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Market-Based Policy Instruments for Water Pollution Control in China (Draft Final Report)

Market-Based Policy Instruments for Water Pollution Control in China (Draft Final Report)

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Published by adbwaterforall
Market-Based Policy Instruments for Water Pollution Control in China (Draft Final Report)
Market-Based Policy Instruments for Water Pollution Control in China (Draft Final Report)

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Published by: adbwaterforall on Jan 31, 2012
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First, market-based water pollution control policies and instruments have been
widely adopted around the world. The main rationale for the use of market-based
instruments to control water pollution is, its efficiency is higher than the use of
traditional government command and control. Economic instruments are more
flexible than the command and control approach. By placing a value on
environmental goods and services, economic instruments induce innovation, and
help lower costs and increase benefits. By taking advantage of the forces of the
market to guide the individuals and the general public to take an interest in the
environment, they help achieve the objective of providing environmental goods and

Second, pollution rights trading is an important market-based pollution control policy
instrument. The long-term prospect is promising, although its application in water
pollution control still needs considerable improvement. As far as water quality trading
is concerned, the US has rich experiences but it is still experimental. In theory, water
pollution rights trading has many advantages, yet these theoretical advantages have
not been turned into practical advantages. The volumes of trading under many
schemes are still limited and the market is quite small, with heavy dependence on
government promotion rather than market-driven. Most of the successful cases can
be found in nutrients trading. In addition to the US, countries with market economies
such as Germany, Australia, Canada and the UK have also been experimenting.
Judging from the experiences of existing water quality trading schemes, trading
contributes, to a certain extent, to water quality improvement, but it is difficult to
determine. Overall, pollution rights trading has become an important measure for
developed countries to control pollutant discharges.

Third, pollution levies or taxes are a common practice for water environment
protection and pollution control. Environmental taxes (fees) provide a price signal to
producers and consumers in their decisions on production that consumes
environmental resources and generates pollution. They help raise funds for pollution
control, and at the same time serve as an incentive for technological innovations by
enterprises. Therefore, environmental taxes (fees) are an effective economic
instrument. Entering the late 1980s, environmental taxes (fees) have attracted the
attention of developed countries. They have evolved from scattered, individual
environmental protection charges to a systematic scheme. Environmental taxes
(fees) target pollutants and pollution behaviour. Since water pollutants are contained
in industrial, residential and agricultural wastewater, many countries impose “water
pollution taxes (fees)” on wastewater.

Fourth, PPP has been widely adopted in countries where the fiscal capacity is weak
and the shares of fiscal revenues in GDP are low. There it has a long history, rich
practical experiences and good results. The prerequisite for implementing PPP in the


water supply and wastewater treatment sectors is the determination of an
appropriate water and wastewater tariffs. The determining the tariff, consideration
should be given to a decent rate of return to the enterprise so as to enable its
adequate financing and investment capacity and at the same time the affordability
and interests of the consumer.


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