From Stick to Carrot in the Environment

Jean-Philippe Barde
and Johanes Baptist Opschoor

Oliver Baraud

With the rowth
of environmental policies
in the early 1970s,
two approaches emerged,
sometimes in conflict.
The first was for
government to step
in and regulate
directly. The
alternative,
'economic' approach,
based on the
neo-classical theory
of externalities, brings
market mechanism's
to bear through economic
instruments. What progress have they made? ¹

The most usual approach in en-
vironmental policy is regula-
tion a 'command and control'
strategy, involving licences, standards
and bans. But over the last decade
or so economic instruments — taxes,
charges, tradable emission rights — have
considerably grown in importance (box,
p. 25), meeting the call for environmental
policies that are both more efficient
economically and also fit as best they
can into economic and sectoral policies.
Both are indispensable prerequisites for
a process of sustainable development.

The OECD has long recommended
the economic-instruments approach. ² In
January 1991; environment ministers
adopted a 'Recommendation on the Use
of Economic Instruments in Environ-
mental Policy' which included a set of
guidelines to be taken into account when
using them.

Until-the early 1980s, the very few
economic instruments in use were still
experimental and limited in scope. To
some extent economists were preaching
in the wilderness, and the economic
approach had little place in environment-
al policies. A distinct shift during the first
half of the 1980s has since gathered
pace. An OECD report published in
1989 ³ identified some 150 instances of
various economic instruments in 14
countries, of which 80 were pollution
charges and taxes. Things have moved
on considerably since then, and numer-
ous countries, especially in Scandinavia,
have introduced new economic instru-
ments.

Between 1987 and early 1993, the
number of economic instruments has
increased by 25-50% according to
country (Table 1). ⁴ The most significant
growth has been in product taxes,
especially energy taxes which are

Jean-Philippe Barde is responsible for programmes
to integrate economic and environmental policies at
the OECD Environment Directorate. Johanes Baptist
Opschoor, Professor of Economics at the Free Uni-
versity of Amsterdam and President of the Netherlands
Council for Research into Nature and the Environment,
has contributed to an OECD survey on the use of
economic instruments in the OECD countries.

becoming increasingly 'green': carbon
taxes in Denmark, Finland, Norway,
Sweden and the Netherlands, sulphur
taxes in France, Norway and Sweden.
Heavier taxation on leaded petrol in
numerous countries has done much to
encourage wider use of lead-free fuels.
Many other polluting products, such as
pesticides, fertilisers, packaging, oil
wastes and so on, have been taxed.
Hence the emergence, still tentative but
genuine, of a pattern of 'green', or
ecological taxes which, if taken to its
logical conclusion, implies real tax-reform,
as in Sweden during 1991. ⁵

Deposit-refund systems have also
grown strongly; up by 35-100% accord-
ing to country, especially in response
to the serious problem posed by con-
stantly rising volumes, of packaging
materials (140 million tonnes a year in

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