Environmental policy instruments

Course Instructor: Haripriya

Gundimeda, Humanities and Social
Sciences, IIT Bombay
• 200 years ago almost everywhere human
beings were comparatively few, poor and at
the mercy of the forces of nature, and 200
years from now, we expect, almost everywhere
they will be numerous, rich and in control of
the forces of nature
We have solved the problem of production

• Then where is the problem?

 World Population

J
curve

 Economic Growth

refers to an increase in the capacity to provide people with

goods and services.

Economic growth is measured by a county’s Gross National

Product (GNP or GNI)

• Market value ($) of all goods and services produced within

and outside a country during a year plus net income
earned abroad by a countries citizens

 Other Economic Indicators

➢Gross Domestic Product (GDP)
➢ market value ($) of all goods and services
produced within a country during a year

➢Percapita GNP

➢Gross World Product (GWP)

market value ($) of all goods and services produced
in the world during a year

 • Strawberry Milk shake ingredients!!

• • milkfat and nonfat milk, sugar, sweet whey, high-fructose corn syrup, guar
• gum, monoglycerides and diglycerides, cellulose gum, sodium phosphate,
• carrageenan, citric acid, E129 and artificial strawberry flavour.
• • And what does that "artificial strawberry flavour" contain?
• • Just these few yummy chemicals: amyl acetate, amyl butyrate, amyl valerate,
• anethol, anisyl formate, benzyl acetate, benzyl isobutyrate, butyric acid,
• cinnamyl isobutyrate, cinnamyl valerate, cognac essential oil, diacetyl,
• dipropyl ketone, ethyl butyrate, ethyl cinnamate, ethyl heptanoate, ethyl
• heptylate, ethyl lactate, ethyl methylphenylglycidate, ethyl nitrate, ethyl
• propionate, ethyl valerate, heliotropin, hydroxyphrenyl- 2-butanone (10%
• solution in alcohol), ionone, isobutyl anthranilate, isobutyl butyrate, lemon
• essential oil, maltol, 4-methylacetophenone, methyl anthranilate, methyl
• benzoate, methyl cinnamate, methyl heptine carbonate, methyl naphthyl
• ketone, methyl salicylate, mint essential oil, neroli essential oil, nerolin, neryl
• isobutyrate, orris butter, phenethyl alcohol, rose, rum ether, undecalactone,
• vanillin and solvent.
• • And how many ingredients in your grand mother s strawberry milk shake?
• Just 4!
• • So much for processed foods..

 <$2700
$2700-$10,750

>$10,750

per capita GNI

 Economic Development

The improvement of living standards by economic

growth.

• Measured by (1) degree of industrialization and (2)

per capita GNI

– Developed Countries
• US, Canada, Japan, Australia, New Zealand, all of Europe
– Developing Counties
• Most of Africa, Asia, and Latin America

 Economic Development

• Positive Aspects
– Global life expectancy has doubled from 33 to 67
years
– Infant mortality has dropped
– Food production has outpaced population growth
– Access to safe drinking water has increased.

 Economic Development
• Negative Aspects
– Average life expectancy in developing countries is
11 years less than in developed countries
– Infant mortality is 8x higher
– Harmful environmental effects of industrialized
food production may limit future food production
– Air and water pollution are high in most
developing countries
– Natural resources are being used unsustainably

 Globalization – we are living in an

increasingly integrated world

Economic indicators
Global economy grew
International trade grew
Corporation operating in multiple countries grew

Information and Communication

1 in every 11 people in the world have Internet access

Environmental Effects
Number of diseases transmitted across international
borders has increased
Pollution transported globally

 Globalization
International Agreements and politics

Arousing more
consumption
Technology
investment

goods, services, recruitment

International Producer Consumer
money market Labour, consumption

reinvestment Pollution/ resources Pollution/

waste waste
resources

Natural Environment

Individuals Matter: Rachel Carson

• Rachel Carson Wrote

Silent Spring which
introduced the U.S. to
the dangers of the
pesticide DDT and
related compounds
to the environment.
• http://www.youtube.com/watch?
v=Ipbc-6IvMQI
the dilemma of compound growth

UNSUSTAINABLE
Environmental and Resource Problems

Root
Causes
Environmental Impact
What are they Key environmental issues?

• Pollution
• Degradation of natural resources
• Transboundary Problems

Our Atmosphere
Air Pollution -
The presence of one or
more chemicals in the
atmosphere in sufficient
quantities and duration
to 1) cause harm to us,
other forms of life, and
materials, or (2) alter
climate.
 Types and Sources of Air Pollution

• Two categories
– Primary Air Pollutant
• Harmful substance that is emitted directly into the
atmosphere
– Secondary Air Pollutant
• Harmful substance formed in the atmosphere when a
primary air pollutant reacts with substances normally
found in the atmosphere or with other air pollutants

 Major Classes of Air Pollutants

• Carbon oxides • Photochemical Oxidants
– Carbon monoxide and – Ozone, peroxyacal nitrates (PAN),
carbon dioxide hydrogen peroxide (H2O2)

• Sulfur oxides • Suspended particulate matter

– Sulfur dioxide and (SPM)
sulfur trioxide – Dust, soot, asbestos, lead, nitrate,
and sulfate salts
• Nitrogen Oxides – Sulfuric acid, PCBs, dioxins,
– Nitric oxide, nitrogen pesticides
dioxide, nitrous oxide • Radioactive substances
• Volatile Organic – Radon-222, iodine-131,
strontium-90, plutonium-239
Compounds
– Methane, propane, • Hazardous Air Pollutants
CFCs (HAPS)

 “Criteria” Air Pollutants

1. Carbon monoxide (CO)

2. Nitrogen Dioxide (NO2)
3. Sulfur Dioxide (SO2)
4. Suspended Particulate Matter (SPM)
5. Ozone (O3)
6. Lead
7. Hydrocarbons

 Urban Air Pollution

• Photochemical Smog (ex: Delhi)
– Brownish-orange haze formed by chemical reactions involving
sunlight, nitrogen oxide, and hydrocarbons

Formation of Photochemical Smog

 Industrial Smog
• Gray Smog
– Comes from
burning coal

!Sulfur Dioxide
!Sulfuric Acid

+ Particulates
• Unburned Carbon

 Health Effects of Air Pollution

• Sulfur Dioxide and Particulate material

– Irritate respiratory tract and impair ability of lungs
to exchange gases
• Nitrogen Dioxides
– Causes airway restriction
• Carbon monoxide
– Binds with iron in blood hemoglobin
– Causes headache, fatigue, drowsiness, death
• Ozone
– Causes burning eyes, coughing, and chest
discomfort

 Children and Air Pollution

• Greater health threat to children than adults

– Air pollution can restrict lung development
– Children breath more often than adults
• Children who live in high ozone areas are more
likely to develop asthma

 Acid Deposition

• Sulfur dioxide and nitrogen dioxide emissions

react with water vapor in the atmosphere and
form acids that return to the surface as either
dry or wet deposition
• pH scale

How Acid Deposition Develops

 Acid Deposition and Humans

• Respiratory diseases
• Toxic metal leaching into drinking water
• Decreased atmospheric visibility
• Damage to structures, especially containing
limestone
• Decreased productivity and profitability of
fisheries, forests, and farms

 Ozone Depletion in Stratosphere

• Ozone Protects earth from UV radiation
– Part of the electromagnetic spectrum with
wavelengths just shorter than visible light

 Ozone Depletion in Stratosphere

• Ozone thinning/hole
– First identified in 1985 over
Antarctica
• Caused by
– human-produced bromine
and chlorine containing
chemicals
– Ex: CFCs

 Indoor Air Pollution

Sick Building Syndrome



• Chloroform The enemy is in our house
: Chlorine-treated water in hot showers
• Possible threat: Cancer
• Para-dichlorobenzene:: Source: Air fresh., moth balls
• Threat: cancer
• 1,1,1-Trichloroethane
• Source: Aerosol sprays
• Threat: Dizziness, irregular breathing
• Nitrogen Oxides
• Source: Unvented gas stoves and kerosene heaters, woodstoves
• Threat: irritated lungs, children’s colds, headaches

 The Hidden enemy

• Asbestos: Source: Pipe insulation, vinyl ceiling and floor tiles: Threat:
Lung diseases
• Carbon Monoxide: Faulty furnaces, unvented gas stoves and
kerosene heaters, woodstoves
• Threat: Headaches, drowsiness, irregular heartbeat, death
• Methylene Chloride: Source: Paint strippers and thinners
• Threat: Nerve disorders, diabetes
• Radon-222 Source: Radioactive soil and rock surrounding foundation,
water supply
• Threat: lung cancer
• Styrene Source: Carpets, plastic products,
• Threat: kidney and liver damage

 The hidden enemy

• Benzo-pyrene
• Source: tobacco smoke, woodstoves
• Threat: lung cancer
• Formaldehyde
• Source: Furniture stuffing, paneling, particle board, foam
insulation
• Threat: irritation of eyes, throat, skin, and lungs, nausea, dizziness
• Tetrachloroethylene
• Source: Dry-cleaning fluid fumes and clothes
• Threat: nerve disorders, damage to liver and kidneys, possible
cancer

Major categories of water pollutants

1. Infectious Agents
2. Oxygen-Demanding Wastes
3. Inorganic Chemicals
4. Organic Chemicals
5. Plant Nutrients
6. Sediment
7. Radioactive Material
8. Heat (Thermal Pollution)

Common Diseases Transmitted Through

Contaminated Drinking Water

Type of Organism Disease

Bacteria Typhoid fever
Cholera
Bacterial Dysentery
Enteritis
Viruses Infectious hepatitis
Parasitic Protozoa Amoebic Dysentery
Giardiasis
Parasitic Worms Shistosomiasis
 Effects
• Premature death of 3.4 million people worldwide
each year
• Diarrhea alone kills 2.1 million people

 Sources of Water Pollution

• Point Sources
– Discharge of pollutants at specific locations
through pipes, ditches, or sewers into bodies of
surface water.
• Easier to control
• Non-Point Sources
– pollutants cannot be traced to any single
source of discharge
• Difficult to control

 Groundwater Pollution
• Out-of-sight pollution
• Low risk ecological problem
• High risk health problem
• Cannot get rid of degradable waste
– Low flow rates
– Few bacteria
– Cold temperatures

Ocean Pollution
 OCEAN POLLUTION

• Harmful algal blooms (HAB) are caused by

explosive growth of harmful algae from
sewage and agricultural runoff.
 OCEAN OIL POLLUTION

• Most ocean oil pollution comes from human

activities on land.

– Studies have shown it takes about 3 years for

many forms of marine life to recover from large
amounts of crude oil (oil directly from ground).

– Recovery from exposure to refined oil (fuel oil,

gasoline, etc…) can take 10-20 years for marine
life to recover.

 Hazardous Wastes

• TRIC
– Toxic
• Contains one or more of 39 toxic,
carcinogenic, mutagenic, or terotogenic
compounds
– Reactive or explosive
– Ignitable or catches fire easily
– Corrosive to metal containers

 Why pollution occurs?

• Environment a public good

• Lack of well defined property rights for
environment
• Market failure
• Externalities

 What is Externality?

Externalities are an unintended (and uncompensated)

side effects of one person’s or firm’s activities on
another.
Examples:
1) Health effect of smoke emissions from vehicles
in Chennai, Delhi
2) Health effect of smoke emissions from
Indraprastha Thermal power plant in Delhi
3) Health effect of discharging untreated effluent
from SSIs in Delhi.

 Why these side effects?

Because of interdependence in production or

consumption.
The utility of individual i depends not only on his
consumption but also on the consumption of
another individual:
Ui = Ui(Xi, Xj) & Pi = Pi(Xi, Xj)

NOTES: A) These damages are unintentional per

se as they are typically difficult to avoid.
B) This interdependence must also be a non-market
dependence to qualify as an externality.

 Examples

1) Congestion caused by a vehicle on other drivers

- unintentional and difficult to avoid.
2) Air Pollution caused by power plants
- unintentional and difficult to avoid
3) If many people are in queue to buy water or medicine →
this may lead to ↑ in price.
Can this be Called as EXTERNALITY?
No
it is perpetuated through market mechanism.
Hence not an external effect.

 Another Approach to define externality

This approach supposes that ownership rights or
markets are missing for the particular resource.

Example: If there were private ownership of air,

then people would have to buy the right to
pollute it with smoke.

If ownership rights of a city’s air (e.g., Delhi or

Chennai or Kanpur etc.) is given to (or owned by)
few individuals and then vehicle owners will have
to pay to these individuals to pollute.

 Types of externality

Two Types:
1) Depletable
2) Non-depletable

• Manure from horse is depletable. Because if one

person takes, other cannot.
• Odour of Manure is non-depletable. Because
exposure of one does not reduce exposure of other
individuals.
# (Vehicular air pollution or Odour from Solid waste
are non-depletable)

 When Externality arises?

Two Types of COSTS:

1) Private Costs
2) Social Costs
Ex. - w.r.t. Vehicular Air pollution in Delhi/Chennai
Private Costs - Cost of Owning a vehicle, Fuel
(petrol/diesel/LPG), maintenance cost etc.
Social Costs - Effect of pollutant on other people,
my vehicle causing congestion for others + Private
costs.
When SOCIAL COSTS > Private Costs
⇒ Negative Externality

 Economics of Vehicular Pollution

Control – Externality Diagram

Marginal Social
Costs
Costs, Benefits

Marginal
Private Costs
Po

Pa Demand
To Ta
Traffic Volume







 Other Examples of Externality?

Examples of Negative Externality
1) Pollution of Ganges or Yamuna by
upstream activities
2) Transboundary Pollution
3) Soil Erosion caused by excessive and
type of agriculture
4) Floods caused by Deforestation
5) Garbage (NIMBY)
6) Use of pesticides in agriculture - affecting
downstream water bodies

 Positive Externality

Positive Externalities:
When Social Benefit > Private Benefit
Examples of Positive Externality
1) R&D by a firm for Cancer / SARS drug
2) New filter for cars to reduce emissions
3) Forestation in hilly regions affecting water
supply in the plains.

 Where is the Problem?

Since Social Costs are more than Private Costs - if

the persons causing social costs are asked to bear
part of the social costs (i.e., their contribution of
social costs), this externality problem will be solved.
i.e., Internalising the Externality
HOW DO WE Internalise the externality?
⇒ Using Policy INSTRUMENTS (CAC, EI/MBI or
Suasive)
In case of Vehicular Pollution - By asking them to
switch to cleaner fuel (Diesel run - buses in Delhi to
CNG or - Vikram to electricity run ‘Safa’ in KM)

 How policy instruments work?

Standard externality argument provides the
answer.
# If polluters are forced to pay this environmental
cost also, this would internalise the externality.
• For example: if users of polluting transport are
forced to pay an amount equivalent to the
environmental cost, it will result in cleaner vehicles
and smaller traffic volume and hence reduced air
pollution.

 How to limit negative externalities?

• Traditionally, environmental regulation

instruments are classified according to
– How much pollution to abate?
– Need for regulator to monitor emissions

• Former category is concerned with CAC and MBI.

The latter involves Direct and Indirect instruments.
# Direct instruments are emission standards,
emission fees and market permits; and
# Indirect instruments are environmental taxes,
technology standards etc.

 Classification of Instruments
3 Types -
• Command and Control (CAC) or
Environmental Regulations
• Market based instruments (MBI / EI)
– creating markets
– using existing markets

• Engaging the Public / Involving Participation

• http://www.youtube.com/watch?
v=kYlYOZCrgCg
• http://www.youtube.com/watch?
v=JLX2PhblC1c
• http://www.youtube.com/watch?
v=LyMY69tdd5o

 Instruments for correcting negative

externalities
CAC or Economic or Market Based Instruments Involving
Regulations Using Markets Creating Markets Participation
1) Standards 1) Charge Systems – 1) Property rights / 1) Voluntary
effluent charges; decentralisation agreements
user charges;
product charges;
administrative charges;
impact fees
2) Bans 2) Fiscal Instruments or 2) Tradeable permits / 2) Public
Environmental Taxes – rights participation
pollution taxes;
input taxes;
aid in installing new technology;
subsidies for environmental R&D
3) Permits/ 3) Financial Instruments – 3) International offset 3) Information
quotas financial subsidies; systems disclosure
soft loans and grants
4) Deposit-refund systems and 4) Liability insurance 4) Two-tier
environmental performance bonds legislation monitoring
 Selection of Policy Instrument
Number of criteria -
• Static Cost Efficiency – Is the PI least costly from
firm’s point of view?
• Dynamic Cost Efficiency (δAC/δt) – Does it give
adequate incentive to a firm to continuously innovate so
as to ↓ pollution?
• Goal Fulfillment – Will the PI fulfill the goal for which
it is intended? – e.g., mercury reduction
• Administrative Costs – What will be the administrative
costs of implementing?

 Selection of Policy Instrument
Criteria contd. -
• Barrier to Entry – Will the implementation of PI
create barriers for entry of new firms
– e.g., standards are usually for newer firms/units,
thereby protecting older plants.
– Older vehicles not covered under EURO II norms.
• Polluter Pays Principle – Is the polluter paying for the
externality?
• Politics of Implementation (Acceptability) –Is it
acceptable to all the parties concerned?

Policy Instrument Selection Matrix

Criteria CAC Regulation MBI

Tax or charge Tradable Emission Permits
Static cost No – neither static Yes (specially with Yes – if market not too thin
efficiency nor dynamic many agents with
distinct technology)
Dynamic cost No – Perverse Yes Yes – Depends
efficiency incentives
Goal fulfillment (No) may be at firm No – optimal tax Yes – The regulator can be
level but not level unknown. fairly certain of reaching
aggregate level Inflation may be target
Administrative Best – control needed problem
Depends Hard to administer with
costs but CAC often many / few agents
Barrier to entry simplest
Standards for new Neutral Can be used by established
plants; protect old firms
Polluter Pays ones
Yes Yes Yes (if auctioned)
principal
Politics of Risk for rent-seeking Risk of opposition if Neutral (at least if grand-
implementation behaviour not refunded fathered)
 Instruments and sample applications
Policy Natural Resource
Instrument Management
(Water, fisheries,
agriculture, forestry,
minerals & biodiversity)
1 Direct Provision Provision of parks
2 Detailed Zoning, Regulation of
Regulation fishing (e.g., dates and
equipment), Ban on ivory
trade to protect biodiversity
3 Flexible Water quality standards Fuel quality, CAFÉ
Regulation
4 Tradable quotas Individually tradable
or rights fishing quotas,
Transferrable rights for land
development, forestry or
agriculture
5 Taxes, fees or Water tariffs, park fees,
charges fishing license
6 Subsidies and Water, fisheries, reduced
subsidy agricultural subsidy
reduction
Pollution Control
(Air, water, solid waste
& hazardous waste)
Waste Management,
Timer at intersection
Catalytic Converters,
traffic regulations etc.,
Ban on chemicals (Azo
dyes)
Emission permits
Waste fees, congestion
pricing,, gas taxes,
industrial pollution fee
Energy taxes, reduced
energy subsidies
 Policy Natural Resource Pollution Control
Instrument Management (Air, water, solid
(Water, fisheries, waste & hazardous
agriculture, forestry, waste)
minerals &
biodiversity)
7
Deposit- Reforestation deposits Waste management,
refund or performance bonds used vehicles, vehicle
schemes in forestry inspection
8
Refunded NOx abatement in
emission Sweden
payments
9
Creation of Private national parks,
property rights property rights and
deforestation
10
Common CPR management
property
resources
11
Legal Liability bonds for
mechanisms, mining or hazardous
liability waste
12
Voluntary Forest Products Toxic Chemicals
agreements
13
Information Labeling of food, PROPER and other
 U.S. Market for SO2 Allowances

• Sulfur dioxide (SO2) is a primary product of

coal-burning power plants.
• SO2 pollution lowers the pH scale of rainfall,
leading to the problem commonly known as
acid rain.
– Increased acidity of lakes and rivers.
– Slower growth, injury or death of forests.
– Visibility impairment.
• SO2 can impair respiratory function and is
linked to a variety of respiratory ailments.

U.S. Market for SO2 Allowances

What Are Allowances?

An allowance authorizes a unit within a utility or industrial source to emit one

ton of SO2 during a given year or any year thereafter. At the end of each year,
the unit must hold an amount of allowances at least equal to its annual
emissions, i.e., a unit that emits 5,000 tons of S02 must hold at least 5,000
allowances that are usable in that year.

Allowances are fully marketable commodities. Once allocated, allowances may

be bought, sold, traded, or banked for use in future years. Allowances may not
be used for compliance prior to the calendar year for which they are allocated.

 U.S. Market for SO2 Allowances

• The process of setting up a market for pollution emissions

involves three steps:
– Establish an overall cap on pollution (i.e. Q’)
• For the U.S. SO2 market the cap was set in the 1990 Clean Air Act
amendment.
• Reduce SO2 emissions from fixed sources by 50% from 1980 levels
(17.3 million tons).
– Allocate permits (allowances) to polluters
• In the U.S. SO2 market, a ‘grandfathering’ scheme was used.
– Allocated to polluters based on their 1985-87 pollution.
– Facilitate trading between polluters
• In the U.S. SO2 market the trading was generally unrestricted.
• Stiff penalties to those firms who exceeded their allowances.

U.S. Market for SO2 Allowances

How Are Allowances Allocated?
Allowances are allocated for each year beginning in 1995. In Phase I, EPA allocates
allowances to each unit at an emission rate of 2.5 pounds of SO2/mmBtu (million British
thermal units) of heat input, multiplied by the unit's baseline mmBtu (the average fossil
fuel consumed from 1985 through 1987)…Roughly 440 units are involved in Phase 1

 U.S. Market for SO2 Allowances

…In Phase II, which began in 2000, the limits imposed on Phase I plants are tightened,
and emissions limits are also imposed on all SO2 emitting units (another 2000 or so
units). EPA allocates allowances to each unit at an emission rate of 1.2 pounds of SO2/
mmBtu of heat input, multiplied by the unit's baseline, which effectively places a cap at
8.95 million on the number of allowances issued to units each year.
Market for SO2 Allowances
Market for SO2 Allowances
How is Compliance Determined?
At the end of the year, units must hold a quantity of allowances equal to or greater
than the amount of SO2 emitted during that year.
What Is The Penalty for Noncompliance?
Penalty for noncompliance: $2000 per ton over, with inflation it is now about $3000 per
ton. Firms have a year to offset excess emissions by purchasing permits. Very rarely
are firms out of compliance.

Market for SO2 Allowances

 Market for SO2 Allowances

• Reasons why the program resulted in a robust

market
– There were wide differences in the cost of abating
emissions.
– The policy was flexible.
– The implementation was simple.
– The provisions were enforced => the government’s
property right to no pollution above the standard
is secure.

 Market for SO2 Allowances

• Two questions:
– Has the SO2 trading program reduced emissions?
– Has the program reduced the cost of emissions
control?

Is the SO2 allowance program cheaper than the

usual regulatory approach?
– Can be highly successful at obtaining emissions reductions
cost-effectively; Stavins:
“Trading volume has increased over the life of the program, and the
robust market has resulted in an estimated cost savings of up to $1
billion annually, compared with the cost of command-and-control
regulatory alternatives that were considered by Congress in prior
years, representing a 30-50% cost savings.”

 SO2 Trading: That was then…

• 1990: Title IV of the Clean • National Cap with no

Air Act established spatial restrictions on
trading trading. By 2000
• 1995: Phase I (374 large emissions were 40%
units) lower than 1980 levels
• 2000: Phase II (1,420 • Continuous monitoring
more units) of emissions1 allowance
used for each ton
emitted
• Very low transaction
costs (0.1% in 1999)

SO2 Spot Prices & Volume (2003-2007)



SO2: Poster Child of Cap-and-Trade

• “The allowance trading program has had

exceptionally positive welfare effects, with
estimated benefits being as much as ten times
greater than costs.”Stavins (2005)

• “The EPA and other governments have looked

upon the Acid Rain Program as the standard of
how a market-based system can control emissions
at reasonable cost.” Tesoriero (2010)

 Colour Labels used in PROPER

Rating Technical Requirements

Gold World Class clean technology

Waste minimization & polln prevention measures

Green > legally required standards for env. Protection

Good maintenance and environmental work

Blue At legally required standard

Red < legally required standards
Black Serious environmental damage – no polln control

Change in firms’ ratings because of PROPER

Rating June 1995 Dec. 1995 Dec. 1996 Change

(%)
Gold 0 0 0 0
Green 5 4 5 0
Blue 61 72 94 54%
Red 115 108 87 - 24%
Black 6 3 1 - 83%
Total 187 187 187
Instruments used for industrial pollution
Country Region Instrument
1 CORNARE, Latin Pollution
Colombia America Charges
2 Rio de Janeiro, Latin Targeting
Brazil America
3 Juarez, Mexico Latin Technical
America Assistance
4 Gudalajara, Latin Assistance in
Mexico America EMS
5 Leguna lake, South East Pollution
Philippines Asia Charges
6 Philippines South East Pollution
Asia Rating
7 Indonesia South East Pollution
Asia Rating
8 China South East Pollution
Asia Charges
9 Palm Oil South East Pollution
producers, Asia Charges and
Malaysia enforcement of
standards
10 Poland Eastern Pollution
Europe Charges
 Emission Sources from Vehicles

Three Major Emission Sources in general -

• Emission from Gasoline Vehicles
(2-stroke / 4-stroke)
• Emission from Diesel Vehicles
• Impact of fuel quality on emissions

 Emission from Gasoline Vehicles

• 2-stroke engine requires 2% concentration of 2T
oil.
•A modest 1% increase of oil may lead to 15% ↑ in
SPM besides visible smoke (CPCB, 1999).
⇒ Controlling pollution from them can generate
significant environmental benefits.
Mandating USE of 2T Oil (CAC) can be one
instrument - e.g., in India

 Emission from Diesel Vehicles

• Smoke from diesel vehicles:

– White smoke (due to cold start idling and at low loads)
– Blue smoke (burning of lubricating oil and additives)
– Black smoke (a result of incomplete combustion and
consists of fine soot/particulates)
Black smoke is problem with engines not well tuned
⇒ Proper and Regular maintenance of diesel
vehicle → ↓ Black smoke
Mandating Regular maintenance (CAC) can be
another instrument.

 Impact of fuel quality on emissions

• In diesel vehicles - a high density causes ↑ smoke,

CO and NOx emissions.
• ↑ in Cetane number (i.e, measure of ignition
quality of diesel) → ↓ smoke emissions.
• ↑ Sulphur content of diesel → ↑ SPM and SO2
emissions.
⇒ Mandating low sulphur diesel or fuel with high
centane number (CAC) can be other instruments.

 ⇒ There are three stages through which vehicular

emissions can be controlled

• Stage I - Pre-combustion stage - where quality of

fuel can be upgraded.
• Stage II - Combustion stage - where engine
modifications are required.
• Stage III - Post-combustion stage - where exhaust
treatment devices like catalytic converters are
required.

 ⇒ As a consequence the policy instruments

can be oriented at any of these stages and can
be directed towards
* Producers (vehicle or fuel)
or
* Dealers
(petrol pump /vehicle dealers)

•












 Besides there are non-technical instruments that can be aimed at ‘Consumers’

• They may require behavioural adaptations in the mode

of transport (from car to bus)
– Stage 0
• or necessitate periodic maintenance check to minimize
pollution levels
– Stage IV



 Instruments to curb vehicular Pollution

MBI CAC Instruments
Type Direct Indirect Direct Indirect

Engine Emission Tradable Permits (4) Emission Standards Compulsory Inspection and
/ Fees (4) e.g., EURO I, II (2) Maintenance of emission
Vehicle control system e.g., PUC (4)
Differential Vehicle Technology Mandatory Use of less
Taxation (1) Standards, e.g. polluting vehicles / change in
Catalytic Converters engines e.g., gasoline to CNG
(3) (2)
Tax allowance for new
vehicles (1) Compulsory Scrappage (0)

Fuel Differential Fuel Taxation Fuel Composition e.g. Fuel Economic Standards (1)
(1) Pre-mixed 2T (1)

High Fuel Taxes (1) Phasing out of high Speed Limits (4)
Polluting Fuels e.g.,
Unleaded petrol (1)
Traffic Auctioning Congestion Charges e.g., Physical Restraint of Restraint on Vehicle Use e.g.,
traffic routes in Singapore (4) Traffic (4) in Singapore, Mexico (0)
e.g. Chile (4)

Parking Charges (4) Designated Routes Lanes for buses, 2-wheelers

(4) and cars etc. (4)

Subsidies for less Better Public Transport (0)

Polluting Modes (0)

 Policy Instruments Enacted to check Vehicular Pollution in Delhi

Measures Time Status Instrument
Target Type (Stage)
1 Complete removal of leaded petrol in NCT Delhi (<0.013 g/l) 01.09.1998 Done CAC (1)
2 Complete removal of leaded petrol in National Capital Region (NCR) 01.01.1999 Done CAC (1)
3 Phasing out of 17 years old commercial vehicles 30.11.1998 Done CAC (0)
4 Phasing out of 15 years old commercial vehicles 31.12.1998 Done CAC (0)
5 Installation of pre-mixed 2T oil dispensers in petrol filling stations 31.12.1998 Done CAC (1)
6 Low smoke 2 T oil in petrol filling stations 01.04.1999 Done CAC (1)
7 Setting up of 2 independent fuel testing labs for checking the quality of 01.06.1999 Delayed CAC (0)
fuel
8 All Passenger Cars to meet EURO I norms. 01.06.1999 Done CAC (2)
9 All Passenger Cars to meet EURO II norms. 31.03.2000 Done CAC (2)
10 Automated inspection and certification facilities to be set up for 31.03.2000 Delayed CAC (4)
commercial vehicles
11 Replacement of all pre-1990 autos and taxis with new (subsidized) 31.03.2000 Done CAC, MBI (2)
vehicles using clean fuel
12 Expansion of CNG Supply Network (from 9 to 80 stations) 31.03.2000 Delayed (60 CAC (0)
commissioned)
13 New autos and taxis to be registered with only CNG or battery operated 01.04.2000 Done CAC, MBI (0,
2)
14 No 8 years old bus to ply except on CNG/other clean fuel – CNG kit 01.04.2000 Delayed CAC, MBI (0,
subsidized 2)
15 Desulphurisation of petrol (0.05%) 31.05.2000 Done CAC (1)
16 18 years old two-wheelers to be banned 01.06.2000 N.A. CAC (0)
17 4-stroke 2-wheelers fitted with catalytic converters to be registered in 01.10.2000 N.A: CAC (2)
Delhi
18 All commercial and transport vehicles to meet EURO II norms 01.10.2000 N.A. CAC (3)
19 Petrol with maximum 1% benzene introduced 01.11.2000 Done CAC (1)
20 15-18 years old 2-wheelers to be banned 31.03.2001 N.A. CAC (0)
21 All buses to switch over to CNG or other clean fuel 31.03.2001 Delayed by 6 CAC (2)
months
Gap between Europe and India w.r.t. EURO Norms

Actual / Proposed Implementaion of Euro Norms

Category Type Europe India Gap
Passenger Car Euro I 1992 2000 8
Euro II 1995 2000 5
Euro III 2000 2003 3
Euro IV 2005 2006 1
MUV Euro I 1992 2000 8
Euro II 1996 2002 6
Euro III 1999 - -
Euro IV 2004 2006 2
Commercial Euro I 1992 2000 8
Vehichle Euro II 1996 2002 6
Euro III 1999 - -
Euro IV 2004 2006 2
 Relevance of pure transport policies.

• Examples of -
–Singapore
–Norway and
–California, US

 Transport Management in Singapore

• Land Zoning (Minimises the need for X-portation of both
people & goods.)
• Good Public X-portation
• Parking Fee actively differentiated
• Strict Fuel standards - Lead phase out & Sulphur ↓
• Strict Vehicle Standard and Inspection & Maintenance
standards are enforced
• Off-peak car scheme reduces fees somewhat for vehicle
use only on weekends (and some other non-peak days).
(Identification of off-peak vehicles by red license plates)

 X-port Management in Singapore - Contd.

• Import duties for cars and Registration fees are extremely
high (This discourages the ownership of personal
vehicles). Fees are reduced when a new car replaces an
old one.
• Under Vehicle Quota system - potential car owners must
purchase a vehicle entitlement at a monthly auction
(86,831 COE for 2001-02).
Note: If de-registration ↓ then no. of COE ↓
• Electronic Road pricing charges motorists for road use
according to vehicle, time of day and target level of
congestion. In 1998 - system was automated with
introduction of ‘smart cards’
(Allows electronic payment and avoid toll delays)

 Toll Fees in Different zones - Singapore (US

$)

Measures 7.30 – 8 a.m. 8 - 8.30 a.m. 8.30 – 9 a.m. 9 - 9.30 a.m.

1 Restricted zone, Nicoll Highway
Cars 0.50 2.50 2.50 2.00
Motorcycles 0.25 1.25 1.25 1.00
Buses etc. 0.75 3.75 3.75 3.00
2 Restricted zone, Remaining areas
Cars 0 2.00 2.50 2.00
Motorcycles 0 1.00 1.25 1.00
Buses etc. 0 3.00 3.75 3.00
3 Portsdown to Alexandra
Cars 0 0.50 1.50 0
Motorcycles 0 0.25 0.75 0
Buses etc. 0 0.75 2.25 0
Source: Sterner (2002)
 Evidence: Road Pricing in Norway
• Norway has road pricing in three of its largest cities - Oslo,
Bergen and Trondheim
• In 1991 - Trondheim (3rd largest city) with a population of
1,40,000 implemented a ‘Toll Ring’ around the city - used by
entering motorist
• Frequent drivers use electronic card and infrequent drivers use
coin machines.
• High Rates during 6.00-10.00 a.m.
⇒ Traffic ↓ by 10% during rush hours, while trips at other
times ↑
• Revenues used for Road infrastructure, public X-port, and
pedestrian & bicycle facilities.

 Evidence: Congestion Pricing in California

• To decrease congestion, a congestion toll is established on
two of the six lanes in each direction of State Route 91 in
California.

• The lanes were opened on December 27, 1995

• Differential Tolls varying from 75 cents to 3 $.

• No toll on High Occupancy Vehicle (HOV) - vehicles that

carry 3 or more people (Similar to Micro-buses in
Kathmandu).

 Differential Toll Schedule in California

Sun Mon Tue Wed Thurs Fri Sat
Midnight

1:00 AM
2:00 AM 0.75
3:00 AM
4:00 AM 1.75
5:00 AM 3.00 2.90
6:00 AM 3.10 3.00
7:00 AM 3.40 3.30 1.35
8:00 AM 1.35 3.10 3.00 1.60
9:00 AM 2.50
10:00 AM 1.90
11:00 AM 1.90
Noon 1.60
1:00 PM 2.15
2:00 PM 2.15
3:00 PM

4:00 PM
1.90
5:00 PM 2.30 2.30
6:00 PM

7:00 PM 1.60
8:00 PM 1.90
9:00 PM 0.75
10:00 PM

11:00 PM
 Benefits of congestion pricing in California

• In 1997, Average daily weekday traffic (ADT) in toll

lanes approached 30,000 vehicles (13% of total
ADT).

• In six months after opening the express lanes, the

typically peak trip delay on the freeway ↓ from
30-40 minutes to 10 minutes.

• Besides reducing congestion, it facilitated to meet

air quality and energy conservation goals.

Traffic Management in an intersection

Traffic Management - Lane Driving