can be used to this end.

Standards have been used successfully with a range of local and regional environmental problems. However, the level at which standards are set can have dramatic impacts on other levels.  For example, setting standards at the national level for vehicle fuel efficiency can lead to increased vehicle use, exacerbating the problems at the regional and global levels through increased levels of throughput.
As with any policy instrument, the key criterion from a sustainable scale perspective is whether the policy results in maintaining throughput within the sustainable range.  To date standards have not been used to tackle global problems of sustainable scale.  It remains to be seen if they can be successfully applied in these areas. 

Emissions Trading Permits

What Are They?
Emission trading permits are regimes in which governments issue or sell permits to allow certain levels of emissions of potentially harmful substances, where the permits can be sold or traded amongst the parties with the permits.  The theory is that emissions within such a regime will be kept within a desirable limit.  Emission trading systems involve establishing quotas within which the trades may occur; consequently, the strengths and limitations which apply to quotas (see Quotas) also apply to emission trading systems. In certain applications the emission limit is set in terms of absolute amounts, in other applications the emissions are set in relative terms.  Thus specific applications can have dramatically different results in terms of their effectiveness in achieving sustainable scale.

Cap and Trade Permits/Emission Trading
In a cap and trade system, the total emissions are set or capped, and the total permits equal to this cap are issued among firms generating the pollutant. Firms can then trade these permits among themselves: those firms generating more emissions than their initial allocation would buy permits from firms that generated fewer. The total number of permits remains stable, but the distribution of permits among firms would change with the market.  Number of permits can also be reduced from year to year to accomplish a reduction of emissions.

Where Have Cap and Trade Systems Been Used?
This approach was pioneered in the United States to deal with the problems of acid rain.  It has been used most successfully for sulfur-dioxide and nitrogen-oxides from power plants in the US and Denmark. In Denmark, the quota was set at a declining amount over time to allow investment in technological change.  For both these programs the emissions were consistently below the quota. In some programs non-compliance results in heavy fines which are more costly than purchasing permits.
Cap and trade systems have been applied to a variety of pollutants, including sulphur dioxide, nitrogen oxide, lead in gasoline, ozone depleting compounds, oxides of nitrogen, and carbon. Such schemes have been used in a variety of countries as well. These systems have generally been both effective and cost-efficient.
Significant reductions in emissions have been achieved, and generally at much lower costs than originally anticipated.  For example, original estimates of permit prices in the first phase of the US Acid Rain Program ranged between $181 and $981, but actual prices were about $150 and have rarely been above the lower estimates.  In addition, the electricity generating plants involved in the scheme saved significant amounts in costs as a result of becoming more fuel efficient.

The Kyoto Protocol has endorsed the use of a cap and trade approach for carbon emissions to address climate change. A number of countries such as Denmark and the United Kingdom have developed tradeable permit programmes for carbon dioxide prior to ratification of the Protocol. The entire European Union has initiated a scheme in 2005 now that the Protocol is in effect.

There is a newly developed voluntary carbon trading scheme underway in the US despite the refusal of the US Administration to join the Kyoto Protocol.  The Chicago Climate Exchange,® Inc. (CCX®) is a self-regulatory exchange that administers the world's first multi-national and multi-sector marketplace for reducing and trading greenhouse gas emissions. CCX represents the first voluntary, legally-binding commitment by a cross-section of North American corporations, municipalities and other institutions to establish a rules-based market for reducing greenhouse gases. The emergence of this carbon trading scheme is based on the analysis that carbon trading stimulated by the necessity of moving away from fossil fuels will be a lucrative market opportunity.
Not All Emission Trading Schemes Work
The United States, which has rejected the Kyoto Protocol, has proposed an alternative to the cap and trade system. The US plan is based on emission densities of greenhouse gases per GDP, rather than on absolute levels of emissions.  This is an example of how an emission trading system can allow absolute levels of emissions to rise because of its failure to set an absolute limit. There is some irony in the fact that the United States has refused to ratify a protocol which endorses an instrument that they have pioneered.

Are Emission Trading Systems Effective?
Emissions trading systems have proven effective methods for reducing a number of pollutants in a variety of countries.  Cap and trade systems are of greatest interest from a sustainable scale perspective, as they involve setting an absolute limit, or cap, to the level of emissions permitted.  This widespread experience and success with cap and trade systems is encouraging in terms of their potential applications in dealing with issues of sustainable scale. Given the flexibility they allow, and their potential for combination with other policy instruments such as fines and standards, they hold much promise for the future.

Emission trading schemes that do not set absolute limits to the amount of pollutants permitted will not contribute to sustainable scale.  In fact, increased efficiencies from emission trading schemes without absolute limits, such as the US proposal for greenhouse gases of focusing on emission densities per unit of GDP, run the risk of actually leading to increased levels of emissions (see JEVONS PARADOX). [glossary]
Another limitation of emission trading schemes is one common to all quota systems – ensuring the quota will result in sustainable scale. We know cap and trade systems are effective and efficient tools to significantly reduce pollutants affecting ecosystem functions.  But unless the target levels of pollutant throughput are within sustainable scale, that goal will not be achieved. The emission targets for the initial Kyoto Protocol are significantly below that required to stop or reverse climate change (see Climate Change), but at least it is a start.

Justice Aspects of Emission Trading
Emission trading schemes provide a legal right or permission to pollute, to use the global commons as a dumping ground for waste. This is not a problem from the perspective of ecological sustainability as long as the emissions are below the rate at which the sink can be renewed (see Sustainable Or Unsustainable). 
There is also an issue of justice involved in terms of how this right is distributed. Governments may sell permits on behalf of their citizens, or they can grant permits outright on a first come first serve basis, or on the basis of previous emission histories. Businesses and industries, as well as developed countries, generally prefer the latter approach as it allows the largest historical emitters to receive the most permits.
An alternative approach to carbon emissions has been proposed by XX, whereby access to the global atmosphere, into which emissions would be made, is deemed to be an equal right of every person on the planet.  Recognizing every person’s right to clean air would lead to an allocation of emission permits to different countries based on population. This approach is preferred by countries with large populations, many of which are among the less developed nations of the world.
Under this scheme, emission permits would go to countries based on population; industrialized countries, or countries with large transportation infrastructures, would have to purchase emission permits from those with large (and generally much poorer) populations. The refusal of the developed countries to accept this approach is one of the remaining stumbling blocks for large developing countries like China, India and Brazil from joining the Kyoto Protocol.  As some of these developing countries are now approaching the emission levels of the developed nations, these issues are becoming even more difficult to resolve politically.

Summary: Public Policy Solutions
There are a variety of public policy instruments available, with which many nations have experience, and which have been successful in managing an array of environmental problems. These instruments generally have many flexible options available, and can be combined with each other or other available business or economic solutions to address sustainable scale challenges.
While there are costs involved in applying these solutions, there are also financial and other benefits.  It is not the application of the policy instruments themselves, but the focusing on reducing throughput below regeneration rates (see Sustainable Or Unsustainable and Scale Policy Implications), that is critical for achieving sustainable scale. Applying these public policy solutions to sustainable scale challenges is a matter of political will.4
1Daly, H.E. and Farley, J. Ecological Economics:Principles and Applications. Washington: Island Press, 2004
2Boulding, K. E. "The Economics of the Coming Spaceship Earth." Pp. 3-14 in H. Jarrett (ed.), Environmental Quality in a Growing Economy. Baltimore: John Hopkins University Press, 1966.
   Daly, Herman and J. Cobb. For the Common Good: Redirecting the Economy toward Community, the Environment and a Sustainable Future. Boston: The Beacon Press, 1989.
3Daly, H.E. Steady-State Economics, (2nd edition). Washington: Island Press, 1991

   See  www.steadystate.org

4"Trading in Pollution." OECD Observer. August 2002. http://www.oecdobserver.org/news/fullstory.php/aid/750/Trading_in_pollution.html


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