The IEA also hosts the Climate Technology Initiative, which is assisting developing countries with the adoption of environmentally sound energy technologies and practices. The Climate Technology Initiative supports capacity building, information dissemination, and technical assistance activities (IEA 2001h). However, the budget of the Climate Technology Initiative is quite small. Energy technology and policy cooperation is increasing within the European Union. The voluntary agreement between the European Commission and vehicle manufacturers to improve the efficiency and reduce the carbon dioxide (CO 2 ) emissions of automobiles, and European appliance labeling and standards initiatives, were described in Chapter 3. In addition, the European Commission and manufacturers entered into a voluntary agreement to reduce the electricity use of electronic products such as televisions and VCRs. The IEA supported this initiative by organizing workshops and raising awareness concerning standby power. This effort contributed to the 50 percent decline in the standby power consumption of televisions sold in Europe between 1995 and 1999 (IEA 2001f). In 2000, the European Commission adopted a directive intended to double the contribution of renewable energy as a fraction of primary supply in the European Union by 2010 (European Commission 2000). The directive includes indicative targets for renewable electricity supply in each country (Table 7-1). Taken together, these targets would lead to renewable sources providing 22 percent of all electricity consumed in the European community by 2010. The directive requires each country to set national renewable energy targets and adopt national policies for meeting these targets. The directive also establishes a renewable electricity certification system, and it allows countries to continue their national renewable energy subsidy schemes for at least 10 years so as not to hinder deployment. Regional energy cooperation is on the rise in other parts of the world as well. In some cases this cooperation involves transferring technologies and strategies that one country has successfully implemented to nearby countries. For example, the United States has helped Mexico develop appliance efficiency standards and commercial building energy codes (Huang et al. 1998). Sweden is helping countries in the Baltic Sea region increase the energy efficiency of their district heating systems and converts these systems to bioenergy sources. This project involves both
Geller, Howard. Energy Revolution : Policies for a Sustainable Future.
Washington, DC, USA: Island Press, 2002. p 193.
Copyright © 2002. Island Press. All rights reserved.
Energy Efficiency Performance Standards
The EEPS6 establishes State- or national-level targets for reducing the growth of electricity and natural gas consumption. Fuel suppliers would be required to implement programs to promote energy savings and to document the program impacts. The policies establish procedures for retail energy suppliers to follow in measuring, verifying, and reporting energy savings. Examples of methods to achieve the savings include appliance rebate programs, information programs, energy audits or other technical assistance programs, and financial incentives. Some governing body, such as a State utility commission, would be required to verify the reported savings and enforce the policy. EEPS policies have been proposed along with Public Benefits Funds to pay for the efficiency measures through surcharges added to consumers’ fuel bills.7
Two versions of the policy were considered. In the first, five “average States” were assumed to adopt the policy with a targeted reduction in growth rates of electricity and natural gas demand growth of 0.75 percent per year beginning in 2009. In the second version, the EEPS policies were assumed to be national in scope,8 with a growth rate reduction target of 0.5 percent per year.
The AEO2005 reference case was used as the baseline from which the assumed growth rate reductions were taken. The policies were assumed to apply equally across the residential, commercial, and industrial sectors. Natural gas use in the electric power sector was excluded. The transportation sector, which consumes only a small amount of electricity and natural gas, was also assumed to be exempt. Because the five States were not specified, the five-State policy was assumed to reflect a goal achieved by one-tenth of the country (5 of 50 States), with the reductions distributed across Census divisions in proportion to regional consumption. The reduction in the average annual growth rate, from a no-action base year of 2008 through 2025, was translated into an average annual reduction in energy demand, beginning in 2009, and then shared to sectors in proportion to projected sectoral demands.
It was not possible to simulate behavioral or economic aspects of the policy in NEMS. Instead, the energy reduction targets were assumed to occur and the annualized deductions
M a k i n g C o m m u n i t y P o l i c y R
There are many ways to mobilize citizens and their governments toward sustainable communities, but there are also many barriers and obstacles that hamper our progress in this direction. We cannot realistically expect most people to choose sustainable options if they appear to be more difficult or expensive than unsustainable choices. The question arises, then, how can we change the systems around us, “level the playing field,” and provide ample opportunities for individuals to make behavioral choices that improve their communities? In recent years there has been increasing interest in the use of “economic instruments” in environmental policy. behavior. Such instruments — taxes, charges, subsidies, tradable These tools influence the behavior of economic agents by providing financial incentives to environmentally improved behavior, or disincentives to damaging permits, deposit-refund schemes, performance bonds and so on — have been particularly favored within the discipline of environmental economics, where they originated. As the influence of environmental economics has grown, so too has the discussion intensified over the introduction of economic instruments into fields such as pollution control, biodiversity conservation and energy consumption (Roseland and Jacobs, 1995; Pearce and Barbier, 2000; Mulder and Van den Bergh, 2001; Olerup, 2002; Di Leva, 2002). Economic instruments should not be seen in isolation. When introduced they are inevitably part of a structure and process of community management which in turn reflect wider objectives — environmental, economic, social and ethical — in society. For communities to move effectively toward sustainability, citizens and their governments should understand the range of policy instruments available to them and the wider context of how community policy is made. This chapter explores the use of policy instruments in sustainable community planning and development, and reviews the different types of instruments that are available to community decision-makers. E T P A H POLICY ISSUES FOR LOCAL GOVERNMENTS Although the precise characteristics of sustainable communities may be debated, characteristic objectives of local activity towards sustainable development can be applied virtually anywhere. Sustainable community development requires action to create viable local economies that are just, peaceful, resilient and eco-efficient. In order for these objectives to be achieved, a political culture of community involvement, stakeholder participation and consensus-building must be created and maintained (Otto-Zimmermann, 2002). With all of these objectives, local governments can be identified as playing an important role, as will be evident in the following chapters. (Unless otherwise noted, most examples referred to in this chapter are detailed elsewhere in the book.) Areas of local government involvement include ecologically efficient use of resources and their waste residues; energy efficient transportation and land use patterns; reducing social and economic polarization; and the integration of marginalized people into efforts towards sustainable community development. Given these general concerns for local governments, some broad policy goals might include the following: reducing per capita car use; reducing per capita water consumption; increasing the percentage of local land contained in parks; and improving cycling and pedestrian infrastructure, etc. Policy instruments can be employed to achieve these specific policy objectives. Vouchers POLICY INSTRUMENTS and Tax Incentives Two target populations for policy instruments can be identiLoans fied: the general public and individual firms or industries. Rewards, and The use of instruments to influence the behavior of the public can be called demand management (see chapters on energy, water, transportation, and community economic development). One of the most important requirements for sustainability is a reduction and equitable distribution of per capita consumption of resources as communities grow (Wackernagel and Rees, 1996; Rees, 2002). Since supply of resources can only be augmented to a certain point, this inherently requires that demand for resources be managed. Instruments that try to influence the behavior of firms and industries are not usually considered to be demand management, but they serve the same purpose-to reduce the consumption of natural resources. In considering particular instruments, it is important to note their target populations. In table 1, the instruments are divided into broad categories according to Jacobs (1993), although many instruments could actually fall into more than one category. The various policy instruments can be slotted into four categories. The first is traditional regulations such as permits and licenses that have a legal basis. A second category is voluntary mechanisms or actions taken that generally do not require expenditure. The third is direct government expenditure such as money spent on improved infrastructure. Lastly, there are financial incentives such as taxes, subsidies, tradable permits, and rewards. Financial incentives assume that the manipulation of the costs of certain activities will result in individual behavior changes, and do not usually require as much enforcement as regulations.
Table 1: Policy Instruments
1. Laws 2. Licenses, Permits, and Standards 3. Tradable Permits 4. Quid Pro Quos
1. Information 2. Volunteers, Volunteer Associations, and NGOs 3. Technical Assistance
1. Expenditure and Contracting 2. Monitoring 3. Investment and Procurement 4. Enterprise 5. Public/Private Partnerships
1. Pricing 2. Taxes and Charges 3. Subsidies 4. Grants and 5. Rebates, surety Bonds 6
Regulations are the most pervasive policy instruments. They include laws; licenses, permits, and standards; tradable permits; and quid pro quos. Requirements for catalytic converters in cars or insulation in homes are both typical regulations. Detailed regulations such as a prohibition on the use of barbecue lighter fuels make up Southern California’s Air Quality Management Plan; it has an astounding 5,500 pages of regulations designed to reduce smog levels.
The traditional way that governments discourage certain behavior is by making specific activities illegal. Enforcement of laws can be a problem, but they are still useful. For example, government can manage the demand for a certain product by restricting the amount that any individual can consume. Desirable behavior can also be achieved by getting rid of outdated or inefficient regulations (deregulation), although deregulation for the sake of deregulation is hard to justify. Governments can use building code laws, rent control laws, and zoning laws to encourage particular kinds of community development. A simple law can have significant effects. Cheap parking rates in urban areas are known to encourage automobile use. A simple law setting a minimum price for parking may be a substantial incentive for employees to use transit. In another vein, many jurisdictions have implemented “Take Back” laws that place the financial or physical responsibility on industry for end-of-life management of their products and packaging (Lombardi & Goldstein, 2001).
Licenses, Permits, and Standards
These are also regulatory instruments. Standards such as municipal effluent discharge standards may be based on a desirable ambient water quality level (performance standards) or industries may simply be required to use certain technologies (technology standards). Best-available-technology standards can be used for industrial effluent and emissions. Conservation plumbing standards in Oakland have saved the Oakland Housing Authority $189,000 in water costs (and 36 million gallons of water) by requiring all new developments to install low-flow (6 litres or 1.6 gallons) toilets (Ogorzalek, 2003). There must of course be a penalty associated with non-compliance if legal standards are to be effective. For example, a Ride Share Ordinance in Montgomery County, Maryland, penalizes employers that do not achieve a particular increase in transit use among employees. The result was a 31.7 percent increase in carpools and a 59.6 percent increase in transit use in just one year. Santa Monica is one of many cities that has set recycling space standards for new buildings. Residential buildings with 10 units must allocate 9 square meters (100 square feet) to recycling, and additional area for additional units. The standard is similar for commercial buildings. As part of Boulder, Colorado’s growth management strategy, development permits are issued based on standards designed to recognize the financial and ecological limits to growth in the area. For example, new housing development permits are allocated according to a formula of 25 percent market housing, 55 percent affordable housing (determined by a number of criteria) and 20 percent permanently affordable housing maintained through deed restrictions on resale.
Although monitoring is still required when tradable permits are used, the total allowable resource use or emission outputs can easily be set as the sum of all permits, creating an explicit limit. Emitters may comply with their permits by emitting just as much pollution as they have allowances for, by purchasing excess allowances from other firms, or reducing pollution more than is required in order to sell allowances to others. Since the costs faced to comply with a permit limit varies among different firms and may not be the same as the costs faced to control emissions, flexibility in pollution control is integrated with a command approach (Farrell et al., 1999). Tradable permits are a useful instrument only if they can be easily enforced and if initial allocation is not too difficult.
Quid Pro Quos
Governments may require firms to do something in exchange for the right to build or produce a product. In Boston, for example, developers pay a linkage fee for development that goes towards job training or affordable housing (Boston Redevelopment Authority, 2003). The use of property is also convenient — governments may actually give land to developers in exchange for a particular type of development.
Voluntary mechanisms can be defined as actions taken by firms, individuals or governments that generally do not require regulations or financial incentives. Volunteer associations and non-governmental organizations (NGOs) can be organized by firms or individuals. Some organizations use volunteers to clean up residential neighborhood garbage or carry out other activities that benefit communities. Government agencies can provide information and technical assistance to firms and individuals to promote certain behavior. Though classified as voluntary instruments, these may involve some expenditure as well. Government pleas to conserve water in times of drought are a useful alternative to shutting down water supply.
Expenditure on educating the public is a valuable tool-if people know that their behavior is socially or environmentally harmful, they may change it. The Power Smart program in British Columbia has resulted in voluntary reductions in energy use in the province. This type of education is a valuable form of demand management. Community policy development should be based on clear objectives, acceptable policy instruments, and public support for initiatives, which can be best determined through a participatory process involving all sectors of the community (Lafferty, 2001). Education can be achieved indirectly as well through financial support for NGOs. Without expenditure, individual politicians can educate people with public statements that can influence public behavior. By publicly condemning certain behaviors, people may feel obligated to stop or change them. Choice programs can also be an integral part of education. For example, if a community wishes to sustain its organic produce industry, it may initiate a program that clearly labels all produce as either organic or not. Accompanied by a public education program on the community benefits of buying organic, consumers will be well informed about the choices they are making.
Volunteers, Volunteer Associations, and NGOs
The use of volunteers is an efficient way to work towards community objectives. Not only can government choose the activities that it wants to organize, it can also help foster a healthy sense of community. Government need not get directly involved. It may instead promote volunteer associations or fund NGOs or private firms that can then organize activities. Small-scale voluntary recycling organizations are a common example.
Governments can not only provide financial resources, but also expertise for NGOs and firms. The City of Santa Monica sends brochures to small businesses which describe specific waste reduction measures in detail. Eco-counsellors are common in Europe, and provide detailed information and advice to individuals or businesses on a range of environmental issues.
Expenditure consists of any use of public money such as contracting, monitoring, investment, procurement, enterprise, and public-private partnerships. The Danish City of Copenhagen successfully used some regulatory and expenditure measures to reduce automobile use. In the 1960s, people wanted isolated homes and their own cars, desiring to imitate the American way of life. The city planners decided to reduce automobile use by reducing urban sprawl. Copenhagen set out to make the downtown core more attractive. It reduced parking by three percent each year, rebuilt city housing, and made the streets pedestrian-friendly and more hospitable by providing outdoor seating, etc. The result has been decreased traffic, a tripling of recreational and social activity in the major streets, and a decline in the market for isolated homes far from the downtown core (Newman, 1993b; Beatley, 2000).
Expenditure and Contracting
Government can directly work towards specific community objectives by spending money on specific activities, or by offering contracts that serve those purposes. Of course expenditure requires money (see Leithe and Joseph, 1991 for a review of financing alternatives for local governments). Furthermore, traditional engineering approaches often encourage expansion of infrastructure and supply augmentation, rather than alternatives such as demand management. Still, investment in improved technologies, such as better garbage or sewage treatment systems, can be a valuable form of expenditure. A good example of an innovative public-private partnership investment is Guelph, Ontario’s Wet-Dry recycling program that uses an anaerobic digester to convert wet waste (compostable material) to biogas used for electricity production (Smith et al., 2000). Small-scale energy-efficient sewage treatment plants such as those built in Providence, Rhode Island, and in Harwich, Massachusetts are also innovative. The technology is available for small-scale, self-contained sewage treatment plants that use sunlight, bacteria, plants, and fish to change sewage into clean water. Any technology that encourages the recycling of resources should be seriously considered by communities that attempt to plan for sustainability. Although expenditure has been traditionally used as a solution to many policy problems, it is not necessarily effective on its own. While some increases in transit use have been observed in the US, the $2.5-billion a year spent by the federal government since 1979 has not been as effective as hoped; although the systems are in place, people have not been given any real incentive to try transit (Plous, 1994). As long as public subsidies for roads and parking keep driving costs low, it is simply too easy to continue driving. It is apparent that federal expenditure on transit would be much more effective if it were accompanied by increased costs on automobile use.
A valuable form of expenditure is on the monitoring of infrastructure to ensure efficient operation. In 2003 alone, New York’s Leak Detection Unit saved an additional 225 million litres (60 million gallons) of water per day (NYCDEP , 2003). Leaks cannot be detected easily anywhere that water is not metered, simply because it is not possible to measure the volume of water arriving at a site.
Investment and Procurement
Governments can invest money in firms whose behavior is desirable in order to ensure their survival. They can also buy products from the firms that they choose, and thereby favor particular firms or industries. The municipality of Kolding, Denmark’s initiative amongst private and public kitchens to purchase organic food has raised the profile of more sustainable food systems. The “Buy It Green” — Network (BIG-Net) provides a forum for municipalities in Europe to share their green purchasing knowhow and expertise (ICLEI, 2002a).
When the market fails to provide desirable outcomes, governments can create their own businesses. These may be, but are not limited to, situations in which natural monopolies exist. Governments may also create private businesses that are non-profit. Community Development Corporations are private corporations with a responsibility to meet the needs of all members of the community. Residents join for a fee and can then vote on activities to be undertaken. Community Development Credit Unions can help a community by serving lowand moderate-income individuals that may not get financial services from banks. Their goal is to empower all citizens in the community. Public enterprises may also be set up that support community agriculture or utilize forestry as a source of revenue.
Governments can enter partnerships with particular firms that either have resources that are valuable to the government or have enough employees to do useful community labor. For example, Adopt-a-Park programs have evolved in Seattle and other US cities, in which private companies take responsibility for the maintenance of public parks (Osborne and Gaebler, 1993). Joint developments between private firms and transit authorities in Toronto have resulted in efficient use of land around transit stations (Newman and Kenworthy, 1999). High density development around stations has encouraged reduced automobile use and commuting times.
Financial incentives are an attractive alternative to traditional regulatory instruments. They do not generally require expenditure on enforcement because they create a constrained market environment in which firms behave as they normally would. Examples include pricing, taxes, charges, subsidies, tax incentives, grants, loans, rebates, rewards, to surety bonds and vouchers. A water conservation program in Santa Monica, California offered rebates to cover installation of low-flow toilets and shower heads. At the same time, a conservation incentive fee (a tax) was collected from households that did not participate in the program (as part of their water bills), and this money was used to partly finance the conservation program. Per capita consumption of water for indoor use has dropped from 303 to189 liters (80 to 50 gallons) per day.
Goods that have traditionally been provided for free can be priced as a method of demand management. For example, water metering can significantly reduce consumption. The City of Vernon, BC saw its average water consumption decrease by 15% and its peak demand by 29 percent when water metering was installed (City of Kamloops, 2001). The federal government in Canada reduced the number of employees driving to work by 23 percent after increasing parking rates. Although some equity problems emerge when pricing is used, there is a growing realization that natural resource constraints are leaving few alternatives (Newman, 1993a).
In 1985, the City of Freiburg, Germany (with a population of 191,000), lowered the cost of season-pass fares for transit by more than a third to give people an incentive to switch from cars to transit. The result was a 23 percent increase in the use of transit in the first year and transit ridership has more than doubled since then (Beatley, 2000). More than 30 other German communities have adopted the same program based on the success in Freiburg. Congestion charges and road pricing is one step towards accounting for the full cost of automobile use. The Central London congestion charging scheme has reduced car congestion by 30 percent, with public transit accommodating displaced car users (Transport for London, 2004).
Taxes and Charges
Taxes and charges can be used to discourage certain behavior, while providing revenue for the government. Impact fees are taxes on activities that have undesirable social or environmental impacts. Real estate taxes can be used to discourage urban sprawl. The information needed by agencies in order to administer appropriate taxes or charges may be substantial, but the use of an imperfect charge is surely more valuable than no charge at all. Sweden has been successful in implementing green taxes on such things as sulphur, nitrogen oxide and carbon, which has resulted in significant reductions in pollution. The carbon tax has resulted in a major shift to the use of biofuels in municipal district heating systems (Beatley, 2000). An alternative to taxing an undesirable output is taxing an undesirable input. Taxes on the use of natural resources are a method of encouraging firms to try to minimize resource use in production processes. It makes sense to tax more the undesirable things (e.g., natural resource use, pollution) and to tax less the desirable things (income, labor) (Rees 1995a, 1995b; Hoerner and Bosquet, 2001).
Subsidies and Tax Incentives
Many of the available policy instruments could be labelled generally as subsidies. It is important to identify many of these instruments as subsidies explicitly, and justify them as such. Economists may argue that subsidies create inefficiencies in markets, but this is not necessarily the case. Social and environmental externalities are not taken into account by conventional market economics, and financial mechanisms used to encourage desirable or environmentally-friendly behavior are actually attempts to make the market more efficient in these ways. In an effort to promote downtown revitalization and the intensification of residential land use, the City of Saskatoon provides property tax abatements, phased in over five years for new developments in the downtown core. The program has resulted in two new projects with a total of 104 rental units being constructed in the first three years (Tomalty, 2003). Seattle uses both reduced tipping fees and tax incentives to encourage commercial recycling. Companies are not charged a tipping fee when they deliver a load of recyclables to the city transfer station and the city excludes recyclables from the additional tax on waste collection.
Grants and Loans
Direct financial awards to researchers or firms are a useful way to encourage the development of particular industries and technologies. Seed money for firms to start up is a common form of financial grants. In the Netherlands, a successful green fund has been developed as a major source of private funding for ecological projects and investments. Private banks operate the fund, but the investments are certified and guaranteed by the government, and interest on investments is tax-free. In the program, the banks are required to invest at least 70 percent of these funds into certified green projects. As a result of these funds, projects such as district heating, organic farming, ecological landscape and nature restoration projects, and sustainable building projects have been supported (Beatley, 2000).
Rebates, Rewards, and Surety Bonds
Another type of financial incentive, rewards can be made to firms that are most successful at behaving in a particular way. For example, firms that build the most energyefficient housing complex in a municipality in a given year can be rewarded financially for their achievement. Similar to rewards, surety bonds are deposits of money made by a firm before an activity is undertaken. If the activity (e.g., successful pollution reduction) is successful, the deposit can be refunded; otherwise it is spent by the government agency for the same purpose. The German City of Saarbrücken (with a population of 128,000) rewards citizens who use solar energy by allowing them to sell excess power back to the municipal utility. The city buys back solar power at a price of about US$0.15 cents per kilowatt hour.
Consumer behavior can be influenced drastically by providing vouchers that effectively make a particular product cheaper. Vouchers for public transit passes would likely encourage people to try switching from cars to public transit. BC Hydro delivers coupons for the purchase of energy efficient compact fluorescent light bulbs to all of their customers. It is recognized that people perceive discounts off of regular prices as more of a benefit than an equivalent reduction in the regular price and they also increase purchase satisfaction (Darke, 2003). This psychological tendency can be used by policy-makers to encourage certain behavior.
Roseland, Mark. Toward Sustainable Communities : Resources for Citizens and Their Governments.
Gabriola Island, BC, CAN: New Society Publishers, Limited, 2005. p 39.
Copyright © 2005. New Society Publishers, Limited. All rights reserved.
WHY ENERGY EFFICIENCY IS IMPORTANT
Improving the ef?ciency of energy use is a leading option to gain better energy security, improve industry pro?tability and competitiveness, and reduce the overall energy sector impacts on climate change. To provide a picture of how changes in the world’s energy system might impact energy supply requirements and greenhouse gas emissions, the IEA prepares an Alternative Policy Scenario as part of its biannual World Energy Outlook (WEO). In the 2006 Alternative Policy Scenario, a series of more aggressive policies are modeled that reduce annual demand in 2030 by about 10 percent or 1.7 btoe. Increased adoption of energy ef?ciency measures account for a full two-thirds of
Taylor, Robert P. Financing Energy Efficiency : Lessons from Brazil, China, India, and Beyond.
Herndon, VA, USA: World Bank, The, 2008. p 27.
Copyright © 2008. World Bank, The. All rights reserved.