Rapporteur: Josef LEINEN (Germany)

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EXPLANATORY MEMORANDUM

Background

In 1996/97 the Congress of Local and Regional Authorities of Europe (CLRAE) and the International Council for Local Environmental Initiatives (ICLEI) carried out a survey on the use of economic instruments by European local and regional authorities. This was initiated by the "Working Group on Sustainable Development and Environmental Protection" of the CLRAE, comprising 20 local and regional representatives from the member states of the Council of Europe.

Mr Jo Leinen, the Rapporteur appointed by the Group, presented the results in a report to the 4^th Plenary Session of the Congress. On the basis of the report the Congress adopted Resolution 55, which described these instruments and suggested different ways for their implementation. The report showed that many local and regional authorities in Europe already implement economic instruments which affect the environment: fees are levied, subsidies are given and sometimes taxes are raised. However, it was also revealed that awareness of economic instruments is still very low within local and regional authorities. Consequently, they are not used to their full potential.

Further investigations by ICLEI confirmed the initial results and led to a first overview of practical examples in different countries. During the investigation a good general picture was obtained, but it also became clear that a representative analysis of complex local situations cannot be achieved via a general questionnaire.

For this reason the CLRAE Working Group and ICLEI decided to collect innovative examples of good practice from European municipalities and to use them as a basis for a guide on economic instruments for local authorities. It was also decided that the guide should provide information on the economic mechanisms behind the instruments and explain their benefits for the environment and the employment situation.

The Institute for Public Policy Research (London) joined the two initial partners to present a project proposal to the European Commission (DG XI), which finally decided to provide financial support for the preparation of the guide.

The guide gives background information about the environmental, financial and employment impacts of economic instruments, and shows how such instruments can be effectively implemented at the local and regional levels. It is addressed to municipal staff, politicians and local interest groups, providing them with useful information on these instruments and encouraging their systematic implementation.

The efficiency of economic instruments can greatly be enhanced if they are implemented all over Europe rather than in single regions. Every country has its own legal framework thus giving different conditions for the introduction of economic instruments at the local and regional level. The guide tries to overcome these differences in a twofold manner. First, there is a general description of international environmental programmes and frameworks, as well as EU legislation. Secondly, there is detailed information on options for economic instruments in different fields of application from different countries.

There are five case studies that describe how a certain economic instrument was introduced and how it succeeded, giving evidence of good practice. Of course they cannot cover all the differing possibilities of all European countries but readers can learn from these experiences and perhaps apply the principles set out to their own specific legal framework.

Structure of the guide

The guide is divided into two parts: The first part gives a general view on the theoretical background, whilst the second part focuses on the presentation of case studies.

In the first part the reader will learn about the characteristics and economic mechanisms behind the instruments (chapter 1). The advantages resulting from the implementation of economic instruments for small and medium-sized enterprises (as key players for innovation) are shown in chapter 2. The positive effects of economic instruments on the employment situation are explained in chapter 3. These arguments are illustrated by recent studies carried out in this field. Chapter 4, on local implementation, introduces the different forms of instruments and in chapter 5 their fields of application are shown.

The second and main part of the guide represents the description of innovative examples of good practice from different European countries. These can be found in the chapters 6 to 10. Chapter 11 describes the advantage of "first movers" and tries to identify the next possible "move" in each specific field covered by the case studies. Chapter 12 allows the readers to compare the implementation of economic instruments in their own communities with the actual situation in some selected cities. Finally, in the service chapter 13 one can find the full text of Resolution 55 on the use of economic instruments, adopted by the CLRAE in May 1997, and the text of the Aalborg Charter. Moreover, this chapter contains addresses, a table of Euro-exchange rates as well as a list of literature used.

A guide for local AND REGIONAL authorities on economic instruments for THE environment

First Mover Advantage by Eco-Efficiency - Local Incentives for Environment and Employment

Publishers
Congress of Local and Regional Authorities of Europe (CLRAE)
International Council for Local Environmental Initiatives (ICLEI)

Authors
Christoph Edrmenger, ICLEI
Sandra Schreckenberger

Acknowledgements

The production of this Guide was generously supported by the European Commission, DG XI. The authors would like to thank especially Hans Bergman for the expertise in content and Karsten Madsen for the technical support. Furthermore we would like to thank Chris Hewett from the Institute for Public Policy Research (IPPR) for his invaluable contribution and comments and Gyorgy Bergou (CLRAE) for the institutional support and contributions. Last but not least we thank our local partners Emanuel Fleuti, Zürich, Laurenz Hermann, Freiburg, Tore Hoven, Trondheim, Stigg Lönnqvist, Uusimaa and Jürgen Lottermoser, Saarbrücken.

FOREWORD

Local authorities are important actors in the transition to a sustainable development, as is clear from the large worldwide interest in the Local Agenda 21 process. From an international perspective, European cities, towns and counties are among the most active in this process.

To support the exchange of knowledge between local authorities, the European Commission supports various activities connected to the Local Agenda 21 process.

One of the new challenges for local authorities will be to integrate local environmental policy with economic and employment aspects. The use of economic instruments will form an important part of this integration.

I hope that this report, "First Mover Advantage - Local Incentives for Environment and Employment", which has been financially supported by the European Commission DG XI, will stimulate local authorities in the EU and elsewhere to find new ways to integrate economy and the environment.

Ritt Bjerregard, Commissioner for Environment, European Commission

EXECUTIVE SUMMARY

Sustainable Development is Mankind’s biggest challenge coming into the next century. Debate in recent years has made at least two things clear. First, that sustainable development cannot be purely about keeping to ecological limits. There have to be economic benefits as well, so called ‘win-win’ situations. Environmental protection and economic success must go hand in hand. Second, the challenge cannot be met by national governments alone, but various groups of protagonists have to innovate their strategic scope as well as their day to day practice. One of the most important groups are local and regional authorities.

The guide aims to present a set of solutions to meet the demand for integrated ecological and economic strategies for public authorities in a market based economy. For this purpose it employs the concept of eco-efficiency, which was first developed in the private sector as a way of improving the competitiveness of individual firms. The role of public authorities in eco-efficiency is to create incentives and set a reliable framework for the individual market competitors. While numerous regulations already exist, the chance is to apply economic instruments. These provide a price incentive for environmentally friendly behaviour.

By using economic instruments, three types of First Mover Advantage can be obtained. The first is increased quality of life for the citizens through improved environmental conditions. The second advantage is the decrease in resource use by the increase in resource-efficiency. This is a long run consequence of the internalisation of external costs. However, in a considerable number of cases there will be a short run gain as well, e.g. when costs for curing environmentally caused illnesses are saved. While the first two advantages can be achieved by every authority, the third can only be achieved by first movers. Experience, services and products which they have already developed through innovation can be exported to help pay for the economic transition. To gain this advantage, of course, other authorities must follow the development path of the first mover. There is some risk in this strategy, but if the world is going to solve the ecological crisis then development will have to become more sustainable.

Applying the concept of eco-efficiency by economic instruments stimulates innovation by and for Small and Medium Sized Enterprises (SMEs). SMEs are of special interest for policy. Experience shows that a number of ambitious environmental approaches from the private sector stem from SMEs. Furthermore the employment intensity of SMEs is generally higher, while large companies tend to be more capital-intensive. Economic instruments support SMEs, because they provide greater flexibility in meeting environmental requirements than regulatory instruments.

Neither ecological nor economic concepts will work without taking into account social consequences. Therefore the report investigates the consequence on the most severe social problem across Europe: unemployment. Unemployment creates poverty and social exclusion. The established solutions, be them neo-classical or keynesian, alone have not been able to solve the problem. Economic instruments provide an alternative option. Because they shift financial burdens from employment of labour to the employment of natural resources, they create an incentive to decrease labour-efficiency and increase resource-efficiency. This effect has been demonstrated by experience and economic studies. Green jobs can be created in different sectors. The scale of the effect, though, is not enough to overcome current unemployment rates. For this reason economic instruments can make an important contribution, but have to be accompanied by other measures.

The biggest debate for the introduction of economic instruments is at the level of national governments – or international bodies like the EU. Despite this, however, there have not been as many implemented as their advantages suggest there should have been. In this situation local and regional authorities could take the opportunity to make the first move. Often they already apply economic instruments like charges, but not consciously and therefore not systematically. A small number, however, have taken the opportunity already. To encourage others to follow their example and design their own economic instruments, a toolbox at the local level is presented. Charges, fees, fines, surcharges, taxes and subsidies (incentive ones as well as counterproductive ones) are the relevant instruments which can be applied in the areas of energy, waste, water, traffic and land-use.

Concepts like eco-efficiency and innovations like economic instruments have to prove their effectiveness in practice. The first example presented is Energy-efficient Saarbrücken in Germany. The city introduced a progressive rate structure for their energy charge. Alternatives to burning fossil fuels and the application of energy-saving devices were both stimulated.

Waste-efficient Uusimaa in Finland is the second example. The region not only set up an innovative framework of public-private waste management, but assisted this through a surcharge to finance recycling stations. Waste has been avoided and the remainder well separated and recycled. This has stimulated innovative collection and disposal services.

An example often cited but seldom analysed is Traffic-efficient Trondheim in Norway. Here a fee is levied for cars entering the city centre. Inhabitants use their car with more thought, and intelligent delivery and transport services have been stimulated.

Example number four is Land-efficient Freiburg, also in Germany. The city exempted residents of a new district from a counterproductive subsidy. Now, they do not have to use land for parking space, if they do not have a car. Open space is saved and innovative non-car transport services have been stimulated.

Last but not least is the example of Air-efficient Zürich in Switzerland. The international airport introduced a surcharge on air-emissions of NOx and VOC. This contributes to the regional clean-air-plan and stimulates the use of modern aeroplanes.

First movers only remain first as long as nobody overtakes them. They cannot move to far from the others. Therefore a significant gap still remains between the achievements of first movers and the challenge of sustainable development. The report concludes that this gap must be filled by the Next Generation of First Movers.

INTRODUCTION

ICLEI’s mission

The International Council for Local Environmental Initiatives (ICLEI) serves as the international environmental agency for local authorities. ICLEI’s mission is to build and serve a world-wide movement of local governments to achieve tangible improvements in global environmental conditions through cumulative local actions.

ICLEI is supporting local authority management capacity through training, technical assistance as well as information resources and exchange. Municipalities are brought together to develop comprehensive frameworks for addressing regional or global environmental problems at the local level. The aim is to integrate local policy making with international programmes and policy development.

The CLRAE

The Congress of Local and Regional Authorities of Europe (CLRAE) is an international political assembly representing local and regional authorities from 40 European countries. It is part of the Council of Europe, an international organisation established in 1949 to promote democracy and human rights.

The Congress speaks on behalf of Europe’s cities and regions. The assembly has 286 members (and an equal number of substitutes). Typically, they are democratically elected mayors and city councillors, as well as members of regional parliaments and governments.

The secretariat of the Congress is based in Strasbourg, France. It co-ordinates and assists the various bodies of the Congress, including the working group on environmental protection and sustainable development. One of the main topics of this working group has been local and regional economic instruments for the environment.

The IPPR

The Institute for Public Policy Research is an independent charity whose purpose is to contribute to public understanding of social, economic and political questions through research, discussion and publication. It was established in 1988 by leading figures in the academic, business and trade-union communities to provide an alternative to the free market think thanks. The office of IPPR is based in London, UK.

Besides its programme of research and publication, IPPR also provides a forum for political and trades union leaders, academic experts and those from business, finance, government and the media, to meet and discuss issues of common concern.

The institute is mainly working on green taxes, European policy, environmental risk and public health.

Economic instruments – learn more about a well-known fellow

Economic instruments can be effective tools for environmental policy. Their advantages range from environmental effectiveness to employment increases. There is a lot of research on the use of economic instruments at the national level, but very little available on their use at the local and regional level.

A survey undertaken by ICLEI and the CLRAE, showed that many local and regional authorities in Europe already implement economic instruments which affect the environment: fees are levied, subsidies are given and sometimes taxes are raised. However, the survey also revealed that awareness of economic instruments is still very low within local and regional authorities. Consequently, they are not used to their full potential. This guide wants to help fill the gap.

At first, the guide gives background information about environmental and economic impacts, then it shows how economic instruments can be implemented at the local and regional level effectively.

The guide is addressed to municipal staff, politicians and local interest groups. It hopes to provide useful information on these instruments in order to motivate the systematic implementation. Moreover the effectiveness can even be improved if economic instruments are implemented all over Europe rather than in single regions.

The problem of internationally differing legal frameworks

Every country has its own legal framework thus giving different conditions for the introduction of economic instruments at the local and regional level.

The guide tries to overcome these differences in a twofold manner. First, there is a quite general description of international environmental programmes and frameworks, as well as EC legislation. Secondly, there is detailed information on options for economic instruments in different fields of application from different countries. There are five case studies that describe how a certain economic instrument was introduced and how it succeeded, giving evidence of good practice. Of course they cannot cover all the differing possibilities of all European countries but the reader can learn from these experiences and perhaps apply the principles set out to their own specific legal framework.

Structure

Basically this guide is divided into two parts, the first part gives more a general view on the theoretical background, whilst the second part focuses on the presentation of case studies.

The results of this guide are summarised in an executive summary in the introduction. The reader will learn about the characteristics and economic mechanisms behind the instruments in the first chapter. The advantages resulting from the implementation of economic instruments for small and medium-sized enterprises (as key players for innovation) are shown in chapter 2. The positive effects of economic instruments on the employment situation are explained in chapter 3. These arguments are illustrated by recent studies carried out in this field. Chapter 4, on local implementation, introduces the different forms of instruments and in chapter 5 their fields of application are shown. The main part of the guide represents the description of innovative examples of good practice from different European countries, that can be found in the chapters 6 to 10. In the conclusion in chapter 11 the advantages for first movers and future possibilities are drawn. Finally, in the service chapter 13 one can find the full text of a resolution of the CLRAE on the use of economic instruments adopted in May 1997 and the text of the Charter of Aalborg. Moreover, this chapter contains addresses, a table of Euro-exchange rates as well as a list of literature used and a list of ICLEI publications. Before, in chapter 12 several tables are included which show the implementation of economic instruments in different German cities and allow a comparison.

Authority, municipality, community – how terms are used In the text

Generally, the terms authority or municipality are used in this guide. They serve as synonyms. Sometimes we also use the term community, because this term includes not only the authority or municipality but also the citizens and economy. An additional reason is the question, whether the local or the regional authority is the right address for the recommendation. This differs from country to country, sometimes even from region to region.

1. ECONOMIC INSTRUMENTS - FRAMEWORK FOR ECO-EFFICIENCY

1.1 Global Situation

From a very early stage in history the human species started to shape and to change the environment in order to make land arable. Later, resources were used to pursue craft and trade. As a consequence human activity has always caused a change in the material flow. This did not pose a problem as long as the changes to the landscape, natural processes and ecology were locally limited. Ecosystems had the chance to regenerate the natural resources – the ecological cycle could be closed again – in most cases without lasting damage.

The squandering of natural resources has increased rapidly during the last one hundred years partly because of population growth, mostly because of industrialisation. A positive effect of this development was an increasing standard of living and prosperity in industrialised countries. On the other hand this process involved also negative consequences for the environment like degrading of natural resources, toxic pollution and the destruction of natural habitats. The last 20 years saw tremendous efforts to reduce these impacts. Billions of Dollar, Yen, Francs and Marks were invested in technology to absorb pollutants between their emergence in a production or consumption process and their release into the natural environment: “end of pipe technology”. The consequence of this strategy was, that impact of the toxic milligrams was reduced, but the damage by the throughput of megatons remained the same. One example for this is the emission of carbon dioxide (CO2), caused by burning fossil fuels. Over the last one hundred years, the industrialised countries have been burning a stock which has been built up during millions of years by the global ecosystem. Although the amount of CO2 produced this way seems to be small compared to the natural annual turnover, the consequence is that the global carbon cycle is severely disrupted – and therefore it’s ability to stabilise the global climate is endangered.

Today the impact of human activities on the environment exceeds the level that can be balanced ecologically. Additionally the situation is becoming more serious through population growth. If we want to keep the high European standard of living and at the same time guarantee a prosperous and healthy life for all people on earth, we cannot continue with the same intensity of resource exploitation. The challenge is: How can we establish a good living standard for all people on earth and the coming generations without destroying our natural resources?

During the previous decades environmental protection focused on pollution control, limits for hazardous substances and “end of pipe” technology. This method has proved to be expensive and could still not guarantee complete protection. Even though great efforts have been made in this field, success has only been local. Global environmental problems are still getting worse, partly due to the complexities of environmental damage, which makes it hard to proof the dangers.

Environment and the economy cannot be seen separately. The two are inextricably linked. It is no longer sufficient for environmental policy to clean up the pollution caused by economic policy. Environmental goals should be integrated into the economy, so pollution is prevented in the first place. Two models that try to describe this relationship are shown below.

The concept of eco-efficiency (see chapter 1.5) makes first steps in this direction. The advantage behind this concept is the fact that economic and environmental benefit can be achieved simultaneously. This effect can be enforced by the implementation of economic instruments which are described below. European municipalities can play an important role for global sustainable development by implementing economic instruments for the environment as a local framework for eco-efficiency.

The most pressing economic problem for Europe at the moment is unemployment. Even though some Member States are at different points on the economic cycle, all have employment creation as a key political priority. Having significant numbers of people out of work is clearly a problem for social policy, creating poverty and poor quality of life for many citizens, but it is also bad for the economy as public expenditure has to increase in order to pay unemployment benefits.

1.2 Environmental Policy Today

This chapter briefly introduces some characteristics of today’s environmental policy, describes shortcomings and introduces alternative concepts.

Principles

Two main principles can be found in current environmental policy. The polluter-pays-principle claims the polluter to be responsible for the damage he did to the environment. But often it is not easy to find out the responsible party for specific pollution. If the polluter-pays-principle is not suitable, the common-cost principle comes into play. The environmental burden is then paid by the community from the public purse.

Regulatory approach

Current environmental policy is dominated by the regulatory approach. There are two varieties of this. First, there is the traditional “command and control” regulation, which governments have used for the last two decades to control environmental pollution. This system is justified in cases where a specific threat should be avoided. Secondly, there is the negotiated or voluntary approach which is often put forward by industry as the most appropriate policy in terms of flexibility of response. In both of these cases, there is a risk that innovation could be stifled.

Shortcomings of the current situation

Rules and standards can only deal with a limited number of pollution sources and often lack flexibility. This can hurt small and medium sized enterprises (SMEs) and undermine the acceptance of environmental policy. Another problem is that rules can only describe fixed limits for a certain form of pollution. For this reason they do not give incentives to implement technologies and solutions protecting the environment beyond the legislative limit.

Limits often do not consider the individual situation of the polluter. This causes a lack of economic efficiency. Special problems that arise for SMEs are investigated in the following chapter.

Because of these shortcomings of “command and control” systems, many experts have called for a more dynamic form of environmental policy (cf. Eberhardt 1996, p. 228–229).

Alternative concepts

A new environmental policy should influence decisions of industry, business and individuals without claiming to be able to work out the most appropriate decisions itself.

One approach is that consumer information and environmental education starting in school can steer decisions (communicative approach). A second way of addressing the question is to establish clear mechanisms for processing information, analysing the environmental impact, taking decisions, assigning duties and controlling implementation within organisations (environmental management approach). A third possibility to support a new environmental policy and sustainable development is the implementation of economic instruments. This guide focuses on the use of economic instruments (see chapter 1.6).

1.3 Employment Policy Today

In recent years, governments have tried to create jobs by pursuing economic growth. Any employment lost through increases in labour efficiency is compensated by the production of more goods and services. To achieve this goal there are two competing economic theories, which are briefly described below.

The currently dominant concept is the neo-classical theory, which states, that all supply (of goods and services) will create a demand in the end. To foster economic growth it therefore calls for improving the situation of suppliers, e.g. private companies. This is often accompanied by the promise that prospering suppliers will be more competitive in international markets and therefore create employment from increasing exports.

The opposed theory was invented by John Maynard Keynes and is therefore called Keynesianism. It states that there are (at least sometimes) situations, where the demand cannot absorb the (potential) supply, because the national income is to low. This results in decreasing investments, decreasing income, leading to decreasing demand and ultimately unemployment. Following the theory unemployment can be fought by public investment programmes (accompanied by sophisticated other measures) to stimulate demand in the economy.

Both theories have been successfully implemented in different historical periods and different countries. Furthermore economists working on these concepts have created a vast array of useful tools of economic analysis. But nowadays the implementation of both has to face some new and severe problems.

First, the process of globalisation creates interconnected markets and high flexibility of producers. For example, investment programmes can be absorbed by neighbouring countries instead of stimulating demand in the own economy.

Second, there seems to be a general, although varying, decrease in growth rates in industrialised countries. In some ways this reflects a parallel ecological argument, that an ever growing economy increases resource use faster than its efficiency gains. While it will be hard (or impossible) to finally answer the ecological implications of growth, there at least remains reasonable doubt, that current growth rates in labour productivity of 2 or 3% can ever be overcompensated by higher economic growth rates.

Alternative concepts

Alternative concepts for creating employment are therefore permanently being searched for. Some of the most important approaches are the call for a redistribution of labour by shorter working hours and other instruments, the promotion of (innovative and labour-intensive) small and medium sized enterprises, a tax shift from income based on labour to income based on capital profits and an active public employment policy. This guide, though, will focus on another concept, which promotes a shift of financial burdens to the consumption of natural resources.

1.4 Steps For Sustainable Development

“Environmental sustainability means maintaining the natural capital. It demands from us that the rate at which we consume renewable material, water and energy resources does not exceed the rate at which the natural system can replenish them, and that the rate at which we consume non-renewable resources does not exceed the rate at which sustainable renewable resources are replaced. Environmental sustainability also means that the rate of emitted pollutants does not exceed the capacity of the air, water, and soil to absorb and process them” (cf. Aalborg Charter, Part 1 Para.2).

If sustainable development is to be achieved in Europe there have to be major changes in production and consumption patterns. The throughput of energy and material has to be reduced significantly, becoming a fraction of the current level. This enormous challenge requires the concerted efforts of all parts of society.

Society
(social, political and cultural systems)

Economy
(production, goods, services employment, income, profit)

Environment
(Natural resources, water, air, soil, biodiversity, raw materials, health)

Sustainability – what shall be sustained?

Therefore environmental protection should become a cross-sectional task by integrating environmental policy into other fields of policy.

Approaches to integration: Agenda 21 ...

One of the central points of the United Nations Conference for Environment and Development (UNCED) in Rio de Janeiro in June 1992 was the integration of environmental and development policy. ‘Agenda 21’, the official declaration adopted by the national government during UNCED, tries to put this idea into concrete terms. It describes aims and measures for population policy, health policy, settlement trends and more. Most of the world’s governments now accept its logic and are committed, at least on paper, to achieve sustainable development. Agenda 21 describes a route towards it. But sustainability’s very strength as a mobilising idea – the broad idea of its message – is a handicap to its implementation: the difficulty in describing concrete targets and how to achieve them.

... and the 5^th European Action Programme

With the European Union’s 5th Environmental Action Programme (EAP) “Towards Sustainable Development” the European Commission supports the idea of integrating environmental concerns into the economic development. The EC has broken with the tradition of the previous programmes which focused on single environmental media (e.g. air, soil, water). The 5th EAP introduces integrated approaches for the main branches associated with environmental protection (industry, traffic, tourism, agriculture). As one of the central instruments to implement integrated environmental protection, economic instruments like environmental charges or liability systems are favoured. This objective is expressing a new understanding of environmental policy. It is also supported by a growing number of traditionally economy-oriented institutions. For example the OECD recommends more intensive consideration and the implementation of economic instruments in order to support an integrated environmental policy.

Economic benefit of sustainable development

Today’s practice of short-term calculation of economic benefits often produces an illusion where environmentally-damaging practices appear to be economically cheaper than those which avoid or reduce environmental impacts.

This leads to the creation of hidden burdens that act as debts on the next generation. For example, the emission of acid substances leads to the washing out of basic substances from forest soil. This process cannot be reversed. These costs are externalised, which means that costs of environmental damage are not paid by the polluter.

Theory of external costs

Consumption of energy and other resources causes pollution. This imposes costs on society which are generally not included in the price of the energy or resource being consumed – these extra costs are external to the money transaction. They are known in economic theory as ‘externalities’. The economist Cecil Arthur Pigou, defined this phenomenon at the beginning of the century and argued that until the externalities were fully reflected in the price of goods, society will have incentives to consume too much. ‘Internalising’ these costs would therefore deliver a more efficient outcome in the economy (cf. Pigou 1920).

New technologies and process innovations

In addition to the environmental benefits, internalising external costs has two economic advantages:

Private companies continuously seek to improve their economic performance. This means either cutting costs or increasing output. Internalising external costs changes the cost structure of companies who will respond by identifying fields of innovation, research and development to adapt to the new market framework. Such responses cannot be easily predicted by government central planning. It is the individual company, who knows its production processes well, who are best placed to find the economically optimal solution.

With the introduction of new technologies and processes raw materials and energy can be used far more efficiently, sometimes eliminating the need for expensive end-of-pipe solutions. Increased competitiveness is reached through improved production processes and products, as well as reduced costs of materials and energy. Moreover, the risks that arise for treatment, storage and disposal of toxic wastes could be reduced, which is likely to improve the health and safety for employees. Another advantage for companies applying environmentally sound technologies is that they will come under less pressure from environmental restrictions or prohibitions on business activities. Finally all these measures are likely to improve the public image of a company.

Job creation

Unemployment is recognised as a serious problem in many European countries. In fact integrating external costs can contribute to an improvement of the employment situation.

With the Treaty of Amsterdam, which was signed on 2 October 1997, a co-ordinated strategy for employment became the task of the European Union. In November 1997 the Commission presented Employment Guidelines for the Member States. In June 1998 the European Environmental Bureau (EEB) and the European Trade Union Confederation (ETUC) presented a common ‘Declaration on Environment and Employment’. The two institutions have jointly analysed the current state of employment policies in the European Union and have agreed on the need for a co-ordinated strategy for employment. Employment policies are an integral part of sustainable development. While meeting their own specific objectives, employment policies shall and can assist in reducing the pressure on and the depletion of environmental goods and natural resources.

If external costs are internalised by shifting the burden of tax away from labour on to pollution and resource use, the consequent reduction of non-wage labour costs could stimulate extra employment. Non-wage labour costs, such as social security contributions are higher in Europe than most other developed countries, so companies would gain in international competitiveness.

Changing consumption patterns

Industrialised countries can achieve a factor 4 improvement by efficiency, if accelerating innovation can be channelled to serve the objectives of sustainable development. But to achieve e.g. the CO2-goals of 80% reduction until 2050 recommended by the International Panel on Climate Change and considering present economic growth a factor of 10 is necessary. Therefore efficiency alone is not enough to meet the challenge. Sufficiency is playing an important role. This means a change in consumer behaviour and has to be reached through a change in thinking, a discussion of values.

The challenges of sustainable development may require social innovation as much as technical innovation. Individuals have to decide for themselves whether a specific change in their consumption patterns leads to improvement or deterioration in their quality of life. Successful innovations may spread and become normal behaviour, but cannot be pre-selected by government experts.

1.5 The Concept Of Eco-Efficiency

A concept for private enterprises

The concept of eco-efficiency was developed by the World Business Council for Sustainable Development (WBCSD) and is currently being adopted by the OECD. The underlying assumption is that economic and environmental interests do not have to contradict. By orienting on eco-efficiency the interests of business, society and environment can be integrated. In the narrow sense, eco-efficiency can be defined as the “efficiency with which ecological resources are used to meet human needs.” The broader concept to guide businesses’ and governments’ policy is described as follows:

“Eco-efficiency is reached by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life cycle, to a level at least in line with the earth’s estimated carrying capacity (cf. Fussler 1996)”.

Eco-efficiency as a concept was invented in the private business sector and therefore primarily addresses this sector. Its objective is to reduce the ecological impacts of business activity.

The implementation of the concept includes the following steps:

1. identifying indicators, goals and criteria

2. undertaking a process of change in technology, behaviour and ways of thinking

3. monitoring the results.

Eco-efficiency involves the whole society

The concept has implications which reach far beyond the direct use of natural resources by business companies. Because much of the environmental impact of products and services is caused in the consumption phase, eco-efficiency intends not only to change the production process but also the relationship between business and customer. On the one hand the customer is needed to implement the ecological improvement, on the other hand he or she plays an important role in rewarding the business for its efforts. In the end, eco-efficiency is promoting a change of the economic system, a shift from industry production to service society. This will also affect the relationship between business and customer through providing service rather than selling goods. The focus will be more on meeting the needs than selling a product.

Another important factor to promote eco-efficiency is socio-economic security based on improving equity, reducing poverty, encouraging democracy and supporting human rights. Without these conditions eco-efficiency will probably not be successful.

Large improvements in eco-efficiency depend on a combination of technical and social innovation. The innovation process includes not only the development of new technologies, organisational structures and behavioural patterns, but also their successful diffusion. Eco-efficiency will only be successful with strong political framework, improved education and an involvement of work forces and consumers. A better communication will lead to the acceptance of new ideas.

One of the problems with the economic imperative to increase profit is that companies must increase productivity – which is normally interpreted as labour productivity. Particularly in Europe, where non-wage labour costs are high, jobs cut backs are the quickest way to reduce overall costs and improve productivity. This creates the conditions for structural unemployment in the economy. Here, there is a tension between economic policy and social objectives. Eco-efficiency concentrates on other ways of improving productivity and reducing costs to business, by cutting material and energy inputs into the process. This change in the economy will not happen without changes in the policy framework at national and local level.

The need for political guidance

Eco-efficiency creates various opportunities of improvement for business and environment. But if implemented without political guidance some shortcomings can appear. The changes in technology can sometimes be restricted due to different reasons like the first cost of new technologies, the trend among stakeholders to preserve the status quo or inefficient communication.

To avoid this a political leadership by the public authorities is needed, which ensures that framework conditions provide a positive incentive. One important element in the concept of eco-efficiency is a shift in the burdens for public revenues, e.g. by a tax reform. The reform should raise the price of energy and the use of resources while the taxes on labour are decreased. Complementary to international and national efforts, but especially in the current absence of tangible improvements at this level, local and regional authorities should check the incentives they currently provide – and show leadership in introducing economic instruments.

1.6 Economic Instruments

Economic instruments can be effective tools for environmental policy. Their advantages range from improvement of environmental protection to employment increases.

In this guide the following definition for economic instruments is used:

Economic instruments for the environment

• influence the price to be paid for a certain action or process

• in a way that environmentally friendly behaviour becomes relatively cheaper than the environmentally unfriendly choice.

Benefit

Common environmental policy often consists of regulations and prohibitions. In comparison with restrictive regulations and laws economic instruments allow the companies to act and react in a more flexible way. They allow a dynamic solution of problems. Environmental protection and economic development do not have to be contrarians. The implementation of economic instruments has positive economic and ecological effects. They cannot stand alone but need to be integrated into the context of sustainable development.

Economic instruments do not regulate how a process or action has to be handled, but they try to give incentives through price signals. Environmentally friendly behaviour is encouraged and pollution is penalised by higher costs. In comparison with common regulative instruments of rules and prohibitions the economic instruments can contribute to improve the efficiency and effectiveness of environmental policy.

According to the Nordic Council of Ministers “Economic instruments have several appealing properties, and if properly designed, they may promote economic efficiency by:

Cost effectiveness

allowing market agents themselves to decide upon the best way to reduce pollution, as only market agents themselves have full information regarding their own cost functions.

Dynamic efficiency

providing permanent incentives for technological improvements. While direct regulations usually provide little incentives for reducing pollution below the regulatory limits, economic instruments may entail continuous incentives for emission.

Administrative efficiency

reducing the size of bureaucracy required for regulatory approaches and minimising compliance costs” (cf. Nordic Council of Ministers 1996, p. 21).

Moreover, the use of economic instruments can introduce greater flexibility into command and control strategies, and progressively reduce the need for regulatory intervention. Economic instruments can enable people and organisations to choose how to respond, rather than requiring everyone to do it the same way. They provide polluters an incentive to seek ways to reduce pollution more than required. This may lead to more rapid innovation in technologies. Economic instruments may also raise revenues which may allow to reduce other taxes or can be used to finance environmental programmes. The advantages will be discussed further in Chapter 2.

Limitations

But economic instruments are not always the perfect solution, because they are influenced by various factors (cf. ICLEI 1996).

Leakage effects

Economic instruments do not provide the clear controls of a regulatory approach. Their effect is not always predictable, because they are dependent from market forces. For example, if you charge too much, people start to become illegal or try to avoid charges. Economic instruments cannot be used when you need to make everyone behave in a certain way.

Split incentives

The people affected by an economic instrument may not be those to respond to it. Payers may not control key decisions (e.g. when prices for energy supply are increased, tenants could have to pay whereas the property owner or landlord has the responsibility, but no incentive, to install energy saving measures). Economic instruments will only work if they apply to parties who have the power to make necessary changes. Moreover, some public infrastructure, recycling facilities for example, must be available.

Conflict of interest

Conflicts of interest can occur when economic instruments either cost or raise money. Some economic instruments – such as road tolls – raise revenue. Although these charges may be designed to reduce automobile use, the economic effect of achieving this objective is to reduce revenues. There might emerge a conflict between succeeding with its environmental objectives and losing revenues.

Nevertheless, regulations will remain an important instrument for environmental protection. Economic instruments can enhance, complement, and sometimes replace traditional regulation approaches.

1.7 Some Rremarks On The “Right” Price Level

As it becomes clear that economic instruments for the environment have a number of advantages, a simple question comes up: How high should price levels for using natural resources be made by using economic instruments?

In practice this question sometimes is irrelevant, because the real world, restricts the room for manoeuvre. Prices cannot be too far away from those of the competitors and the increase must not be too steep in order to avoid economic shocks. But still, some estimate of the external cost is needed.

In theory (see chapter 1.4) the price level would have to be set by monetary evaluations of the value of the specific natural resource. This is obviously not easy as no price tags can be found in nature. There are two main estimation techniques. One tries to calculate the quantifiable economic losses, e.g. by decreasing fishery, tourism or forestry. The other asks people about their “willingness to pay” to preserve a certain resource. Both approaches improve our knowledge about external costs, but they include large uncertainties and are too dependent on personal values. For this reason hopes should not rest in these methods one day providing us with the one “right” price.

While the external costs’ argument stems from a national economic analysis, business economics offer another perspective: the principle of cost recovery. This says that the price for a service generally should cover all costs born by its delivery. This usually is enforced by competition, because companies which do not reimburse their costs by their prices are likely to go bankrupt. For public services (based in authorities) this often does not apply, because they are subsidised by public funds. Therefore the most important measure is the call for cost-covering prices when using natural resources.

The measure of cost-recovery is also important, because it is often used in price regulation. Where there is a monopoly on a service (as with a number of charges on natural resources), it is often prohibited to charge more than the supply actually costs. At first glance, it is not clear whether this rule makes it possible to integrate external costs in the prices. The question is how the price regulator would interpret the word ‘costs’. It is likely that when the original law was introduced, policy makers were only considering the traditional monetary costs of delivering a public service.

Another way is simpler. The aims of a company are defined by the owner of a company. Usually the main aim is to gain maximum profits. But public companies, for example local savings banks, often have other aims: maintaining the regional economic structure, increasing regional employment, etc.. It should also be possible to integrate the notion of sustainability in such companies’ aims. Applying the rule, for example, that renewable resources should not be used faster than their regeneration rate, should enable public services to increase prices in order to use resources in a more efficient way (cf. Junkernheinrich 1995).

2 Key to Innovation: Economic Instruments Promote Small and Medium Sized Enterprises

2.1 Why Innovation Is Important For The Economy And The Environment

Many businesses and governments understand that sustainable development can be delivered through increasing efficiency of resource use and cutting the amount of pollution caused per unit of manufacturing output. Academics like Ernst-Ulrich von Weizsäcker and Amory Lovins have argued that current technology could improve resource efficiency by a factor of four, enabling society to double its output and halve its resource and energy use (cf. von Weizsäcker 1997). Central to this new environmental agenda is the need for industry to innovate, think laterally and make imaginative leaps both in the technology and the way it is used.

2.2 What Environmental Innovation Is

The 1990s have seen the environmental debate, in government and business, move away from seeking ‘end-of-pipe’ solutions, where technology is used to remove pollution at the end of a process, towards integrating cleaner technologies into mainstream industry – preventing pollution at source and reducing material throughput. This is ‘process innovation’, one feature of environmental innovation. Rolf Iten, Director of INFRAS Consulting Group for Policy Analysis and Implementation, an environmental research institute based in Switzerland, defines two other aspects: ‘product innovation’, redesigning products to take account of their life cycle impacts; and ‘function innovation’, reassessing the function of the product or process to meet the underlying need (cf. INFRAS 1998).

Example

To illustrate, take an example of a vehicle manufacturer. Changing the process to use fewer chemical inputs and less metal would be a process innovation. Ensuring that the vehicle could use cleaner fuels and do more km to a litre would be a product innovation.

Finally, the most radical step of all could be to assess the customers needs as accessibility to private transport and mobility, rather than actual ownership of a vehicle. This function innovation could spawn a diversification into car leasing or even public transport.

The Science Policy Research Unit in University of Sussex looked at innovation differently, classifying it through the way in which decisions are made in a company. First there are integral process changes and product design issues, these are long term investment decisions made at board level. Secondly, there are cost-saving investments in a plant which require short term paybacks and are decided by plant managers. Finally, there are compliance investments which are required by legislation or regulation (cf. Howes 1997). The next table shows the two types of innovation classification:

This chapter will seek to demonstrate that, whichever classification is chosen, economic instruments will have a better effect on innovation than other instruments such as regulation or voluntary agreements.

2.3 Innovation Comes From Small And Medium Sized Enterprises

A sustainable economy will feature different industries and have a different structure to the one we are used to. Clearly, by its very nature, it is impossible to predict where the best innovation will come from, but opportunities are maximised by having a thriving base of small and medium sized enterprises (SMEs) and new companies. Without stimulating new businesses and fresh ideas, the change in industrial society which sustainability requires will undoubtedly be slower. SMEs have a growing influence on European economies as traditional large manufacturing industries have declined. 70% of EU employment is in companies with fewer than 500 employees (cf. EC 1993). Two of the most rapidly growing sectors on the economy, environmental industries and information technology are to a large extent made up of SMEs. The OECD estimates that the global market for environmental technologies will exceed 441bn Euro by 2000, by which time it will be bigger than the aerospace industry.

2.4 Why Economic Instruments Are Better For Innovation Than Other Policies

Whilst traditional ‘command and control’ regulation suited an industry dominated by large factories, this approach is less appropriate to an economy with lots of small companies. Administrative costs in the public sector increase as there are more companies to regulate, as do the compliance costs for the private sector. Economic instruments are better suited to the modern economy as they are more flexible and give companies greater control over their compliance costs. Economic instruments stimulate innovation. By ensuring minimum day to day interference from government in the market, they allow companies to find their own way to respond to agreed policy goals, such as reducing CO2 emissions. Because of these efficiencies, they also deliver environmental protection at lower abatement costs.

In explaining why economic instruments are more efficient than other instruments, one has to look at the alternatives. These fall, as already mentioned in the first chapter, into the three broad categories regulatory instruments, environmental management instruments and communicative instruments. As communicative instruments are always complementary to other instruments their role in applying economic instruments will be explained in chapter 1. The problems of regulatory instruments and a specific tool in environmental management instruments, voluntary agreements, will be explained in the following section.

2.5 How Regulatory Instruments Can Hinder Innovation

Taking regulation first, this can be operated in two ways. Government can set emission limits for a factory and give a company licence to emit up to that limit. If this is exceeded then the company would be liable for fines or other penalties. The limit would usually be set through a process of negotiation between the company and government, almost certainly on the basis of current practice and technologies. As long as the company remains under this limit, there is no incentive for them to improve further. A plant which puts out 99% of its allowable emissions gets the same treatment from government of a plant which only puts out 50%. When the limit is based on existing technology, which has been already applied in practice, the cleanest company is not rewarded so there is no incentive for them to improve further through innovation. The new IPPC (International Panel on Climate Change) Directive, which will apply across Europe from 1999, uses a different form of regulation. Experiences with this have been gained in Germany since the early 80s and it also was pioneered in the UK. In this case, certain technologies are deemed by government to be the Best Available Technique (BAT), taking into account reasonable costs to the industry involved. In practice, the regulator works closely with the companies and plants involved to negotiate what is meant by BAT for the process being regulated. However, this can also be a hindrance towards innovation by effectively telling a company what technology path they must take. Once a BAT is defined for a period of time there is no incentive for the company to invest in alternatives to improve their environmental performance. Even if regulation could be designed to force process innovation, it would almost certainly hinder moves towards product or function innovation.

Example

For example, in electricity generation there will be a BAT for coal-fired power stations, even if the best option for the environment may be a different type of fuel or demand side management. In this way the regulation protects the current structure of manufacturing and prevents innovative solutions from coming into the market.

In both forms of regulation there is a great deal of government intervention in the market. This can be both time consuming and inefficient, for government and private sector alike. Either way there are great risks in government trying to second guess technological improvements and the approach is virtually impossible with SMEs.

Mitigation costs will vary across different companies. Regulation sets the same level of mitigation for all companies, therefore imposing higher costs on some then others. For toxic pollutants, the source of pollution is very important so uniform mitigation standards are essential – discharges to watercourses, for example. However for some pollutants, like carbon dioxide, all that matters is the continental or even global level of emissions. It then makes more sense for government to take into account the mitigation costs for individual companies, so the most economically efficient method of emission reduction is reached. This can be done through negotiations and technology based regulation, but the most efficient outcome is more likely to be reached through economic instruments influencing market decisions.

2.6 Which Wrong Incentives Voluntary Agreements Can Provide

Voluntary agreements can be a tool in a set of environmental management. Beside the fact that they provide more flexibility than regulations, specific problems of voluntary agreements are illustrated here.

The approach currently favoured by industry is to set up voluntary or negotiated agreements between industry and government. In this case industry, either as a sector or on a plant by plant basis, negotiates a target for emissions or efficiency which it pledges to achieve. A number of these agreements have been signed in The Netherlands and Germany, usually between trade associations and government.

Industry argues that these agreements allow more flexibility than regulation, which is true. An industry as a whole has an aggregate target but it is left up to the sector how that is distributed amongst individual companies. However, there are still problems with stimulating innovation using this approach.

If the agreement is at a sector level this arrangement could even have the effect of rewarding the slowest uptake of environmental measures. For example if a sector signs an agreement to reduce CO2 emissions by 15% over 10 years in return for a pledge by government not to impose regulation or tax, the company that reduces its emissions by 20% gets the same reward as the one which does nothing. As long as the sector as a whole delivers its 15% then every company is treated the same. This could create an incentive for companies to ‘free ride’ the system and let others deliver the cuts on their own. There is also concern that only large companies would have the capacity to be involved in negotiation with government, leaving SMEs with a potential disadvantage of not being able to influence the final decisions.

Conversely, if an industry as a whole becomes very successful at reducing its emissions, governments (particularly a new administration who wouldn’t see themselves as party to the original agreement) might want to renegotiate the target arguing that they had been deceived by industry the first time round. This logic means there is no incentive for a sector to reach its target quickly, and even a temptation to get there slowly in order to influence the next round of negotiations.

The administration and negotiation of an agreement can become very bureaucratic, involving a great deal of management time and regulatory expertise. Lack of transparency in negotiations could lead more effort on the company’s behalf seeking a ‘good’ deal and less on technological innovation. The need for independent monitoring and verification of an agreement also ties up more time in the process and less on achieving improvement. If SMEs were involved the burdens of verification and monitoring would soon become unmanageable. Innovation and R&D investment would inevitably lose out. This type of policy could address process innovation, particularly the long term process design issues, but it is unlikely to have an effect on product or function innovation.

2.7 What Economic Instruments Offer For SMEs

Economic instruments address a number of the problems which are thrown up for regulation and voluntary agreements. They allow more flexible responses from business, by not specifying technologies or rigid targets. There is limited involvement of regulators and bureaucrats in the day to day business of the private sector. Whilst compliance costs are not zero, businesses have more control over their reduction. Economic instruments offer a continuous incentive to reduce emissions, thus rewarding the front runners and innovators with lower costs. Innovation has featured as a key theme in debate over environmental taxes in Germany and Switzerland. Case studies carried out with Austrian firms concluded that innovation would be stimulated by a shift in taxation away from labour on to energy (cf. Hess 1997). A number of German businesses also believe such a tax shift would be beneficial (cf. WI 1997a). In the UK, the Advisory Committee on Business and the Environment, which consists of senior business representatives, have also argued that economic instruments could stimulate innovation.

An interesting example comes from German manufacturing company, Ebnother AG, who used an internal levy on solvents which produced volatile organic compounds (VOCs). The levy was introduced in 1984 and only a year later the solvent use had been reduced by 50%. These rapid changes were the result of innovations stimulated, in part, by the fact that the levy had an impact on internal profit margins and therefore employee’s bonuses (cf. WI 1997b).

Some of the advantages of economic instruments, already summarised in the introducing chapter, are described below with special focus on SMEs.

Flexibility

• The advantage of SMEs is that they do not have huge amounts of capital invested in plant and so can change technologies more rapidly. Economic instruments are easier for SMEs to deal with because it allows them to respond in more flexible ways, including product and function innovation, than rigid technology standards. Management time is extremely valuable in small companies and it is better for the economy and the environment if that time is deployed finding solutions to an emissions problem than dealing with red tape.

Dynamic effect

• Another advantage of economic instruments is that they exert a continuous incentive to reduce emissions and hence reward the best and cleanest companies in each sector giving them a competitive edge because of their innovation.

Revenues

• Some economic instruments generate revenue which can be used to support innovation and cut taxes which distort the market. Most SMEs, especially the innovative ones, are labour intensive and non-wage labour costs, in the form of taxation, can be a drain on resources. If revenues from environmental taxes are used to cut labour taxes then innovative SMEs are likely to gain. Other advantages of shifting tax away from labour on to pollution are discussed in the next chapter.

Another use for at least some of the revenues could be to finance other economic instruments, which give price incentives in form of subsidies. They support innovative clean technology investment or R&D into new ways of production. This can be an important contribution to overcome the central hindrance for eco-efficiency, the risk of high initial investments when reorganising the production process. In The Netherlands, a number of emerging environmental technologies receive favourable tax treatment, allowing accelerated depreciation of investment, for example. Similar schemes exist all over the OECD (cf. OECD 1997e). Economic instruments can be used to not only penalise the bad but reward the good.

2.8 Summary

As illustrated by the table below, economic instruments are more likely to stimulate innovation and uptake of clean technology compared to ‘command and control’ regulation or voluntary agreements. As the economy moves away from large scale manufacturing industry towards a more flexible, information based economy, these types of instrument will become a more appropriate and effective way of regulating activity to protect the environment.

3 KEY TO EMPLOYMENT: ECONOMIC INSTRUMENTS CAN HELP CREATE JOBS AND CUT POLLUTION

Creation of pollution imposes costs on society and the economy. Environmental policy seeks to ensure those costs are paid by the polluter. This will happen if governments use regulation or economic instruments but, as argued earlier, the market approach will give the most efficient outcome for the economy as a whole. Another advantage of economic instruments, as opposed to regulation, is that some of them will generate revenue for governments. These revenues can be used to stimulate employment, either directly, through public expenditure, or indirectly through cutting distortionary taxes in the economy.

3.1 Environmental Tax Reform

There has been a debate for several years at the national level on an ‘environmental tax reform’. If governments do not want to increase the tax burden on the economy then revenues from green taxes should be used to cut other taxes, particularly ones which distort the market, such as taxes on labour. This has become known as green or environmental tax reform (ETR): shifting the burden of taxation from things we want to encourage, like work, income and savings, on to things we want to discourage, like environmental pollution or resource depletion. Taxing ‘bads’ not ‘goods’. It is a theory which has been propounded by environmental economists for many years but moved into the mainstream policy debate with the publication of European Commission White Paper on Growth, Competitiveness and Employment, often known as the Delors White Paper (cf. EC 1993). This argued that the European model of growth ‘under-used’ labour, causing unemployment and ‘over-used’ natural resources causing environmental degradation. Some countries like Denmark, Sweden and The Netherlands are now starting to put the theory into practice. Underlying the idea is the economic theory of external costs (see chapter 2) which explains why taxing pollution more should give a more efficient outcome for the economy as a whole.

Shift of taxes

In contrast, taxes on labour and income are actually a distortion on the economy. They make employment artificially expensive in the marketplace and so create disincentives to employ more people. The idea of environmental tax reform is to replace some distortionary taxes on income and labour with ones which internalise externalities and make the economy more efficient. In theory more jobs should also be created as the costs of labour would fall. Clearly there is a limit to how far one can shift the tax base before starting to create new distortions, but it is generally agreed that the current balance is not right.

One can also argue that if governments decide to raise more revenue through taxation it makes good sense to raise it through environmental taxes, which remove a distortion in the economy, than through conventional taxes on labour or capital. So even if green taxes are simply used as revenue raisers, the employment consequences are better than the other options.

3.2 Growing Consensus Over Environmental Tax Reform

In a number of countries, there is an emerging consensus that the burden of tax does need to shift. At the national level some governments, such as Denmark, The Netherlands and Sweden, have introduced reforms already (see box). The UK government has issued a ‘Statement of Intent on Environmental Taxation’ which uses the language of ETR. Others, including Norway and Belgium have set up special Green Tax Commissions to build consensus around the principle, which would have to be implemented over two decades to allow the economy to adjust slowly (cf. WI 1997b). Local and regional government will have a key role to play in these changes both as a payer and collector of taxation. Outside government a number of business organisations and trade union bodies have endorsed the principle of environmental tax reform. The World Business Council on Sustainable Development, a group of Chief Executives from major international companies, has recommended that governments should shift taxes away from “value-adding activities such as labour and capital” and on to “value-depleting activities such as over use of environmental resources” (cf. WBCSD 1994). In 1996, a joint declaration from the European Trade Union Confederation and the European Environmental Bureau called for “concerted European action for taxes on environment and energy.”

ETR around Europe

Denmark

In 1993, the Danish government introduced a green tax reform package which included increasing taxes on energy and waste whilst decreasing employer’s social security contributions. This is being phased in over the period 1994–98. Most of this package was based on taxes on households. In addition to this, in 1996, an energy tax on industry was introduced accompanied by some incentives to invest in energy efficiency. This is also being phased in between 1996 and 2000 (cf. Energy Tax on Industry in Denmark, Ministry of Finance. Copenhagen 1995). Denmark saw a decrease in unemployment from 10.1% to 4.7% from 1993 to 1998. Deficits are unknown to the national budget since 1997. These effects are also due to an active employment policy and other measures though.

Sweden

In 1991, a series of tax changes were introduced in Sweden, increasing energy tax and bringing in taxes on carbon and sulphur. At the same time income taxes were cut, so the package was fiscally neutral. Since then other environmental taxes have been introduced and carbon taxation has been extended to manufacturing (cf. Taxation, environment and employment. A report of the Swedish Green Tax Commission. Stockholm, 1997).

The Netherlands

In 1996, The Netherlands introduced a carbon/energy tax for small users (commercial and households) and used some of the revenues to cut employer’s social security contributions. This will be phased in over three years. The government is now considering the next phase of extending the tax to other sections of industry (cf. ENDS Daily 1998).

Latest news

In October 1998 the new German government decided to introduce an ETC.

While the theory is an attractive one, it is not without controversy. First, there is a dispute amongst economists over the so-called ‘double-dividend’ of reducing pollution and creating jobs. Would such a tax shift really create jobs or is it a theoretical result which would not occur in the real world? Secondly, there are a number of political difficulties with implementing a major environmental tax reform, notably concerns over social equity and international competitiveness of certain industries.

3.3 Double Dividend: Less Waste, More Work

As no country has yet introduced a major environmental tax reform, there is no body of empirical evidence to back up the economic theory that jobs would be created. Studies on the microeconomic level, summing up the effects for certain jobs (e.g. workers in the automobile industry, busdrivers) show positive trends. The best evidence comes from sophisticated econometric models and simulations at the macroeconomic level. A great deal of economic modelling work has been carried out on these issues in Germany, UK and for the EU (cf. IPPR 1996) as a whole, using different packages and scenarios. Most of this work comes to the conclusion that jobs can be created through a tax shift, none have shown a decrease in employment. Although some economists dispute the validity of these models (with contradicting reasons), this gives a clear hint what the direction of the effect would be. Macroeconomic studies rely on integrated simulation models of the whole economy. They do not differentiate between certain products and jobs, but generalise this information in economic sectors (e.g. Steel Industry, Services etc.). The largest study of this sort into the effects of environmental tax reform was carried out by the DRI consultancy for the European Commission in 1994. They modelled a range of energy, waste and water taxes over the European economy, using the revenues generated to reduce employer’s social security contributions. Across the whole of Europe employment was predicted to be 2.2 million higher than the base scenario in 2010.

Work has also been carried on individual member state economies as well, often coming up with very similar orders of magnitude for employment creation. In Germany, the Deutsches Institut für Wirtschaftsforschung (DIW) looked at a tax reform which increased the price of energy by 50% to households and 100% to industry, again using the revenues to cut labour taxation. The model predicted that a ten year reform programme would result in up to 600,000 new jobs and a 14% reduction in energy use (cf. DIW 1994) – see table below. Another study with the internationally connected econometric model PANTA RHEI by the University of Osnabrück predicted up to 1.5 Million new jobs in Germany alone in a period of 10 years (cf. Meyer et al 1997).

Shift of hours worked for selected branches after an Ecological Tax Reform

The figures show the effect of the introduction of an Ecological Tax Reform for the year 2005 compared to a baseline szenario according to the PANTA RHEI study.

Branches shift in per cent

Oil processing -36.5

Coal mining - 23.4

Iron and steel industry - 15.7

Chemical industry - 6.9

Mechanical engineering - 0.1

Car industry + 1.8

Electrical engineering + 3.7

Other services + 3.9

Wholesale trade + 7.2

Food sector + 10.0

Retail trade + 14.2

Building Trade + 20.2

Average all branches + 5.8

The most recent study in the UK was carried out by Cambridge Econometrics in 1997 for two environmental organisations, Forum for the Future and Friends of the Earth. The taxes modelled in this study were on energy, petrol and waste, whilst cutting employer’s National Insurance Contributions. The package was predicted to deliver nearly 400,000 jobs by 2010. In this and all other cases, because the package modelled was fiscally neutral there was no significant impact on GDP growth or inflation (cf. Ekins 1998).

Economic experts debate

Despite the evidence by the studies, the debate over the existence or otherwise of a ‘double dividend’ has raged amongst economists across Europe and in the USA for a number of years. It is rooted in a much wider economic dispute over whether all taxes eventually fall on wages and the supply of labour is essentially inelastic. In other words that there exists a level of unemployment in the economy which cannot be reduced without putting pressure on inflation through increased wage claims. US Economists such as Bovenburg and Goulder use a general equilibrium approach to the economy which treats labour as the only production cost. Clearly any analysis which uses this assumption will deny the existence of a ‘double dividend’ and see energy taxes as just as distortionary on the economy as labour taxes. But this appears to contradict the theory of external costs, described earlier. This paper is not the appropriate place to debate the assumptions which go into economic models, but a point worth making is that no one disputes the environmental benefits of green tax reforms and the debate over the employment dividend is whether it is zero or positive. There are no major economists arguing that a tax reform would result in net job losses.

Slightly less controversial is the suggestion that targeting labour tax cuts at the low end of the wage scale will stimulate job creation. Modelling from Cambridge Econometrics suggests this would be the case (cf. Ekins 1998). Non-wage labour costs are a more significant influence over company behaviour if the actual wage is low in the first place. Here even ‘double dividend’ sceptics tend to agree that the labour supply is likely to have greater elasticity, as the following quote from the Employment Policy Institute in London demonstrates:

“Although wages generally adjust in the long-term to changes in non-wage labour costs, the same may not be true for low-wage, low-productivity workers whose wages tend to be more downwardly rigid. Where it is impossible to shift the burden of payroll taxes fully onto employees – because minimum wages or benefit payments serve to set a floor on wages – a cut in non-wage labour costs is therefore likely to encourage more job creation” (cf. EPI 1996).

3.4 Political Barriers

Competitiveness

As most major environmental tax reform packages include some form of energy or carbon tax, energy intensive industries have concerns that their international competitiveness would be weakened. It cannot be disputed that different sectors will be affected in different ways by a tax shift. There will be winners and losers, after all the whole point is to change the structure of the economy to make it more sustainable. The aim for policy makers must be to ensure the change is gradual, predictable and help the more vulnerable sectors to adapt. There are many policies which could ameliorate the concerns of resource intensive industries. First, any new green taxes should be introduced at a low level and gradually increased. Secondly, some off setting tax breaks could be brought in to reward investment in energy efficient technologies. One should also remember that a great deal of business would gain in competitiveness from the reduction in non-wage labour costs. Indeed, most of the economic modelling has shown there are more winners than losers with environmental tax reform. One recent study of the UK economy showed that sectors responsible for 70% of UK exports would gain in competitiveness from an environmental tax reform (cf. Ekins 1998).

Equity

The other genuine concern for policy makers is that replacing some income taxes with environmental taxes would have unwanted distributional consequences. Household energy taxes, in particular, could be regressive if other measures were not introduced alongside them. The most innovative solution to this problem has come from The Netherlands where individuals have a tax-free allowance for energy ensuring that basic needs can be met without penalty. Excess energy use is then taxed.

Some countries have set up Green Tax Commissions to carry out this task. Such Commissions typically involve all stakeholders in the debate: government, industry, NGOs, trade unions and academics. Implications for competitiveness, equity, employment and environment should all be considered when designing economic instruments.

3.5 Stimulating Green Industry – New, Sustainable Jobs

If governments are willing to increase public expenditure then there is a case for using some revenues from surcharges, taxes or fees to fund specific environmental projects or investments. Many EU countries have introduced small environmental levies in this way. In Sweden, for example, a surcharge on lead batteries funded a successful recycling scheme. Earmarking revenues like this is a good way of making the measure politically acceptable as well as more environmentally effective. As the projects funded through these mechanisms are often ones which would not have come about otherwise, new jobs will be created. Of course, one has to be careful because if the tax or levy is taking money from another part of the economy, then jobs may be lost elsewhere. This is one reason why earmarking is best used only for small levies and in limited circumstances.

There is also evidence to suggest that transferring money from energy or resource intensive activities, through a tax or levy, towards more environmentally benign activities could create net job gains. First, if the incidence of the levy is wide enough then the small increase in costs for that industry is likely to be absorbed or stimulate efficiency gains rather than the shedding of jobs. By contrast if the revenues are spent on a narrow range of activities then they will have a tangible effect. The UK has a levy on fossil fuel use which helps subsidise renewable energy projects. There is no evidence that jobs have been lost in the fossil fuel industry as a result, but the revenues have certainly created jobs in the renewable energy industries.

Secondly, most sustainable industries tend to be more labour intensive, that is more jobs created per unit of output. For example US research suggests nuclear energy creates 100 jobs per TWh/year whilst thermal solar creates 248 and wind power 440 for the same electricity output (cf. Friends of the Earth 1994).

Two recent studies by the German Öko-Institut (Institute for applied ecology) investigate the job effects of change in traffic-system (cf. Öko-Institut 1998) and in the energy supply system (cf. Öko-Institut 1995). Assuming certain changes in the state of the system (e.g. share of cyclists rising by certain percentage or number of solar panels installed, but also fade-out of nuclear power, decrease of automobile mobility) they calculate net job gains of appr. 200,000 each in the traffic sector and in the energy sector.

There are other potential advantages with stimulating domestic markets in environmental industries. Because the global market is growing so fast, a thriving domestic industry will give a competitive advantage in export markets. This is known as the ‘first mover’ advantage and it is one which many EU regions are well placed to exploit. Energy taxation and other environmental policies have helped stimulate the Danish wind power industry to be the biggest in the world creating 12,000 permanent jobs as a result (cf. Greenpeace 1998).

3.6 Green Jobs – The Opportunities in Different Sectors

We conclude this chapter with a review of the employment opportunities. There is plenty of evidence to suggest that environmental policies will generate new jobs, both in existing industries and the emerging environmental technology sector. This evidence has been presented by environmental NGOs, trade unions and academic institutions across Europe.

There is currently a Europe wide research project collating the data from different countries on environmental jobs (‘Awareness Campaign for Green Job Creation in the European Union’ supported by European Commission DGXI Unit A2.). The sectors where economic instruments are likely to play a prominent role are transport and energy. All of the studies reviewed below included economic instruments in their policy recommendations.

Transport

Studies in UK and Germany have both suggested that a more sustainable transport policy would result in more jobs being created in transport industries. Using policy scenarios designed to reduce car use and stimulate more public transport, cycling and walking, it was estimated in the UK that although up to 43,000 jobs could be lost in the car industry (mostly in maintenance and repairs) another 130,000 could be created in manufacture and operation of sustainable transport modes by 2010 (cf. Friends of the Earth 1997). A similar study in Germany estimated the job loss in the car industry to be 74,000 but the gain in train companies alone was 122,000, again by 2010 (cf. Öko-Institut 1998). One reason for this is that it appears economic activity in public transport is more labour intensive than for the car economy. For example, a study by the German Road League and the construction union IG Bau Steine Erden showed spending Euro 50 billion on road building created 1200–1600 job-years compared to 1900 if the same sum were spent on railway construction (cf. Renner 1991).

Energy

In the energy sector the job creation opportunities lie in energy efficiency and the growth of renewable energy generation. Both are more labour intensive than conventional, fossil fuel based energy production so the net employment impact of a more sustainable policy should be positive. Based on the experience of demand side management (DSM) in some states of the USA, the Goodman Institute produced a report for Greenpeace which demonstrated investment in efficiency created more jobs than those lost in displaced electricity generation (cf. Krier 1992). Taking Washington State as an example, 28,000 jobs were created directly through DSM programmes, a further 30,000 created as the money saved on energy bills is respent in the economy, whilst 34,000 jobs could be lost by closing down the unwanted generation plants. A net gain of 36,000 jobs. Many such DSM programmes in the USA were funded by a small levy on customers bills.

Looking at the cleaner generation side of energy policy. Jobs can also be created by expansion of combined heat and power (CHP) and more use of renewable electricity generation. The UK Combined Heat & Power Association estimates growth in the CHP sector to 6GWe by 2000 could support 8–10,000 jobs directly, without taking into account the respending effects of money saved on energy bills (cf. CHPA 1995).

A recent report from Border Wind for Greenpeace estimates the UK could create 36,000 jobs by 2010 in offshore wind power if the correct government policies and incentives were put in place (cf. Border Wind 1998).

As already noted, the Danish wind power industry has 12,000 employees and the Government has an ambitious target to generate 50% of its electricity by wind in 2030. Germany also has a growing wind power industry.

3.7 Conclusion

Regulations can be designed to force technological development and stimulate innovation but market mechanisms such as environmental taxes offer greater flexibility. The revenue produced by environmental economic instruments such as green taxes offers an added tool for policy makers who want not only to protect the environment but also regenerate European economies. As with most policy areas, neither regulation nor taxation alone will be the answer. A combination of policies including awareness raising and voluntary action from business will be more effective. However, without the price signals through the use of economic instruments change will be much harder to effect and the potential for employment benefits will be smaller.

4 KEY TO LOCAL SUSTAINABILITY – ECONOMIC INSTRUMENTS AT THE LOCAL AND REGIONAL LEVEL

4.1 Importance Of Local Politics For Sustainable Development

Looking at the complex global interrelations between the economy and the environment, sometimes the question is posed, what can local and regional authorities do to help mitigate environmental destruction, social inequity and so deliver sustainable development?

In fact, local authorities can play an important role in globally sustainable development, for several reasons:

• local politics influence the behaviour of the different sectors of society significantly, e.g. through local traffic policy, regulatory and financial instruments for industry, landuse planning and public procurement;

• they significantly influence, or often even own, public suppliers of the key resources such as energy and water, as well as provision of waste and sewage treatment;

• they form the level of administration and state representation closest to the people and so are more able to stimulate a process of transformation involving all sectors of society;

• because of their large number they can serve as “laboratories” for new policy and management concepts;

• they are increasingly organising themselves in international networks. This serves on the one hand to compensate shortcomings of the national and multilateral level, on the other hand to overcome stagnation in the negotiations between them.

The United Nations Conference on Environment and Development in 1992 recognised the importance of local authorities through integrating a specific chapter on this issue in the Agenda 21. In Europe this impulse led to the formation of the Sustainable Cities and Towns Campaign in 1994 (cf. Aalborg Charter, see Chapter 12). During the 5th Session of the UN Commission on Sustainable Development and the UN General Assembly’s “Earth Summit +5” Special Session on the implementation of Agenda 21 being part of the “Earth Council’s Rio+5 Forum” in Rio in April 1997, many speakers stressed that the most promising steps in the process had been made by the local authorities world-wide setting up Local Agenda 21 (cf. UNDPCSD/ICLEI 1997).

4.2 Eco-efficiency At The Local And Regional Level

Administrations can adopt strategies to improve the ecological efficiency of their operations by paying attention both to the goods and services they produce, and to those they consume (e.g. building, transport services, education, health care, water utilities and power stations).

Cleaner production and pollution prevention principles are beginning to be applied to all of these areas. There are numerous examples of local, regional and state authorities that have found ways of saving materials and energy or reducing pollution while also saving money and improving the service they provide (cf. OECD 1998, p.28).

More important than the role of municipalities as eco-efficient organisations, though, is their role (as an authority). They set the social and environmental framework by democratic decision making. As eco-efficiency relies on true prices (including external costs), it is the duty of authorities to ensure that price signals are not distorted through the political framework.

4.3 National Tax Reform – Local Authorities’ Action Required

All local and regional activity has to be seen within the national context because its activities depend always to some degree on the national framework. Most of the debate on economic instruments has concerned ETR at a national level. But there are important reasons why local and regional authorities’ point of view and potential should be considered in any discussions.

First, for some environmental taxes local and regional authorities are substantial payers of the tax. As waste disposers, large energy consumers and public transport providers, much of the activities of authorities will be affected by national instruments. Authorities are also large employers and, as most of their activities are labour-intensive, would almost certainly have falling overall costs as a result of a tax shift. This effect in itself will probably create a substantial number of jobs.

Secondly, across Europe local and regional authorities have a selection of different tax raising powers. There is no reason why these should not be used to reflect the needs of sustainable development, in the same way as national taxation. This could mean introducing more waste, water and transport taxes whilst cutting taxes on investments or income.

Given the powers to develop new policy instruments, local and regional authorities could come up with more innovative approaches to environmental policy using economic instruments. And if these ideas are linked to knowledge on local and regional economic development needs, the benefits for employment could be substantial.

4.4 Local Creation Of Jobs

There is a clear recognition of the need for a stronger local dimension in employment policy at European Institutions.

On the basis of the “Employment Guidelines of the European Commission” member states are currently encouraged to put these guidelines into action by developing National Action Plans (NAP) on Employment. The first results as set out in the NAPs demonstrate that there is a shared commitment to making progress on employment. The European Council is now examining whether the national commitments are in line with the European Guidelines and whether the Member States have followed up their commitments by translating plans into actions. Experience shows that progress in addressing unemployment implies maintaining a consistent strategy over a number of years.

Progress towards decentralisation and more autonomy at the local and regional level is recognised as essential, while maintaining a common national policy framework. In some cases (Spain, Italy) reforms move towards more responsibility for regional and local authorities as well as social partners for the delivery of customer-tailored services closer to the needs of the unemployed and local enterprises. Such reforms draw from the positive experience in countries with a long history of labour market policy devolved at regional and local level for example in Austria or Denmark (cf. EC 1998).

Government and public sector procurement and planning policies often create niche markets to encourage early application of new technology. The challenge for local and regional authorities is to take a strategic approach, ensuring that users have the opportunity to choose the innovations that best meet their needs in the long term and reject those that do not (cf. OECD 1998, p.34–35).

4.5 Economic Instruments At The Local Level

At the regional and local level economic instruments set incentives for environmentally friendly behaviour, where before there had been no reason to behave in an environmentally friendly manner. This is due to the fact that local and regional authorities are much closer to the citizens and are able to meet needs and set incentives relevant to every day life.

Authorities can profit from economic instruments in a threefold manner:

More Jobs

The use of economic instruments can generate revenues that can be used by the authority for environmental improvement purposes. In many cases the revenue generation aspect will be fundamental to the local authorities’ ability to extend certain services and thereby create jobs directly. For this local and regional authorities are in a special position, because lower level policy is more likely to meet the needs of the citizens. Despite directly creating sensible jobs, the indirect effects on the labour market bring benefits to the regional economy.

Better quality of life

Another aim of economic instruments is to give a financial incentive to users of services in order to conserve resources – proportional to the environmental costs – or an incentive to manufacturers to reduce their emissions etc. This will help to enhance the environmental quality.

First mover advantage in Eco-Innovation

Moreover the implementation of economic instruments by local authorities can help to change awareness and behaviour of the citizen concerning the environment.

Local and regional authorities have various possibilities to implement economic instruments. While the powers to impose local taxes might be restricted in some countries, charges, fees and subsidies are commonly applied – very often without being considered to be economic instruments.

Economic instruments mainly consist of fees and charges for service suppliers. In addition taxes, surcharges and permission fees are also viable instruments. Furthermore subsidies can be used to affect the environment positively, but in some fields actually work against environmental protection.

Below, an overview is given of the options available to local and regional authorities to implement economic instruments.

The toolbox: types of economic instruments

Charges

Charges determine the prices consumers pay for goods and services (e.g. water or electricity supply or transportation service). They are used to cover (parts of) the costs of these services.

Fees

Fees are payments for administration services such as licences and permits. With the establishment of fees for services and permits, authorities are able to provide financial rewards for environmentally desirable behaviour and costs for undesirable behaviours. The revenues generated from such fees can be used to fund environmental programmes.

Fines

Fines are related to control or regulatory systems. Regulations with fines and penalties are likely to be inflexible, cumbersome and ineffective. They should only be applied in conjunction with positive programmes of technical assistance and education.

Surcharges

They can be raised on selected goods, services or developments. The authorities impose a surcharge on top of the market price for goods or commodities, thus generating revenues for environmental programmes and providing a market advantage for competing goods or services that are deemed environmentally more desirable (e.g. parking pricing).

Taxes

Taxes are payments to the authority to finance the general public treasury – in contrast to surcharges.

Subsidies

This measure can be undertaken by the authority to provide incentives for environmentally friendly behaviour through lowering the (market) price of such activity (a) by direct payment or (b) by waiving charges and /or taxes. Subsidies for purposes other than environmental ones can be ecologically counterproductive.

Setting an incentive rate structure

Charges, fees, surcharges and taxes for goods and services can be structured in a way that supports environmentally friendly behaviour. Authorities can adapt the structure of charges on their own services. Moreover, they can influence the price signals of private service providers by requiring them also to adopt rate structures. If the authority (partly) owns a supplier (e.g. for energy) it can directly influence the business goals and therefore the incentives set by the pricing. Suppliers not owned can be influenced by private contracts (on the basis of civil law), e.g. when selling the land to the enterprise or when contracting the rights to carry out services.

4.6 Market Strategies Of Suppliers: Least-Cost Planning, Green Pricing, Etc.

To promote environmental friendly alternatives, there have been several approaches by suppliers. Most of them have been developed in the sector of energy supply.

The first concept is called least-cost planning. The idea is to use the energy concept that costs the least per kwh, taking into account environmental impacts. Fundamental to this approach is to ask first where energy can be saved before producing additional energy – because this often would require the construction of new generation plants. According to analysis there seems to be a huge potential for energy saving (e.g. by contracting, see chapter 5.1).

While this concept addresses the costs of the supplier, another question is: How can the development of renewables be accelerated beyond the level that is cost effective to utilities? Green pricing is one approach. This term was invented for electricity generated from clean, environmentally-preferred sources, such as solar or wind power, offered as a product to customers by utilities.

With Green Pricing the customer can freely choose to purchase this product but pays a premium for the green electricity that causes less environmental degradation. This model was recently introduced for example by the utility of Freiburg/Germany. The problem with this model is that only those who purchase the green option pay the premium. The price premium does result in the utility relying more on renewables than would otherwise be cost effective, but is not equitable because only some individuals pay more and all others are relieved of their responsibility for the environment.

One of the most important reasons for Green Pricing is the competitive advantage it provides for the supplier. Different customers want different products. Some want the lowest price for energy, some want high reliability and voltage stability, some want lower bills, and some want pollution-free energy. Market research shows that a significant number of consumers would like the option of buying energy produced from resources with low environmental impact, particularly renewables. This is of importance for the changing energy market in Europe where free competition of utilities and free choice for the consumer is being introduced. Therefore utilities should ask themselves whether they want to meet or ignore the desire of a significant fraction of the market (cf. Holt 1997).

Another approach is to increase the price of electricity for all customers slightly, thus distributing the financial burden equally. The revenue is then used by the utility to promote (develop and install) renewable energy resources. This approach is applied e.g. at the utility of Aachen in Germany.

4.7 Communication Strategy Urgently Needed

Combined with the implementation of economic instruments it is necessary to provide information for citizens and companies. Otherwise the instrument might be regarded as a unjustified rise in prices for local supply services, which cannot be avoided. Therefore, at the time of introducing the instrument, or even before, information should be given about the possibilities to save resources and money e.g. by using energy or water saving devices. Additionally saving measures could be subsidised by the authority as well.

Local and regional authorities hold a special responsibility concerning the information provision for inhabitants. This can be realised by establishing local information centres or publishing information leaflets for each household.

Information is important because people will only change their behaviour in an environmentally friendly way, if they are aware of the options available to them. Moreover, the change of behaviour can be made even more attractive by showing the advantages to the people.

Many people are not aware of hidden subsidies they get and external costs they cause, therefore it should be pointed out that costs of goods and services have to be covered fully.

The picture on the next page provides an example, how Saarbrücken promoted energy saving.

4.8 Assistance And Restrictions By The European Union

The need to integrate environmental with other policies means taking into account the objectives of economic and social cohesion in the Community, the requirements of maintaining the integrity of the single market, and international commitments in the environmental field. The application of the EC Treaty rules on State aid must reflect the role economic instruments can play in environmental policy.

Therefore the Commission of the European Communities has developed a “Communication on environmental taxes and charges in the single market” in March 1997. The Communication (COM(97)9) explains the legal framework applicable to member states, and clarifies both the opportunities and constraints for Member States to act in this field. The Communication can thus serve as guidelines for local and regional authorities in the member states. The document mainly deals with product taxation, as this is the area most sensitive to internal market aspects.

It is explained that the effects of the European legislation, among other things, are that:

• if a levy has a clearly positive environmental effect, it may be judged in more positive way in terms of its effect on other policy areas.

• levies may not be used to discriminate against products from other member states.

• levies should be in accordance with both European Treaties like the Maastricht Treaty (primary legislation) and European Directives and Regulations (secondary legislation) on indirect taxation, e.g. in the field of energy taxation, where detailed rules exist.

• exemptions from paying the levy, and the way revenues from environmental levies are used, should fulfil rules.

The document also specifies in which cases member states have to inform the Commission of their activities, so called notification rules. Such rules exist in the following areas:

• state aid.

• technical standards and regulations linked to fiscal measures.

• national measures taken to transpose Community Directives into national law.

If revenues from environmental levies benefit a sector of firms or individual firms it is state aid and the member state in question has to inform the Commission.

The main types of state support for environmental protection are described in the “Community guidelines on State aid for environmental protection” (94/C 72/03). The various types of aid are divided into three broad categories: investment aid, horizontal support measures and operating aid. These guidelines aim to strike a balance between the requirements of competition and environment policy. State aid is only justified when adverse effects on competition are outweighed by the benefits for the environment.

Local and regional authorities of member states have to obey the regulations of the Treaty, therefore EC legislation is important for the local and regional situation as well as for the national government.

4.9 Local Prices On A European Market

The global market place is being integrated rapidly. But still a global market only exists for some goods and services (e.g. computer chips or currency trading). In Europe most of the trade happens between the Member States of the European Union – or at least within the boundaries of the Council of Europe.

Nevertheless, European local and regional authorities are competing with each other. The products of their private business are competing, as well as the authorities competing to attract investors. This has a good effect in stimulating the authorities to create an atmosphere of innovation, to provide good infrastructure and to vest their citizens with elaborated skills.

But in this situation authorities also attempt to attract investors by offering low production costs, e.g. in natural resources. Land is provided for low costs, taxes are cut and low charges for water supply and disposal of waste water or solid waste are offered. This might be short-term thinking without regarding the consequences for the next generation or even in 5 to 10 years time. Often it will not be possible to maintain the short term profit. But in times of high unemployment and especially in regions with declining industrial sectors, the short-term profit counts.

Even authorities with a progressive strategy for sustainability, first movers for eco-efficiency, cannot move too far from the rest of the field. In a situation where very low prices are offered, they can gain their profit with low standards. Raising standards would lead to losing touch with the rest of the field.

Therefore there should be an effort amongst local and regional authorities to keep even the lowest standards as high as possible which could be achieved by minimum standards at the European Level. These should not equalise prices in all of Europe. This would not be appropriate for example for water prices in countries rich of water and others with severe water shortages. The alternative is provided by the principle of cost-recovery for suppliers of natural resources.

5 Grab It: Fields Of Application

This chapter gives a short introduction to the different aspects of the environmental situation and problems, followed by an investigation of the options available to improve this situation. There is a broad field for the application of economic instruments.

5.1 More Quality Of Life Using Less Energy

Situation

The demand for energy increased significantly until the late 70s. It is still covered to a large extent by fossil and nuclear energy sources. But the burning of fossil-fuel causes air pollution and contributes to an accumulation of pollutants in the atmosphere.

In fact, the share of renewable energy (e.g. wind or solar power), though increased considerably in recent years, still represents only a small percentage of the total requirement of primary energy.

We consume energy not only when using it directly through devices in the household (e.g. television, computer), but also in an indirect way (called grey energy). This happens when we buy products with energy-intensive production processes.

A lot of primary energy is lost during the process of electricity generation, e.g. through heat loss. This is caused above all by the centralised organisation of power generation in big power plants. Moreover the promotion of the technology of alternative energy sources and the decentralisation of energy supply can help to create jobs at the local level.

Objectives

A reduction of energy consumption is needed. This can be achieved through a combination of initiatives. These range from incentive rate structures (see case study) to subsidies for energy saving devices.

An incentive rate structure should eliminate reduced rates for higher consumption levels to create more equity. Inverse rates are higher per-unit rates above a certain level of consumption in a given period and lower per-unit charges to consumption below a certain level. An innovative approach to reduce energy consumption and negative environmental effects could be a reduction of rates for consumers who install supplementary alternative energy systems (like solar cells).

Low-interest loans together with technical assistance can help increase the investment in energy saving equipment and the installation of alternative energy facilities. Also the introduction of decentralised energy supply systems will open the possibility for local authorities to install more alternative power sources (e.g. solar facilities, the use of hydropower).

Checklist

Does the local authority

· generate and supply energy locally (and therefore have influence on the rate structure)?
· provide incentive rate structures (linear tariff – see case study)?
· subsidise the installation of facilities for renewable energy (solar, wind, water)?
· ensure that suppliers of renewable energy are paid cost-covering prices?
· invest in the use of energy-saving devices (e.g. bulbs, intelligent light and heating systems, alternatives to stand-by functions) instead of new power plants?
· start least-cost planning and contracting (see Box)?
· subsidise better isolation of private and public buildings (windows etc.)?
· refund costs cut in municipal institutions by energy saving (e.g. in schools)?

Contracting

Introducing new technology can be impeded by the tight budget of municipalities because it is expensive. Therefore new ways for seeking a solution are needed. A private company (contractor), e.g. a utility, can offer new energy-saving technology to the authority or other customers (e.g. for a new heating system). The contractor arranges a certain price per unit of delivered service with which he covers his expenses. The municipality pays for the service (e.g. heat supply) over the estimated life span of an installation. If the investment is very low compared to the amount of energy that can be saved through the installation of energy-saving devices, the contractor gets the saved energy costs according to the term in return.

Some authorities raise the objection that contracting also causes a lot of costs and time for the administration. They argue for Internal Contracting (energy saving funds). That means that the local authority itself finances energy management projects. The attained savings are spent to finance new projects.

5.2 Avoiding Solid Waste Production And Recycling It

Situation

Modern industrial societies are sometimes called throw-away societies. More and more goods are produced which are only used once or over a short period of time – and then thrown away. It is often cheaper to buy new products than to repair old ones. This development causes large amounts of waste of all kinds, most of which is deposited in landfill sites. But waste contaminates the environment – apart from the direct toxic danger caused by hazardous waste – through the increased land use for landfill sites. Moreover the available space remaining for disposal sites is limited by geological and ecological factors, as well as questions of the aesthetics of the landscape. But other ways of waste disposal are dangerous for the environment or are very expensive. Waste incineration for example releases a number of extremely toxic substances. Such emissions can be prevented by filter systems, but this makes incineration much more expensive.

Objectives

To reduce the amount of waste, waste management should work on the following two principles: avoiding waste and recycling.

The variety of economic instruments ranges from collection charges, over disposal and tipping fees to disposal fines.

The minimum standard is that waste charges have to cover the costs of collection services. Collection rates should best be based on volume or weight. The principle is the larger the container and quantity of waste, the higher the fee. This gives an incentive to avoid waste production and to think about ways of recycling.

Beyond collection charges, local and regional authorities have the (sometimes limited) option to impose special taxes and surcharges on solid waste, e.g. tipping fees or landfilling surcharges. The aim is again to discourage waste production and to help fund recycling or waste reduction programmes.

Moreover, authorities can help to reduce the amount of waste by setting incentives for waste reduction. This can include waste prevention programmes which encourage household composting through the delivering of free home compost bins and training for residents. This keeps materials out of traditional waste stream. To support this local authorities can distribute maps that list the locations of all reuse, repair and resale businesses.

Local disposal fines, where not applied nationally, can be a more restrictive method to discourage illegal waste dumping. Moreover they can reinforce a municipality’s waste reduction efforts. The principle is to charge a high fine for illegal dumping compared to the collection fee.

Checklist

Does the local authority

· have waste fees according to volume and weight?
· levy tipping fees for the waste disposal at landfill sites?
· set surcharges on hazardous waste?
· support initiatives like washable nappy and joint use of devices (e.g. gardening tools)?
· offer recycling facilities, repair service stations or composting devices free of charge?

5.3 Saving Water And Protecting The Water Environment

Situation

Water is a very precious resource that guarantees life on Earth. In many regions of the world, drinking water is polluted and unhealthy or there is a shortage of water. Indeed, in many European Countries the consumption of water is very high.

Water is a renewable resource. After using, it is returned – more or less polluted – into the ecological cycle. The amount of water we take from rivers and lakes (surface water) is increasing every year.

The high water demand is caused by different kinds of use (industry, households, agriculture etc.). Concerning water consumption in households, a changed desire of hygiene (consumer’s behaviour: e.g. daily shower) and increased use of household appliances (e.g. dishwashers) are playing an important role. But water is also used in industry, mining and agriculture. Pumping off huge amounts of water (e.g. areas of brown coal surface mining in Eastern Germany) causes serious environmental damage to the ecosystem and the landscape.

Subsequently the resource is not replenished as quickly as it is being used. This can lead to a shortage of water, especially some ground water reservoirs which need long periods to recover. This problem could be overcome by transporting water from distant reservoirs, but this would be very expensive.

Moreover, growing pollution of water causes problems of quality. Because ground water – in contrast to surface water – is less polluted, it is used more and more as drinking water. Ground water is potentially endangered by nitrates etc. from agriculture activity. Consequently costs of processing polluted water to drinking water are high and still rising (due to complicated apparatus and process sequences) and represent an important part of the water price.

Objectives

Local and regional authorities and utilities can provide incentives to reduce water consumption (e.g. free distribution of low-flow shower heads and toilet dams). To improve the reasonable use of water there have to be charges for the supply of drinking water as well as for the treatment of sewage water. The prices should cover the costs of the service. A recent survey found out that this often is not the case e.g. in Spain, Italy and France (cf. UmweltMagazin 1998). The rate structure should be designed in a way that users are pushed to save money and the resource.

The charges for water supply are often divided into a basic charge and a charge according to the level of consumption. The basic charge should be low and the consumption charge should be increasing (linear or progressive tariff) according to consumption. This will provide the consumer with the chance to influence the bill for water supply by changing behaviour.

Adopted rate structures should implement lower rates for so-called baseline levels of consumption and increasingly higher rates for use that exceeds these baseline levels which reflect basic human needs Another method could be to provide incentives for water conservation by charging higher prices during hot summer months.

Programmes that give rebates on water conservation devices is the most effective investment to reach this goal. These conservation measures also work to keep water costs down by reducing the need to develop new water supplies and treatment systems.

Checklist

Does the local authority

· levy rates where the amount of water you are allowed to use depends on the size of the water meter?
· support water saving devices (e.g. toilet dams), technical assistance to use rainwater (grey water) for toilets or the installation of composting toilets (dry toilets)?
· charge for sealing soils in order to support infiltration of rainwater which is important for the recharge of ground water sources?
· make agreements with farmers to reduce the use of pesticides for saving ground water resources?
· levy divided charges for sewage water according to their source (rain water or industrial water)?

5.4 Encouraging Traffic Modes With Less Air Pollution

Situation

Motor vehicles are the largest single source of urban air pollution. It is mainly caused by using cars for private traffic. Over the last few decades, private car use has increased in European countries. This has lead to increased traffic congestion in bigger cities.

Moreover unhealthy air reduces human and plant productivity – adversely impacting the world’s social, economic and natural systems. Meanwhile there are more and more European cities that install monitoring stations to control air quality and to inform citizens about the actual situation. Despite this, the air quality in urban areas tends to be alarming and pollution alerts are frequent.

Objectives

Mechanisms to regulate air pollution tend to be categorised by the emissions source: stationary sources (industry and power stations) and mobile sources (motor vehicles). Local and regional authorities have several economic instruments available to affect air quality. The instruments discussed below emphasise reducing air pollutants from motor vehicles.

Road tolls (see case study) are charged at entry points to the city from motorists driving into the central area of the city. Prepayment coupons give discount. Revenues from charging for the use of roads should be used by the authority to fund better and more frequent public transport facilities. Some cities are considering schemes where entry licences for cars double as public transport passes in the same zone. In the UK, local authorities will soon be given the powers to introduce road pricing and will have to use the revenues to support public transport, the legislation for this is expected in 2000.

Because of the local variation in congestion and smog, local and regional authorities should be given responsibilities to apply road pricing and set rates according to local requirements, in particular public transport provision. Reducing congestion costs for businesses in cities could also help their competitiveness and indirectly create more jobs. Evidence suggests that retail developments in pedestrianised town centres do more trade because the environment is more welcoming for shoppers.

Another instrument is fees on non-residential parking spaces. This should cover costs for the land-use and the parking house maintenance first, but could also help fund public transport. Municipalities are already levying fees on public car parking to discourage car commuting. This should be extended to private sector parking spaces, creating revenue to support the alternatives. Many authorities have reduced parking space requirements and imposed high parking fees to provide disincentives for automobile use, sometimes combined with a improved transit service called “park and ride”.

The focus is on rewarding people for making behavioural changes that result in fewer vehicle trips and fewer vehicle miles travelled. Trip reduction seeks to reduce vehicle trips, especially single occupant commute trips, by providing financial incentives for alternate modes of travel. Funding is derived from reducing the vehicle use subsidies to employees of municipalities and privates (including free parking and reimbursing for use of private vehicle). A possibility for authorities is to charge single occupant vehicles and to provide cash-back to those who use public transport, bike, walk or use car pools.

To reduce and control air emissions from stationary sources, the requirement is to regulate the level and content of the emission by surcharges. An incentive-based tariff system would require businesses with emissions to obtain an air emissions permit. The principle is: the larger the quantity of emissions and the larger the amount of certain specified pollutants, the higher the fee. Moreover emission fines can be used, either alone or in combination with emission permits. Fines would be levied if allowable emission levels were exceeded.

Checklist

Does our local authority

· set up toll stations for road use?
· levy parking fees for car-parking on public ground?
· subsidise public transport facilities (e.g. for ensuring good connection between bus and train)?
· reimburse employees of the municipality when using environmentally friendly modes of transport?
· support bike-and-ride-stations, bicycle stations near the train stations with offering services?
· build local mobility centres that can give information on best modes of transport?
· promote car sharing (see box)?
· raise emission surcharges or sell emission permits to businesses limiting the amount and content of emissions by stationary sources?

Car Sharing

Taking part in a car sharing community means to refrain from owning an individual car. All members use a car pool together. This eases the burden both on the environment and the towns. Less resources and energy are used and public space can be kept free of traffic. Car sharing also helps the members to save money, because they share the expenses for car use.

5.5 Using Land As A Scarce Resource

Situation

The land needed to build settlement and traffic areas has increased significantly in the past 50 years. This development includes some impact on the environment which is of specific ecological relevance: soil sealing, cutting up of living space, noise, pollution. This development is caused by continuous extension of settlement area and increased land use for traffic.

Growing demand of more living space has led to the a tendency to build bigger houses. In most new districts one can find only detached single-houses. With the preference for using cars for private transportation, transport has also become very land-intensive. More new roads have to be built, which leads to a destruction of landscape and living spaces as well as pollution.

Objectives

Authorities can give a density bonus allowing a project to be larger than permitted when it is situated along existing public transport corridors. This intends to reduce the pressure for urban sprawl. The economic reward to the authority from increasing the density allowed can be great, while the environmental cost may be small.

Another strategy is to introduce impact fees, facility fees and mitigation fees (e.g. for soil sealing). This comprises one-time-charges to mitigate the impacts (loss of open space, increased traffic congestion, increased demands for public infrastructure) assessed during the planning process. Impact fees refer to fixed formula fees (e.g. per square meter of new construction). They are calculated on the basis of the impact created by the development. Mitigation fees can be used to fund environmental and infrastructure programmes (transit facilities, bicycle infrastructure, solid waste, sewage etc.) Impact fees must be utilised to offset costs directly associated with serving the new development. General facility charges are assessed on the costs of connecting a new development with existing infrastructure (water, sewer etc.).

Permit fees can be raised to cover the administrative cost of processing an application for a construction permit, development approval or zoning variance. Since most development projects result in degradation and increased consumption of natural resources, it is justifiable to add an incremental surcharge onto existing permit fees to support local environmental programmes.

Checklist

Does our local authority

· subsidise public transport facilities?
· support new kinds of construction of buildings which is less land-intensive?
· levy cost-covering pricing of public parking space?
· abolish hidden susbsidies for commercial parking space, e.g. at supermarkets?
· develop car-free residential areas (see case study)?
· levy a charge for sealing soil?

5.6 Conclusion

The implementation of economic instruments should lead to a situation that those who cause environmental problems pay for it (polluter-pays principle). Moreover costs should reflect the environmental impact of goods, activities and services. But determining who the polluter is can be complicated. Difficulties also arise in trying to calculate environmental costs in cash terms.

The questions local and regional authorities are confronted with are whether they should introduce economic instruments or not is: Does it work? Will it have the desired effect? Is it fair? Can it be implemented?

Economic instruments are most likely to work when:

• There is a viable, cost effective alternative to the behaviour that is being targeted.

• The instrument is directed towards people or entities which have the power to act or respond in the desired manner.

Social, economic, and environmental circumstances vary according to the local situation. Economic instruments cannot be evaluated outside of this context. The use of the instrument must be seen on the background of the environmental problem that is being addressed, the local or regional authority’s financial resources and ability to implement the instrument and the social , economic, and ecological conditions.

Sensitive tariff systems are effective economic tools. They follow the three major goals:

• The full recovery of the economic and environmental costs of the service.

• Charging customers in proportion to their use.

• Offering economic incentives for conservation.

One final problem with all instruments, be them regulatory or economic, is the temptation for governments to cut spending on enforcement so far that the inspection staff have their role undermined. If this happens then unscrupulous operators may be encouraged to slow down on their compliance in the knowledge that they might not get caught, or at least be able to delay the compliance investments till later. Once again the nature of the policy is encouraging innovation and adoption of cleaner technologies.

KEY TO GOOD PRACTICE – FIVE CASE STUDIES OF INNOVATIVE LOCAL AUTHORITIES IN EUROPE

6 ENERGY-EFFICIENT SAARBRÜCKEN

Rate Structure of Energy Charges in Saarbrücken

Following the example of Vienna, Austria and Zürich, Switzerland, the City of Saarbrücken introduced a linear and time-variable electricity charge in 1991.

Municipal Profile

The City of Saarbrücken is the capital of the German State (“Bundesland”) Saarland which is situated in the western part of Germany bordering on Luxembourg and France. With its surface of 2500 km2 the Saarland is one of the smallest states in Germany and half of it is covered by forest.

The German political system is formed by a federation of States ("Budesländer" or "Länder"), the regional level. The national level ("Budesrepublik") is a federal body. Local authorities are Counties and Cities.

The city with its almost 200,000 inhabitants is an old centre of coal mining industry but now dedicated to sustainable development.

6.1 Introduction

Abstract

Most rate structures for energy charges do not provide many price incentives for the client to save energy. This is because of high standing charges that have to be paid by the consumer, independent of the actual consumption levels. The utility of Saarbrücken recognised that this does not correspond with the principles of sustainable development and that there was a need to reform the rate structure. Their intention was to motivate people to save resources and money at the same time. Of course, any new tariff structure could not increase costs for the utility so this led to the introduction of a linear and time-variable rate structure.

The utility initiated a model calculation for a new tariff system and investigated the possible social impacts. A working group with the utility, the municipality and other utilities in the region discussed all problems concerning the rate structure and decided to give it a try. The model project was successful and the linear time-variable tariff was implemented in full once it had been approved by the state government (being the authorising body for price control).

Results have shown that clients are reducing energy consumption in order to cut their bills. The policy is contributing to Saarbrücken’s aim of staying independent of nuclear energy and, in the long term, rely exclusively on renewable energy.

The old system of the divided tariff meant that consumers had to pay for the standing expenses of electricity supply (basic charge) regardless of how much energy they actually used. This model has numerous disadvantages. First of all there is less incentive for the user to save energy because of the lower price for each unit of energy. Secondly, this system does not consider the effects of total load capacity and simultaneous use. Moreover the price structure and rating system was hard to comprehend and did not reflect the real costs.

Non linear tariff: Linear tariff:

__________ ____________________ _________________________________

basic charge variable charge variable charge

____________________ _________________________________

Saving potential Saving potential

Difference between non-linear and linear tariff.

In 1990 a new scale of charges became law in Germany which allowed utilities to introduce a linear tariff. The basic charge can be reduced to a very small amount to cover the costs of the electricity meter, leaving the rest to be paid through the electricity charge.

6.2 Heading Toward Energy-Efficiency

Objectives

Price incentives for saving energy

Energy efficiency means delivering maximum service to meet human needs (e.g. cooling food, easing communication, etc.) with the minimum input of energy resources. The aim of a linear electricity charge is to influence consumer behaviour by giving financial incentives to save energy. Adjusted charges should support anybody who uses energy less or at non-peak-times and to charge more from large scale users using energy at peak times. Benefits may also be included in a comprehensive tariff system to reward those who provide renewable or highly efficient energy sources. Moreover, the linear tariff represents a simple system which can be introduced easily, because there is no need for new equipment or extra staff.

Time-variability

To increase the economic efficiency of the energy supply it is reasonable to introduce not only a linear but also a time variable tariff. Electricity cannot be stored in large quantities so it has to be consumed as soon as it is generated. Because at night the demand for electricity is much lower than during the day, power stations stand still or produce at over-capacity. It is economically sensible, therefore, to sell electricity cheaper at night in order to create an incentive to use the basic capacity of the power stations rather than to produce additional energy at peak time.

6.3 A Model Utility For The 21st Century

Implementation

The Saarbrücken concept

In response to the global challenge of climate change, the municipality and the utility of Saarbrücken developed a strategy (cf. Stadtwerke Saarbrücken, 1992) to position the enterprise and the city among the first movers. From the strategy a six-point-plan was derived:

Step by step to innovation

In 1988 the linear time-variable tariff was tested in a pilot project of 1,500 households. In 1991 the scheme was officially introduced by the utility of Saarbrücken, and applied to all 90,000 households.

Tariff system and time periods

The linear and time-variable tariff for electricity consumption

According to the actual capacity utilisation rate of the power plants, the linear tariff is divided into different time zones. During times of peak demand (between 0900 and 1300) each kwh costs 0.19 Euro. In times of low demand (between 2000 and 0600) the kwh costs half the price – only 0.10 Euro. The low tariff is also valid during the weekend. The regular tariff of 0.14 Euro is offered between 0600 and 0900 as well as between 1300 and 2000. The cost of the electricity meter is the only fixed amount that has to be paid by the customer, but it represents only 10 % of the overall bill.

Each household has to pay:

To support the new tariff scheme during the transitional period an energy saving package was provided. For every new household appliance a subsidy of 25 Euro was granted. The switch from electricity flow-heaters to modern gas devices and from electric cooker to gas cooker was reimbursed with 50 Euro each. Using energy saving bulbs reduces the amount of energy needed for lighting five times. Households on social security were offered one of these bulbs for free, because the price of 15 Euro was more expensive than a normal bulb.

Communication and awareness raising

Energy saving is most effective if people are aware of the available options. The utility therefore introduced several awareness raising programmes for their customers.

As a pilot project, the system for energy-saving management (SESAM) was developed which is a device to measure and control electricity consumption. SESAM measures the electricity consumption every quarter of an hour and provides information to the client about energy saving and the rate structure. The client can recall data about the current consumption compared to the previous month and other comparative data. Moreover the device shows to the client the price for each unit of electricity in the different time zones and indicates how much money can be saved when using energy during the low-price tariff period. This system helps to save energy because it shows exactly how much money can be saved by the client. About 300 households have already been equipped with this device within the pilot project. Since then it has been operating successfully and the utility is now planning to improve the device and provide all households with it in the next year.

The utility also started an extensive advisory service for its clients to promote energy saving. This includes consulting at either an office based info-centre or a mobile ‘info-bus’. Energy consultants are available on demand to visit customers at home and develop an energy-saving plan for every single house. They also initiate seminars for consumers on special issues like the use of renewable energy sources.

Institutions help

An essential part of the energy concept was the close cooperation with local and regional stakeholders.

The utility of Saarbrücken and the state government established the Saarland Energy Agency (SEA) to plan, finance and implement energy saving measures. The state government also started a programme to promote alternative energy sources by giving a subsidy to those that invest in renewable energy sources. The utility of Saarbrücken additionally helps to promote solar energy by reimbursing each kwh produced as solar energy for the grid with 0.275 Euro.

Preconditions: financial and personal resources needed

Supported financially by the Ministry of Economic Affairs of the Saarland the four utilities of this state united to establish a working group on the introduction of a linear time-variable tariff.

To realise the linear tariff scheme no extra expenses were needed.

6.4 Change In Federal Law

Background

An important factor for the introduction of the linear tariff was a change of the legal conditions by the German government. According to the federal scale of charges (“Bundestarifordnung”) until 1989 electricity charges had to be divided into

a) a basic charge, to cover the standing expenses of the supply system

b) an electricity charge, dependent on the amount of electricity consumed

This so called “divided tariff system” effectively worked like a discount. The more energy was consumed, the lower the unit price of energy supplied. Saving energy only reduced the electricity charge, but the basic charge remained high.

Some effort, time and money was invested by the utility to develop the SESAM-device which was necessary to implement the time variable charge system.

It was made possible only by the change of the legal framework (re-structuring the scale of charges) allowing now the introduction of a linear tariff.

6.5 More Winners Than Losers

Results and Impact

For more than 70% of all clients, electricity became cheaper. Only for less than 30% electricity bills increased with the new tariff system because of a higher energy price for big consumers. The trend is clear: The vast majority of clients took advantage of the linear tariff.

The amount of saved energy costs depends on the equipment and social structure of each household. The average saving of 7% corresponds with 29 Euro for a yearly spending of 410 Euro for each household. At the same time the peak load could be reduced significantly. The reduction of energy use is between 1–20% depending on the number of connections of the household. Converted to an energy balance, this means a saving of power of 0.25 kW or 37.5 Euro for each household.

As the Fraunhofer Institute in Karlsruhe calculated, the linear tariff makes energy saving devices more cost effective in terms of payback. For example buying an energy saving bulb pays back in saved energy in 1.1 years, instead of 1.5 years under the previous tariff. Replacing old household appliances with modern ones can reduce energy costs by about 40%. For an average household of four persons this means a reduction of 1500 kwh per year.

The introduction of the time-variable tariff was accompanied by research projects of sociologists. They examined two questions. Which groups would expect higher or lower electricity bills? Would there be a shift in demand? More than 77% of the households, asked during the project, said it was possible to shift energy use to times of reduced tariff. The biggest shift potential was recognised in households of persons aged up to 35 years, in households with high consumption (more than 4000 kwh), and in households with three and more members.

6.6 Energy-Efficient Saarbrücken And The European Market

Barriers and Conflicts

The divided charge is still the most commonly used charging system for electricity in Germany. It was introduced to support energy consumption in times when electricity was new and was mainly used for lighting. Normally, a utility is interested in selling as much electricity as possible to make as much profit as possible. Big energy suppliers in Germany currently offer lower prices the more electricity a customer demands. Until now, this charging system was justified to cover the standing expenses for energy supply (running the power stations). They want to keep a certain minimum price to ensure a constant income.

The utility of Saarbrücken decided not to follow this principle, but to provide the benefits from energy use as a service (e.g. warm houses, lightning) without the intention of selling as much energy as possible. In fact, the introduction of the linear tariff bore no financial risk for the utility, because the costs can be covered by the receipts of the electricity charge. The drop of receipts caused by energy saving of the customers is significant in ecological terms, but still quite small in economic terms: the amount of energy saved since the introduction of the new tariff scheme comes to 3 or 4% of the overall amount of energy supplied. The resulting losses in financial turnover were compensated by introducing higher charges for each unit of electricity. This again means a strong incentive to save energy.

This applies as long as the local utility holds a monopoly on the local energy market. This situation could be disturbed by the new national energy-economy-law, introduced in 1997. Big electricity suppliers could now start to sell off their excess-capacity cheaply to big customers. The effect this will have on the utility of Saarbrücken is as yet unclear.

While this could turn out as a problem for the profitability of the utility as an enterprise, the economic advantage for the community is obvious from the previous section: the majority saves money and energy, the standard of living increases.

Energy saving and use of renewable energy will not make power utilities obsolete. Even in the medium term, power utilities will continue to play an important role for energy supply, because the technology is not yet available for every household to generate its own solar power.

6.7 The Public And The Economy Profit

Lessons learned and Transferability

At the first glance the energy market in Germany does not provide an incentive for utilities to enforce energy saving. It even seems more profitable to include the costs of the unsold excess capacity in the electricity charge via a high basic charge.

The Saarbrücken case shows that it is possible to reduce costs of energy production by saving energy. Moreover, the utility learned that environmentally friendly consumer behaviour can be fostered by price incentives.

The saving of energy makes sense both economically and ecologically. The case of Saarbrücken here showed that the shift in the rate structure for energy leads to lower demand of power and to a better capacity utilisation. Finally, this results in a reduction of costs for energy supply companies and clients.

7 Waste-efficient Uusimaa

The Ecocharge in the Uusimaa Region, Finland

In 1997 the Ecocharge-system was introduced in the Finnish Region of Western Uusimaa. The Ecocharge is a surcharge which is levied to finance cost-free collection and processing of recycling waste. It is supplementary to the normal waste charges levied for collection and disposal services.

Municipal Profile

The Western Uusimaa Region is a sparsely populated (population density of about 40 inhabitants per km2) region with 125,000 inhabitants in the South of Finland. The region consists of twelve municipalities of which Lohja is the central one. The town is home to 35,000 inhabitants and is situated next to the Helsinki Metropolitan Area. The quantity of household waste disposed at landfill sites in this region amounts to approx. 300 kg per capita per year.

Finland is divided into five administrative provinces ruled by the national government. Regions, like Uusimaa, are joint organisations of municipalities. The term Western Uusimaa here is used for a region formed by waste management companies by voluntary agreements.

7.1 Introduction

Abstract

After the waste management company “Rosk’n Roll Ltd.” was founded in 1994 to organise the waste disposal and treatment, free recycling stations and information proved to be not commercially viable. But these services were needed, because the company wanted to motivate inhabitants of the region to recycle as much material as possible and to produce less waste. The company therefore took the initiative to discuss the introduction of a new charge, the Ecocharge.

Several working groups bringing together experts and representatives of the local authorities were established. Their report concluded by recommending plans for recycling stations and drawing up a budget. After the local authorities had given their comment, the company suggested the introduction of the Ecocharge which the local governments of the region approved as an official charge. It took about three or four years before the ideas of the report could be put into practice.

Before, each of the twelve municipalities organised landfill sites and recycling individually. In fact, each municipality had its own small landfill site and no recycling facilities. Now, only two big landfill sites remain and many recycling stations have been installed. Moreover, the company has hired two waste counsellors to inform customers about the available options of recycling and other questions related to waste management.

7.2 Waste Management In Finland

Background

Policy

The organisation of waste management in Finland is regulated in the Waste Act and the Waste Decree and in several decisions made by the Council of State and the Ministry of the Environment. The Waste Act prescribes that waste collection is to be organised, as a rule, within the entire municipality and that all properties must use the organised waste collection service unless the municipality has granted an exemption.

According to the national “Waste Management Plan”, the two main objectives of waste management are

1) to decrease the amount of waste produced and

2) to increase the rate of waste recycling.

At the moment, some 30% of solid waste and 60% of recyclable paper is reused. It is planned to increase this rate on average by 20% until the year 2005 to 50% respectively 80%.

The message of the waste management act is: “If you produce less waste, because you recycle a lot, you will save money.” This was put into practice through a rate structure such that households are charged for waste collection services according on volume or weight.

Practice

In principle, local authorities in Finland are responsible for the organisation and supervision of waste management including the arrangement of the transport, recycling or disposal of household waste and other types of refuse. This system is very common in other European countries as well. But Finnish local authorities can also delegate, totally or partly, the recycling or disposal of waste to private companies or other organisations.

This has been organised in many ways:

1) The municipality organises the waste management on its own by making contracts with each household. It can

a) provide its own vehicles and personnel for collection and run waste treatment facilities.

b) instruct a company to do this.

2) The municipality hands over the organisation of waste collection

a) to one company.

b) several (competing) companies.

In recent years, competition between waste collection services within municipalities has become common and often with the cheapest service winning the contract. In addition to contract-based cooperation, waste management cooperation is also carried out by the establishment of new organisations, such as regional waste management companies and joint municipal waste management authorities.

However, even in the case where the municipality hands the waste management over to a private company, it is still responsible for the fulfilment of its statutory obligations. Local authorities have to transform the standards set by the Waste Act into locally adopted regulations on the collection, sorting, storage, transport, recycling or handling of waste, and the respective technical requirements. These regulations also set a strict framework for the level of charges which limits the freedom of private companies. This is to avoid big differences of waste charges within the country and a waste delivery to wrong places.

Local authorities also have the right to charge for the waste management services (e.g. collection, transport) they provide. The general composition of the waste charge in Finland is shown in the following graphic:

Local authorities levy a waste charge for the handling of waste that will cover the costs incurred by setting up, running and closing down of waste treatment facilities. Authorities which maintain landfills of waste have to pay a waste tax for each ton of waste disposed to the government. Local authorities can transfer the waste tax to other waste management costs and waste handling charges. In 1997, the average charge for the handling of community waste was Euro 45/ton or Euro 13.5/m3, value added tax included. The charge for the handling of organic waste is Euro 22.5/ton.

The places in which waste is handled differ considerably with regard to their size, facilities and functions. Due to tighter regulations concerning waste disposal sites, their size is increasing and their number is decreasing. This has led to increasing cooperation between municipalities in waste management. Usually this means the utilisation of joint waste disposal sites, but municipalities also collaborate in the collection of waste in sparsely populated areas.

7.3 The Uusimaa Strategy

Strategy

New institutions for waste-efficiency

As stated above, Finnish local authorities are responsible for waste management in general. That is also true for the municipalities in the Western Uusimaa Region.

However, the twelve municipalities of the region decided to assign the waste management of the region of Western Uusimaa to “Waste Management of Western Uusimaa Ltd.”. This company is also known as “Rosk’n Roll Ltd.” – “roska” means “trash” in Finnish.

Rosk’n Roll Ltd. is not part of local government, but is a company owned by municipalities. The company’s shareholders consist of these municipalities and 16 private enterprises. The municipalities account for 81 per cent of the company’s shares. The company’s turnover amounted to 2.7 million Euro in 1997, and is expected to rise to 3.8 million Euro in 1998. The company employs 13 people.

The Rosk’n Roll Ltd. is now responsible for developing, planning and co-ordinating the waste management in the region. Therefore the company has prepared uniform waste management regulations for the municipalities of Western Uusimaa.

Each municipality still has the responsibility for waste collection in its area. In fact, this duty is often handed over to private contractors. These private contractors then organise the waste collection and decide upon the level of the charge within the limits of the regulations and arrange separate agreements with each household. The client will be charged for waste transportation according to the rates of either the municipality or the waste transport company.

Organic waste is an exception: here Rosk’n Roll Ltd. coordinates the whole process and the collection is done by contractors.

An agreement was made between Rosk’n Roll Ltd. and the municipalities in the region on the maintenance of waste disposal sites. The municipalities handed their own landfill sites over to the company. The two biggest and best sites have been kept running, the other twelve places were closed between 1992 and 1996. Rosk’n Roll Ltd. is now collecting a waste charge at its landfill sites, based on civil private law. The company can decide on the level of the charge.

7.4 The Ecocharge Makes Recycling Economic

Implementation

One of the initial ideas was to provide the public with a broad range of options for using recycling services free of charge. Households should be encouraged to recycle as much as possible, and minimise the amount of waste that will be charged for.

But the money necessary for providing these services can no longer be taken from the usual landfill charges. The Ecocharge is an additional charge, which was established to partly finance the recycling services.

The Ecocharge is based on public law as prescribed by the Waste Act and has to be approved by each municipality. It is the same in all municipalities and is paid once a year by each household together with the normal waste charge. In contrast to the waste charge which is based on volume or weight, the Ecocharge is based on the type of the building and the number of residents in a household. This is an easy system which does not cause additional work.

In fact, the Ecocharge represents only a very small part of the total waste charge (see above). The Ecocharge, including 22% value added tax, is listed below:

• residential buildings: 14 Euro per residence per year

• buildings with one residence and one resident: 6 Euro per residence per year

• leisure-time residences: 6 Euro per residence per year

The charge is not applied to institutions providing 24-hour care, such as hospitals or homes for the aged.

Overview of the different charges and invoicing systems

The waste charge in Western Uusimaa now consists of three components:

All charges are generally invoiced at the same time. Invoicing is done by Rosk’n Roll Ltd. in collaboration with the different contractors for the waste collection service in the municipalities.

Services established by Rosk’n Roll Ltd.

The waste management of Rosk’n Roll Ltd. comprises of activities in the following three areas. The company is in charge of:

· the arrangement of recycling;

· the management of hazardous waste;

· landfill operations.

According to the regulations set by Rosk’n Roll, recycling material must be delivered to collection stations maintained by the company, or to some other collection point, in case the residential building is without such collection services. Hazardous waste must be delivered to fixed collection sites maintained by the company or the hazardous waste truck known by the name of Joonas or places like pharmacies with which the company has made an agreement.

For the collection of scrap material another truck was developed, known as scrap collection truck Romulus (“Romu” means metallic scrap in Finnish). It has been run by Rosk’n Roll since 1995. Rosk’n Roll also provides guidance and information. Two waste advisors are employed to inform clients about the different services and the options for recycling. The company also publishes waste guides for distribution to every household.

At the beginning of its work, Rosk’n Roll did finance all these services through the waste charge for landfilling and treatment. This is still the case in most of Finland’s municipalities. The maintenance of these services is, however, being impeded by rapid rises in service costs.

7.5 Less Waste – Less Cost

Results

The Ecocharge was only introduced in 1997, therefore it is still too early to give figures on the amount of recycled material or waste disposed. An important change was the setting-up of recycling and information activities by the company.

Good results have already been achieved for toxic waste. The amount collected has been increased by about 30% every year. And it is frightening to think where all toxic waste went before.

7.6 Prejudice Against Rising Charges

Barriers and Conflicts

The biggest problem was to get the municipalities to understand the need and importance of this surcharge. It took Rosk’n Roll three years to convince them. The problem was that the surcharge had to be approved by all the 12 municipalities in the area in the same way. On the level of the normal waste disposal charge the company can decide directly.

Some of the households protested against the system, because the Ecocharge is an extra charge that might be increased in the future, but they were soon convinced of the need of the Ecocharge to cover the costs of the recycling services. Indeed the company succeeded in introducing the Ecocharge partly by providing a great deal of information to the citizens.

7.7 Uusimaa Moves Toward Waste-Efficiency

Lessons Learned and Transferability

Waste collection in Finland (also in Western Uusimaa) is mainly organised on the basis of contracts between individual property owners and transport companies negotiating directly. This system might cause some problems: If the transport company can make agreements directly with the waste producer, they do not necessarily implement proper standards (e.g. picking up every second week). To save money, they can agree upon coming only a few times per year. That will lead to incineration or burying waste at home (until recently, typical methods of waste disposal in the countryside).

The need for the introduction of an Ecocharge is completely dependent on the coordination of the whole system of organising waste management in a country. As long as waste management is organised centrally by one company or the municipality no Ecocharge would be needed. The same goals could be achieved by a single charge – that could be worked out to have stimulating effects on the amount of waste. But when (as in Finland) several waste collection services and invoicing systems exist within one municipality and the collection system is based on direct contracts with the households – the Ecocharge is needed.

The Finnish experience is a good example for how privatisation of the waste collection system can be managed in an environmentally friendly way. The region of Western Uusimaa together with the private waste companies have made a step forward to promote sustainable waste management. Several municipality-owned regional companies in Finland have followed the example and introduced an Ecocharge.

8 Traffic-efficient Trondheim

Road Pricing – The Toll Ring of Trondheim/Norway

In 1991 the City of Trondheim introduced a fee for cars entering the city centre. This should raise revenues for the municipality and create an incentive to use public transport.

Municipal Profile

Trondheim is situated in the middle of Norway. With about 140,000 inhabitants it is the third city in the country. The number of automobiles per inhabitant amounts to 0.5. Trondheim is a thousand-year-old town which for centuries served as a centre of power in the North Atlantic. Today, Trondheim is known as an international research and development centre with an industrial sector very active in international markets. Trondheim’s geographical location makes it a natural junction between north and south of Norway, land and sea as well as tradition and ingenuity. The areas around Trondheim ensure abundant natural resources. Ocean, land, lakes, rivers and forests provide the foundation for a rich variety of enterprises.

The State of Norway is divided into 19 provinces (län) ruled by the national government.

8.1 Introduction

Abstract

An increasing number of cars led to big traffic problems in Norway during the eighties. Increased congestion caused drivers to use small streets in residential areas increasing noise and pollution. To avoid that situation, it seemed to be necessary to construct new roads.

The process was initiated in 1985, during the last stage of preparing a new transportation plan for Trondheim. Actors from the Country Roads Office and some leading politicians co-operated closely in the discussion on how to solve the ever more serious traffic problems, and propagating the need for an extraordinary effort from the citizens. This initiative was followed by a two-year period of public debate, negotiations with national institutions, and studies of different sorts of tariff systems and principles for the use of the revenue. The instrument was finally approved by the City Council in 1986.

The system was put into practice by installing electronic toll stations that register the traffic on access roads to the city centre. In addition to the financial returns from it, benefits in terms of traffic regulation and environmental advantages have been achieved. Furthermore, other modes of transport have been stimulated. Living in the city has been made more attractive with fewer negative impacts of traffic, including the reduction of air pollution.

8.2 Suffering Of Inefficient Traffic Structures

Background and Objectives

In the last few decades there has been a growing concern in several European countries about urban congestion problems, environmental impacts of traffic growth, and difficulties in financing new transport infrastructure. The situation causes a number of serious losses for the public and the economy: working or leisure time spent in congestion or waiting for public transport, diseases caused by air pollution, agricultural and forest plants damaged by acid and toxic gases, etc.

A brick in Norway’s anti-congestion strategy

In Norway, road pricing was seen as a solution to these problems. In a broader context, the attempt was seen as part of a trend introducing user fees in several public sectors.

The Norwegian Road Law enables local authorities to introduce road-pricing. The revenues have to be used for building roads. It is prohibited to use road-pricing for demand management which means that road-pricing cannot be used to discourage people from driving their cars. The only legitimate purpose for user fees is to raise funds for infrastructure investment. The possibility of time-differentiated fees is a border-case. Official support for the Trondheim scheme rested on the argument that rush-hour traffic is responsible for the need to expand road capacity and consequently should be levied extra. In fact, the local planning and political debate operated on or even beyond the border of the official, national government policy. The room for political action was clearly widened due to the local initiatives and lobbying towards central authorities.

During the second half of the 80s there was an emerging environmental awareness in Norway, urged by the publication in 1987 of the Brundtland Commission report “Our Common Future”. The environmental agenda emerged even more clearly in the process of establishing the fee structure for the toll ring.

Trondheim’s motivation

The main objective to establish toll rings in Norway was fund-raising to improve the transport system. This was true for the implementation of the toll ring system of Trondheim as well. The revenues raised are used for road building and to support other modes of transport (e.g. public transport or bicycle). This would be impossible to finance from limited state funds only.

Another objective was to introduce traffic demand management, influencing the mode choice and timing of journeys. This is done by charging citizens for entering the city centre by car only at certain times. They should be motivated to change their travelling behaviour (either by travelling at a different time or choosing another mode of transport). Moreover there are several secondary benefits like improvement of the city centre, traffic safety, urban renewal and economic prosperity.

8.3 The Solution Step By Step

Implementation

Rate structure

The system includes time differentiated tolls. The basic toll level amounts to Euro 1.5. This is roughly equal to 10% of the average hourly earnings for Norwegian industrial workers. Heavy cars (above 3500 kg) are levied double. The maximum fee per month is 60 payments or 90 Euro (180 Euro for heavy cars).

There is a slightly higher fee during the morning peak hours. Passing of the toll stations in Trondheim is free for all users after 6 p.m. on workdays and at the weekends. Motorists are levied for each inbound crossing. This rate structure was supposed to influence the travelling behaviour of motorists. They will avoid peak hours and the traffic load will be eased.

In June 1996, the City Council approved slight changes in the pricing system, designed to promote fairness by charging a much larger portion of the motorists and reducing the upper limit of the fees for the most frequent users. The revised toll system was implemented in spring 1998.

Before the opening of the system in Trondheim, much effort was put into information campaigns to explain why the toll ring was necessary to raise money for the transport plan.

Meeting the technical challenge

The charging system of the toll ring operates with several electronic payment lanes to avoid long queues of cars in front of the stations. The Trondheim Toll Ring (the “cordon”) was opened in 1991 with 12 toll stations from the beginning, with another 5 being added since then. The system has been limited to a duration of 15 years.

Cars are equipped with an electronic tag. This enables a detection machine to identify the car when passing in a non-stop subscription lane. The tag is free of charge for these subscribers. They get 40–60% discount and have to pay only once per hour, even when passing the lane several times. There is an upper limit for total payment per month and the payment may be drawn directly from their bank account.

The revenues are earmarked for a transport investment package financed by 60% from user fees and 40% from state funds. Of this, 82% is to be used for road building, while the rest is to be invested in public transport, safety and environmental improvement projects. The total package amounts to more than 250 million Euro during a 10 year period.

Environmental concerns influenced the earmarking of revenues, and the Trondheim Package was supplemented by funds for environmental improvements of streets that would be relieved of heavy-traffic.

National and commercial partners

The Public Roads Administration (PRA) is the institute responsible for the planning of national and regional roads in Norway. The responsibility of the PRA is divided into 19 districts and each district cares for the national and the regional roads of the district. Their budgets have to be approved by the Directorate of Public Roads, which is directly subordinated to the Ministry.

In Trondheim the PRA led and planned the Toll Ring. Members of the city council of Trondheim took part in planning group. Finally, the city council had to approve the instrument. The city of Trondheim is not running the toll stations but is contracting private firms for this. The system of an automatic charging system with unattended toll stations was developed in cooperation with a locally based company that produced the components of the electronic tagging system.

8.4 Eco-Efficiency: Differing Interests ...

Barriers and Conflicts

The proposal started a public discussion in which different groups exchanged their views on the proposal. The discussion is summarised below. During the process of decision making a major planning challenge was to secure sufficient support for the toll ring. All the city council debates concerning the tariff system and possible adjustments, revenue disposal and road building, provided opportunities for the opponents to contest the toll ring principle and the Trondheim

Package. An anti-road-pricing action group collected 19,000 protesting signatures in a few days to support a city council postponement proposal. The activists also threatened to create jams by using only small coins at the manual pay stations. However, such demonstrations were hardly noticed, and the traffic soon flowed smoothly through the electronic gates.

The planners’ ability to gain continuing support rested on an understanding of the political climate, close cooperation with leading politicians, responsiveness to public involvement claims, and the capacity to deliver results during the process. There were three key interest groups to address, which indicates how hard it was to obtain a consensus.

The mobility interests prefer to solve mobility problems by expanding the road capacity. If road user fees are considered inevitable, their favoured solution is toll roads with a close link between the charging and the benefit from road use. It is easier to obtain backing from these actors when the arrangement is limited in time, and when the local fund raising generates transfers from the State.

The quality of life interests prefer a sustainable transportation system. Levies on the use of private cars are considered a feasible means to reduce traffic and to provide revenue for public transport and environmental improvements.

A third group of public welfare interests believes in a transportation system which is both supporting increasing mobility and environmental issues. Promoting public transport by improving its quality is preferred to restrictions on car use. The demand management effects of the toll ring are nevertheless rated as positive.

The final policy was intended to be a balanced solution: allocating resources to road construction as well as public transport and environmental improvements.

8.5 ... Can Be Brought To A Consensus

Lessons learned and Transferability

Each city considering road pricing will have to find its own path towards implementation. Public opinion, political system and traffic conditions vary widely. Nevertheless there are some general recommendations, which should be considered from the start.

The most important message is that it is possible to implement road pricing in a Western multi-party democracy. Indeed, in other Norwegian local authorities implementation turned out to be possible even when opinion polls indicated a majority of local citizens is opposed to the scheme.

Urban road pricing schemes affect a number of political goals concerning economic efficiency, mobility, environmental quality, fairness, privacy, and urban development. Interests may overlap at some points so that coalitions are possible.

For instance, environmentalists resist road construction but may support road pricing as part of a restrictive traffic management. The road and car lobby is opposed to additional fees but may back road pricing in anticipation of a better road system. The public transport interests are likely to object to further road investments but may vote for road pricing when promised a share of the revenues. Retailers in the city centre fear losing customers because of road pricing but profit even more from environmental improvement increasing the attractiveness of the central business district, improved public transport accessibility, convenient city parking, and more efficient transport of goods.

Because of the different interest groups with conflicting opinions in Trondheim, the question of how agreement was reached is as essential as what was done. A sense of inclusive dialogue between interest groups was the key, ensuring that the policy was not simply imposed on the city by politicians.

The successful implementation in a medium-sized city with moderate congestion problems strongly suggests the potential for road pricing in more congested cities can be realised.

8.6 Traffic-Efficiency Rises

Results and Impact

During August 1991 public opinion polls related to road pricing were carried out. In Trondheim there have been clear majorities of those expressing an opinion agreed with the implementation of road tolls, the agree/disagree splits being 61% to 32%. This was the best result of all Norwegian cities with toll rings.

The results confirmed the assumptions and indicated a small overall reduction in the proportion of commuting trip by car being made during charging periods, and a corresponding increase outside charging periods. Following the implementation, there has been a 10 % decrease in traffic passing the ring both in peak and non-peak charging hours. The traffic increase in the evenings and week-end (when there are no fees) was slightly above 8%.

In 1992 inhabitants of Trondheim with a driving licence and a car were asked to what extent they had modified their own travel behaviour, as a consequence of the toll ring. Overall, nearly half of the respondents (42%) indicated an effect on their travel behaviour, and very few respondents indicated that the toll ring had caused a substantial change in their travel behaviour.

Respondents who indicated that they had changed, were further asked to specify what changes they had made. Nearly half of the commuters who said they had changed their behaviour had switched the mode of transport chosen, with the next most frequent response being the change of the time of travel or the change of route. For shoppers, the predominant response was to change the time of travel, followed by adjustments to the destination and frequency of travel.

Seven years after introducing the toll ring, there are fewer traffic problems in Trondheim. Innovative technical and organisational solutions were invented and are ready for export now. For the local economy and population the system causes fewer external costs: less negative environmental impact, fewer waiting hours for public transport, fewer waiting hours in congestion, fewer delays in transport of goods, etc. In short: the traffic-efficiency has risen.

9 LAND-EFFICIENT FREIBURG

Relief of Car Subsidies in Vauban

In the German region of Baden-Würrtemberg, as in most other German regions, the ownership of cars is supported by numerous subsidies. One of them is the duty to provide parking space for cars towards everybody who builds housing facilities. This guarantees car users free or very low price parking. The City of Freiburg has now removed this counterproductive incentive from residents of the new district of Vauban.

Municipal Profile

The Model District Vauban is part of the city of Freiburg which has about 200,000 inhabitants and an area of 153 km2. The city belongs to the German state Baden-Württemberg in the south-west of the country. The town itself is situated between the Black Forest and the River Rhine, close to the French (3 km) as well as to the Swiss border (42 km). The Population has grown from 175,000 in 1988 to 186,000 in 1996 which is appr. 1,5% per year (cf. Freiburg 1996). The area of the town as a whole has not increased significantly over this period, but there has been a shift of land use from agricultural (1985: 46 km2; 1997: 39 km2) to settlement area (1985: 40 km2; 1997: 46 km2). This means that about 6 or 7 km2 of agricultural land has been built over.

The German political system is formed by a federation of States (“Bundesländer” or “Länder”), the regional level. The national level (“Bundesrepublik”) is a federal body.

9.1 Introduction

Abstract

The City of Freiburg has grown rapidly in recent years leading to a rising demand for land to develop new housing. This trend cannot continue without serious damage to the environment. One reason that new housing developments need so much land is the federal requirement for each household to have a parking space. If an area can be designated for car free-living, much less land is required.

In 1994 a group of committed citizens of Freiburg got together on the former military area of Vauban to discuss its future development. During the meetings the idea was born to create a new – socially and ecologically oriented – model district. They established the “Forum Vauban” e.V. (registered club) as the body responsible for the organisation of the civil involvement. One of the ideas was to create a living district without parking space and without cars, but according to the regional law car-free living was not possible. In the beginning the local authority was very sceptical about the idea, but in 1996 the Forum brought about a decision of the city council such that a residential area for about 350 living units planned without parking space was made possible. And at the beginning of 1998 a solution was found to realise the car-free option as well. This created a considerable financial incentive for non-car-owners, because they were able to save most of the money that would otherwise have been spent on constructing the obligatory parking bay.

Painstakingly, the Forum group had to negotiate with the local administration over the definition of the legal arrangement and practical implementation. Today the model district “Living without an own car” is on its way to become one of the biggest ones of this kind in Germany.

9.2 A Regulation To Waste Land

Background and Objectives

Building regulation enforces subsidising cars

In most regions in Germany, like in some other European countries, the building regulations (“Landesbauordnung”) include a special clause obliging anyone who wants to build a house to also provide a parking space. The reason given for this regulation is to relieve the municipality of the duty to meet the demand for parking in public space and at public expense. In fact, this is a hidden subsidy for car-traffic, though, because the costs for the parking space will be paid by the owner or renter of the apartment, whether they own a car or not.

Freedom of choice instead of car dependency

The idea behind the Vauban scheme is to provide the opportunity to choose between different residential areas within the neighbourhood. New residents can decide whether they want to live without car, without parking-space or in a conventional living area. The new district is divided into options of different living areas :

1. Living without parking space is on sites A, B and C of the first section. In this area houses cannot have their own parking space. It has to be planned instead in a collective garage at the edge of the residential area.

2. Living without your own car is possible within the whole first section. If the resident signs a contract stating he will live without a car, he or she is suspended from the duty to build a parking space. This contract has to be renewed every year.

3. In area D (conventional living), conventional regulations apply and a parking space must be built with any house.

So what is the difference? A person that chooses the carless option of living gets a financial incentive to reward the environmentally friendly decision. There are additional advantages like a better living quality, safer playing areas for children and less ground covered by concrete.

9.3 Adopt Reality To Serve The Vision

Implementation

Creating local institutions for land-efficiency

The association “Forum Vauban” was founded in autumn 1994 by citizens as the body responsible for the coordination of all forms of participation of citizens. In 1996 the Forum was financed by the German Federal Foundation for Environment (Deutsche Bundesstiftung Umwelt). Since summer 1997 it has been supported by development funds of the LIFE-programme of the European Union. The “Forum Vauban” has become a centre for information exchange between citizens, administration, local council and academic institutions.

To support the citizen’s interest of carless living towards the city council an association (“The car-free club”) was founded.

The city administration grants the planning permission. All other formalities between the resident and city are handled by the association. It was founded in February 1998 and is coordinating all activities concerning the “living without an own car” – model district.

Adapting the regional legal framework

The recently modified version of the building regulations in the state of Baden-Württemberg intends to allow exceptions of the regulation. The municipality has to release someone of the duty to build a parking space on condition that inhabitants:

• can prove that they do not need a parking space

• possesses a open space on which a parking space can be built in case that they want to buy a car later.

This requires a special contract. First, the inhabitant has to declare that he refuses a car-ownership and therefore does not need a parking space. This is independent of the question if the house or apartment is owned or rented. In fact, one third of the apartments in the district are rented flats.

Moreover an agreement with the association has to be signed proving that there exists a space which is reserved as a potential parking space.

With the signing of these two documents the inhabitant is suspended from the duty to provide a parking space. And the association assures the city council that it will buy, collectively, a piece of land and provide it as potential parking space. The members of the association can decide upon the use of the area.

This exception changes the situation that everyone has to build, and pay for, a parking space even if they have no car.

A helpful background for the successful implementation is – as well as the wish of the inhabitants to live in such a neighbourhood – the existence of good public traffic facilities, cycleways, car-sharing etc.

Reliable arrangements by contract

The planning permission (Baugenehmigung) given by the administration includes the exception of the duties to provide a parking space, if

1) the car-free-declaration is signed

2) the existence of a area reserved for potential later use as a parking space is proved within the district

3) the compliance with the agreement is confirmed every year

Moreover every inhabitant has the duty to announce the administration when the agreement is not kept any longer.

The car-free declaration contains the assent that none of the inhabitants of the household owns, or permanently uses, a motor vehicle. The use of car-sharing, taxis are expressly allowed. This duty has to be handed over to the renter or any other legal successor.

An agreement between the association and the inhabitant obliges the resident to pay 3400 Euro. The association in return buys a piece of land of 8 m2 for each household. This contract includes a requirement that the association collects the car-free-declarations and hands them over to the building authority.

The agreement also states that if the city wishes to revoke the exception the association has to provide enough parking space. If there is no free parking space left in the conventional living area of the district that means that the association has to build parking bays on the reserved land.

The resident then has to pay 14,500 Euro for the building of the parking space and the maintenance costs. This money can be saved when staying without a car.

Membership of the association entitles the resident to use of the area saved for potential parking space, an influence on the actual use and the right to elect the managing committee directly as well as the managing director indirectly. These persons make the main decisions. To become a member of the association one has to pay the initial 3,400 Euro and an annual sum of about 35 Euro for the maintenance of the piece of land owned by the association.

The agreement under public law between the city and the association includes a duty on the association to prove all residents that are members of the association are carless. If the city revokes the exception of the regulation for a resident, the association has to build the required parking space. The city can revoke the exemption if a household has not signed its annual car-free contract or it is evident that a household is not keeping the conditions of the contract (e.g. by owning or regularly using a car without parking space on the area and therefore parking it in another neighbourhood).

The association bought a piece of land from the city of Freiburg as a potential place for the building of parking spaces. This pieces of land can be used by all carless residents that proved to the local authority the existence of a potential parking space for their household. The association is also responsible for the care of this land and to create a use for it as defined by the members. What the land will be used for is still unclear, the members of the association have yet to decide. Ideas include: playground for children, sports ground or barbecue site.

Moreover the association collects every year the confirmation of the car-free-declaration from all households and hands it over to the city council. The association acts as a mediator between the city and the carless households.

The members of the Forum are still trying to involve more partners (like the local public transport company) to provide the best mobility facilities for residents. There is a budget to support such facilities (e.g. bicycle loans or price-reduced tickets for public transport) at the beginning.

9.4 Important Start Capital: Private Initiative

Financing and Resources used

In the preparation stage legal advice, some staff and promotional work was required. The legal survey cost 15,000 Euro and was financed half by the city of Freiburg, half by the “Forum Vauban” which is supported by the European Union within the LIFE-Project. Moreover, a great deal of work was done by volunteers.

The purchase and maintenance of area chosen to provide the potential parking space cost about 375,000 Euro. These costs are borne fully by the non-car owning residents, so the municipality incurs no extra costs.

9.5 The Vision Becomes Real

Results and Impact

The offer of reasonable priced, ecological buildings, sustainable energy concepts and carless living attracted a lot of people. There is a particularly large interest in the carless-concept and the Forum team estimates that 30 -35% of the residents in the new district want to live without a car. First results will be available from summer 1999, when the most residents will move into their houses. At the moment (August 1998) most building plots are already sold and 116 of 328 households have taken the advantage and declared to live without a car.

The process will be assessed methodically by the LIFE-Project. The Forum team intends to design a questionnaire which will be delivered to all households to find out if, for example, the households have been car-free before or only decided now to give up their car-ownership. Only then will the actual change in behaviour be known.

9.6 Cheap Living, Parking Elsewhere?

Barriers and Conflicts

At the beginning the city administration reacted cautiously because they thought that the concept would not work. The question of whether the living-without-car concept would be accepted by many people went through a lot of debate. Would there be violations of the regulations and how can they be policed? It is still possible that residents could violate the agreements and park cars in front of their houses, for example. One cannot be sure that some residents are only looking to find a cheap house and do not intend to obey the regulations. It remains to be seen if social pressure can regulate the behaviour of the neighbourhood or if the administration will have to prosecute illegal parking with fines up to 50,000 Euro.

But large scale violations are very unlikely. The attractiveness of owning a car decreases the further the car is parked away from the apartment. Because there won’t be public parking space in the district, cars would have to be left in the next district. Most residents are unlikely to find that attractive.

9.7 Moving To Land-efficient Development

Lessons learned and Transferability

The aim of the policy is a flexible solution. Different types of living area within a district should generally be possible. In every city there should be the opportunity to live in a car-free area for those who want it. And, as this example shows, it is possible to agree an exemption to the building regulations. But such changes often require the initiative of residents together with some perseverance. At the moment these building regulations are subject for discussion in several German states and an amendment might lead to a situation in which exemptions are easier to obtain or even become standard practice.

With this policy, the City of Freiburg is starting to create incentives for more economic use of land. Along with regulatory measures, like land-use plans stipulating more compact development, residents and later the local authority, have started a strategy of land-efficient development. This path will have to be followed by other cities too – learning from first movers like Freiburg.

10 AIR-EFFICIENT ZÜRICH

Aircraft Emission Surcharges at Zürich, Switzerland

Rising air traffic numbers bring rising emissions with them. To reduce the local impacts on the environment, Zürich Airport – in accordance with national law – set an incentive for low-emission aeroplanes. Since September 1997, the general landing fee was reduced and high-emission aeroplanes pay a surcharge. Zürich is “air-efficient”: less air pollution, modern air traffic.

Municipal Profile

Zürich with its 350,000 inhabitants is the largest city in Switzerland. It is situated in the north-eastern part of Switzerland. The city is famous as an international centre for banking and insurance companies as well as being a cultural centre in the north-eastern Switzerland.

The Swiss political system is formed by a federation of States ("Kantone"), the regional level. The national level ("Bundesregierung") is a federal body.

Airport Profile

The airport covers a surface area of 8 km2 and is situated about 10 km north of Zürich. In 1997 there were 276,000 take-offs or landings, carrying 18.3 million passengers and 472,000 tons of cargo. The work is done by approx. 20,000 employees. The Zürich airport is connected to regional, national and international public traffic (buses, train etc.).

10.1 Introduction

Abstract

Based on national and regional clean air policies, Zürich Airport introduced an emission surcharge which is based on engine emission and performance parameters. The aim is to reduce specific emissions from air traffic in order to satisfy political conditions in the context of airport expansion plans required to meet future demands of air traffic. The airport authority believes more in levying emission fees to accelerate the introduction of modern engine technologies than in issuing emission related operating limits.

The airport was not increasing its revenues due to this surcharge, but the costs have been reallocated in line with the polluter-pays principle. First, a general reduction of the weight-based landing fee of 5% was given for all aircraft. Then the surcharge of between 0 to 40% of the landing fee has to be paid depending on the class of the engine emission. This classification is as recommended by the National Department of Transport and Energy. Revenues from the surcharge are used to finance programmes related to the reduction of aircraft emissions.

10.2 Need For A Change

Background

Swiss clean air policy

According to the clean air policy laid down by the national parliament, emissions of air polluting substances are to be reduced to the levels of 1960. One of the tools is the Clean Air Ordinance 1983. Air pollution is to be reduced where it exceeds existing limits and the regions are under obligation to set up a “clean air action plan”. The Region of Zürich did so in setting up its programme in April 1990, revising it in June 1996, confirming that all emission sources have to contribute their share to the overall reductions.

Calculations and measuring campaigns showed levels of nitrous dioxide (NO2) and ozone (O3) in the region North of Zürich exceeded the limits where the airport is located. Engine manufacturers have achieved big improvements in fuel efficiency over the last decades. Modern jet engines generally have lower emissions of – for example – CO2, but air traffic still is the largest single source of NOx emissions. Therefore special emphasis was given to stabilise the airport related NOx emissions despite expected traffic increase. The implementation of the surcharge was intended to stimulate the development of new technologies with reduced emission of NOx.

Expansion plans at Zürich Airport

In the late eighties the Zürich Airport set out its future plans for expansion. The environmental study that came along with this development plan showed an increase in emissions under the “business as usual” scenario.

Further studies showed that if all aircraft operating to Zürich were equipped with low emission engines, emission levels could at least be stabilised – even if air traffic increases as predicted. But best available technology needs to be used. Therefore, the Region of Zürich submitted a proposal to the national authorities to introduce emission-related surcharges as an economic incentive.

According to Swiss clean air policy and the related regulations, the regional government (Kanton), being the airport operator, then took appropriate measures to prevent an increase of air pollution in the region.

10.3 Regional Initiative Enforces Action

Zürich Airport is run by the Region of Zürich. Therefore, the credit for the required expansion programme had to be approved by a public vote. During the debate, the regional parliament decided to raise the issue of an emission surcharge and made it a condition for taking specific elements of the planned infrastructure into service. Furthermore, Zürich Airport has always been willing to take responsibility in questions of environmental protection.

On basis of National Clean Air Policy (see above) the regional government proposed the introduction of an emission surcharge to the national government in 1993. This was necessary because aviation is subject to national legislation. For that reason, the Region or the Airport are not allowed to introduce such a surcharge by themselves.

Overcoming old aviation law

In 1995 the national parliament passed the new aviation law and therewith created the legal base for the emission surcharge – saying that air pollution by aeroplanes should be considered when setting up landing fees. The regulations about air pollutants and emission were part of a wider revision of existing aviation law. According to the new aviation law of 1. January 1995, it is within the competence of the airport operator to define the emission surcharge, although the regular procedure involves consultations with other airports, airlines and national authorities.

On this legal base the regional government could draw up its own plans for the introduction and implementation of the emission surcharge. The Federal Office for Civil Aviation (FOCA), being the national authority, co-ordinates all measures and regulates the design of the surcharge. The Airport itself is responsible for setting the rate structure.

On this basis an extension to a more effective surcharge, where very low emission aircraft would be subject to a refund, is planned.

Partners

As in the case of any other airport fee or charge, there is a regular consultation procedure involving the Airport Authority, the FOCA and airline operators. Detailed financial analysis about measures and costs, involving simulations with air traffic in Zürich, provided results for 1996 and gave airlines the opportunity to consider possible effects on their own fleet. The surcharge was introduced in 1997.

The proposed classification model and surcharges are in compliance with Swiss legislation and conform to the CARFM report (Conference on Airport and Route Facility Management, June 1991) as well as to the principle guidelines of the International Civil Aviation Organisation (ICAO) for surcharges or taxes. The ICAO is a division of the United Nations (UN) handling the global regulation of air traffic. This organisation sets standards and makes recommendations for many issues concerning aviation, such as safety and the environment (noise, pollutants). These standards have to be transferred into national law, recommendations are voluntary. Engine manufacturers will follow these rules.

10.4 Polluters Finance Reducers

Objectives

The emission-related surcharge was primarily intended to provide an incentive for the specific emissions from air traffic to be reduced, by the use of the best available engine technology, in order to stabilise airport emissions without having to set limits for operations.

The surcharge does not finance general costs, e.g. of infrastructure investments of the airport, but is only used for financing costs related to reduction of emissions from air traffic.

10.5 An Aeroplane Is Not An Aeroplane

Strategy

Which pollutants are being considered?

To characterise emissions from aircraft engines in this context, it is sufficient to consider the pollutants nitrous oxides (NOx) and hydrocarbons (VOC – volatile organic compounds). These two substances are the main contributors to combustion-related air pollution, predecessor of ozone, and they are explicitly designated for reduction in the National Clean Air Policy. Carbon monoxide (CO) and sulphur dioxide (SO2) no longer cause a significant pollution problem, whereas other substances are more relevant for the greenhouse effect than as pollutants. CO2 emission is proportional to fuel consumption. Because fuel efficiency has a very high priority in aircraft engine design by definition, it was believed that CO2 needs not be taken as a factor for incentive in this context.

The model for the classification

The FOCA, in cooperation with the National Office for Environmental Protection, Zürich and Geneva Airport Authorities as well as an airline have worked out a model for the classification of engines according to their emission characteristics and for application of related surcharge. The main guidelines were to relate the surcharges to aircraft engine emissions, to secure operational freedom of airline operators and to keep the revenue bound for air traffic emission reduction programmes.

The characteristic emission data for most aircraft engines can be found in special data bases. According to the emission certification data every aircraft operator will be able to calculate the engine emission factor (EEF) for each aircraft in his fleet.

Several factors have to be taken into consideration for the calculation. The main factors are:

• Size of an aircraft:
a large aircraft obviously emits more pollutants than a small one, but also has a bigger transport capacity

• Characteristics of the engine:
the max. thrust or power installed reflects not only the size of the aircraft, but also the technical development

• Landing and take-off cycle (LTO):
this allows one to look at aircraft emissions during the entire flight, but flight profiles are not standardised

10.6 Designing The Set Of Incentives

Implementation

How does the surcharge look like?

First the general landing fee was reduced by 5%. Then the surcharge was added. The revenues were therefore not increased.

Zurich Airport

Fig: Effect of emission surcharge on the airport’s revenues

The surcharge (depending on the aircraft engine emission) is levied as an additional percentage of the regular landing fee to be paid by every airline operator. It is within the competence of each airport operator to determine the percentage per emission class, because income requirements are calculated on the basis of the airport operator’s medium term budget for costs related to air traffic emissions.

The airport operator may change the percentages at any time, but for reasons of transparency and long term planning, they will not be altered too frequently.

Airlines 1996

LTO-cycles in classes 5 - 4 - 3 - 2 - 1

Fig: Effect of emission charge on airlines

How are the revenues going to be used?

Today’s activities as well as the expansion programme for Zürich Airport include a number of measures involving environmental protection related to aircraft emissions. The share of the costs that are covered by the emission surcharge depends on the ecological benefit of the measure.

It varies between 100% (measure entirely for air pollution reasons) and 1% (measure helps to reduce emissions, without being responsible for the benefit). Examples are:

• air pollution monitoring station (100%)

• fixed ground power stations (100%)

• additional taxiways to reduce taxi-times (40%)

• aircraft approach/departure system (10%)

The costs for the different measures amount to approx. 2.745 million Euro/a. Thus, emission surcharge revenues remain allocated to air traffic purposes.

What happens to excess revenues?

As it is not possible to budget long-term expenditure and income very accurately, unused funds or a shortage of a given year will be considered in the calculation of the following years. Any alteration of the emission surcharge will take the previous surplus or deficit into account.

Will this surcharge ever be withdrawn again?

This surcharge may be withdrawn, when the clean air objectives are achieved (emissions from air traffic are reduced to and stabilised at the level required by the authorities) or if the whole aircraft fleet uses the best available technique. It is likely, however, that a surcharge will be maintained beyond existing emission reducing costs, but then the funds raised will be redirected to operation of low emission engines.

How much has to be paid in Zürich?

The introduction of the emission surcharge is not just a general increase of the landing fee. Based on the 1996 financial review and a forecast, the existing weight based landing fee will be generally decreased by 5%. Costs for emission reduction measures that have been covered by general finances so far will now be financed with the emission surcharge according to the polluter-pays principle. The total emission surcharge revenue would have amounted to approx. 2.745 million Euro in 1996, if it had been in effect.

The effect for the airport is such that the overall revenues from air traffic remain unchanged. The emission surcharge is just compensating the overall reduction in the landing fee.

The effect for the airlines are far less stringent than what might be expected. Based on 1996 traffic figures, 2/3 of all landings are unaffected by an increase due to the new surcharge.

10.7 Positive Potential For The Environment

Results and Impact

Because the surcharge was only introduced in 1997, it is still too early for concrete results. First evidence about the impact of the surcharge on emissions will be available after two or three years when enough measurements will have been compiled.

The influence of the charge on the development of new engines with reduced NOx emission will only be seen after a period of 20 years, the usual time for the development and distribution of an engine.

But what can be stated at the moment is, that the surcharge bears a high potential for environmental improvement (reduction of NOx emission). It may also initiate discussion processes between many other airports and organisations about the possibility of implementing a surcharge using the Swiss model.

10.8 Innovative Cities Profit From Innovative Airports

Lessons learned and Transferability

Independent of economic effects, emission surcharges may also signal an innovative environmental policy at local, regional or national level and does improve acceptance of an airport. As airport operators act as private companies on a competitive market, their levies are less regulated by national law, but by the market mechanism. It therefore can be introduced if the airport owners, often local or regional authorities, decide to do so.

Because the surcharge is based on a transparent model and is easy to handle, it can be easily introduced by other airports, thus multiplying its environmental benefits.

10.9 First Mover Zürich, Second Swiss Airports, Third ...

The different elements of this emission surcharge have been the basis for a directive of the National Department of Transport and Energy which was passed on to all Swiss airports in August 1996.

It is obvious that pollution standards in future cannot remain at today’s levels. Airports which hesitate in introducing economic instruments, could one day be struck by regulations – not being prepared to meet them.

Some airports did already follow the Zürich example. An emission charge with a similar model has been introduced on January 1st 1998 in Sweden. And Geneva airport in Switzerland is planning to introduce the surcharge on November 1st 1998.

11. FIRST MOVERS - THE NEXT GENERATION

Being a first mover to eco-efficiency is only a temporary status. After the implementation phase, which often means investing in achieving certain standards or inventing certain organisational or technological patterns, a period of broader implementation begins. In this period more bodies implement the policies of the first mover, who can profit from this lead by being free to act without the adaptation costs – or even by selling technology or consultancy.

But one day the first mover advantage vanishes. While the broad mass adopts the standards, the difference becomes smaller. In this situation both, the former first mover and the later movers, have the opportunity to become the next generation of first movers.

But not every move in the environmental field will be a “first move”. The move has to follow the right direction, be appropriate to the dimension of environmental challenge and has to create the right distance to the other movers. If the distance is too narrow, the move is irrelevant. If the distance is too far, the other movers may ignore it so it will not serve as a model. Moreover, the move has to be appropriate to the social network in which it is undertaken.

The following discussion makes a suggestion, an estimation, of what the next move in the specific field of each our case studies could be. This does not necessarily mean that the initial first mover shall follow it: it may not be possible (e.g. by legal restrictions), or another mover may want to move ahead.

Energy-efficient Community

The authority in the case study set incentives for the efficient use of electricity and its generation on a renewable basis. Along with a number of supporting measures this led to the identification of a number of potential savings. But the price for electricity is still quite low compared to the generation cost, e.g. from solar energy. Achieving sustainable development, in the long run, will mean near exclusive use of renewable energy. For this reason the price incentives have to be stronger.

But before that, the opportunities for the energy market competitor have to be considered. Today’s reality is huge over-capacity in electricity generation from non-sustainable sources like nuclear power and fossil fuels. They drive the market. The danger is that they attract big consumers with low prices and the utility loses big customers. A reaction to this is that the community itself starts buying low-price electricity and re-sells it to the big customers. This way the big suppliers lose the utilities as big customers with guaranteed prices and have to seek for ways of cooperation. The utility, furthermore, can offer the provision of “green electricity” to its customers. In the end, a market situation like this can only lead to sustainable development if the authorities at a higher level restrict the capacity of non-sustainable energy generation.

Waste-efficient Community

In the case presented the region introduced a surcharge on waste collection, which enabled the authority to run recycling centres without charging. This surcharge is part of a private system of waste collection and disposal with differentiated charges. This surcharge provides consumers with an incentive to buy recyclable products rather than non-recyclable ones and to separate the recyclable waste more strictly.

For achieving sustainable development it is also necessary to avoid waste production in the first place. Therefore the next step could be to introduce a surcharge for products and packages, which depends on their toxicity and resource-intensity.

Traffic-efficient Community

The case of introducing a fee on entering the city centre by car contributed to traffic-efficiency: the public and the economy bore fewer external costs e.g. for congestion delays. The funds generated though were used to a large part for improving the road system.

Generally speaking, more roads cause more traffic. This contributes to an increase in CO2-emissions or at least compensates the gains achieved by increased energy-efficiency of engines. According to the recommendations of the International Panel on Climate Change (IPCC), in the long term, (until 2050) the challenge is to reduce CO2-emissions by 80%. This means the next generation of solutions must be systems that reduce road traffic. The next move therefore would be to direct the investments into more efficient traffic systems like public transport. The positive effect would be even bigger, if investments were made in more traffic-efficient settlement structures, e.g. by organising that people move near their work-place – or businesses to the employees.

Land-efficient Community

The starting situation in the case study is the existence of a counterproductive subsidy. House owners are forced to provide parking space for cars, no matter whether they will use it or not. An exemption from this obligation was introduced for a limited number of residents, fulfilling special conditions. This induced a number of new services and organisation patterns.

The next step would be to make the former exemption, the rule – and the former rule, the exemption. No house owner should be forced to build car parking spaces, but the space should be oriented on the demand. For this, the market mechanism could be used. To restrict illegal parking in residential areas, car owners could be obliged to prove parking space for their car near their house when registering the car. When the normal case is not to own a car, the transport services invented could be innovated to serve large parts of the population.

Air-efficient Community

Air-companies in the case described were invited to use modern aeroplanes when landing in the Region. Incentives were set for Volatile Organic Compounds and Nitrogen Oxides in the landing phase. By this local air-pollution was reduced and the use of modern technology stimulated.

While air-traffic contributes to local air pollution, the bigger environmental threat is the contribution to global climate change. CO2-Emissions from planes have a growing share in global CO2-Emissions. There are even more fears that, for example, the vapour trails of aeroplanes have even a greater influence on global climate than the CO2 emitted. An air-efficient region therefore should limit the dependence on air-traffic to a minimum. The next step could be to include CO2 into the calculation formula and to generate funds for global climate protection. The more important step, however, needs to be taken on the national or continental level though: to abolish the counterproductive subsidy for aeroplane fuels, which are currently exempted from fuel taxes.

12 COMPARE YOUR COMMUNITY!

The following tables give examples for tariff systems in four German cities. You are invited to compare the presented data with the situation of your community. It is easily possible to fill in the your data in the table. This can help you first to compare the actual situation with German communities. Second, it might help to find arguments to support sustainable development by implementation of economic instruments as effective tools.

The questions cover different fields of application, like waste, water, energy and traffic. The aim is to show not only the level of charges used but to give an impression of the graduation of prices as well. Often the comparison of prices at low-level consumption with those at high-level consumption shows that small consumers have to pay relatively more than those that consume a lot of resources.

The results have been summarised and presented in the tables on the following pages. These tables, of course, do not represent the situation at the European level, but an impression of the German situation might be useful as well.

The tables are structured in the following way:

There are two different approaches. One was to calculate the prices per household with graduated consumption figures. A typical household is assumed to consist of four persons. To illustrate the graduation even more clearly the prices are also converted to price per unit. The other was to calculate the price according to the average annual consumption per inhabitant.

The net income per year amounts to 8,200 Euro in Eastern Germany (Dresden and Nordhausen) are situated and to 13,300 Euro in Western Germany respectively the Cities of Heidelberg and Bielefeld.

All prices are given as net prices without value-added tax.

Size of the cities:

Bielefeld: 325.000 inhabitants

Dresden: 456.000 inhabitants

Heidelberg: 139.000 inhabitants

Nordhausen: 47.000 inhabitants

12.1 Electricity And Gas Charges

Electricity

The electricity charge is usually a divided charge with a fixed annual charge for the electricity meter and a consumption charge according to the amount of kwh used. The price per kwh indicated in the table represents the total sum of a certain consumption level (including the basic charge) divided by the number of units of electricity used. This means that the figures per kwh in the table comprise the price per unit of electricity provided as well as the basic charge – that share is decreasing with increasing consumption figures.

Widely used is a rate structure which differentiates between peak-hours of consumption with an higher price per unit, normal prices and non-peak prices (during the night). For the calculation of the figures in the table always the peak tariff was used. Of course, there is a considerable potential to save money, if shifting electricity consumption to non-peak hours and low-price tariffs is possible.

If you want to calculate the comparative price in your community, take:

_______ kwh * _______ Euro/kwh + _______ Euro/year = _______ Euro/household / year

per household consumption charge basic annual charge result
per year for electricity meter

Electricity - private

Electricity - business

Gas

The calculation for gas prices is basically the same as for electricity. But there are some general remarks concerning gas consumption and the comparability of the figures in the tables. The consumption of gas in the different cities varies according to the development of the system. In some cities heating is done with gas whereas other cities heat mainly with coal or district heating systems. Therefore the consumption data is not suitable for comparison and was not integrated into the table.

Moreover steps of price graduation according to consumption are different in every community. The rate structure is composed of different factors (basic charges and consumption charges) which vary considerably from city to city. There exist special conditions for business tariffs and there is the possibility of individual contracts above a certain level of electricity as well as gas consumption. Special arrangements are common, so general figures for the business sector are impossible to calculate. The figures in the tables are calculated for certain conditions: beside the consumption figure (kwh) the power provided for each business was assumed to be 30 kw. According to the different conditions, also the prices differ.

Gas - private

Gas – business

12.2 Water Charge And Sealing Surcharge

The charge for fresh water often is a divided charge. It is composed of a basic charge and a consumption charge. The basic charge has to be paid for the water meter which is obligatory in every apartment or house. This is a fixed annual charge, it varies according to the size of the water meter. The consumption charge depends on the quantity of water used. The price is fixed per unit [m3] of water consumed. In the table you find the total price a household of 4 persons has to pay per year and a price per m3 which includes the relative share of the basic charge.

The waste water charge in Germany and several other European countries is calculated according to the amount of freshwater used. The charge is fixed for each unit [m3] of freshwater. In Nordhausen additionally a fixed charge according to the size of the water meter is levied for waste water. For this reason a decrease of prices per unit can be recognised.

If you want to calculate the comparative price in your community, take:

_______ m3 * _______ Euro/m3 + _______ Euro/year = _______ Euro/household/ year

per household consumption charge basic annual charge result

per year for water meter

Water

This model equation can be used in principle for both, water and waste water charge calculation, even if in case of waste water the basic charge often is not applicable.

But this calculation is true only for tariff systems where the water charge is depending on the amount [m3] of water used. Other systems are based on the size of the apartment. If this is the case in your community do not hesitate to fill in the table – you might take the result as an argument for the necessity of an incentive tariff system.

Waste water charge and sealing surcharge

Another related levy is the extra rainwater charge per m2 of impermeable soil, e.g. sealed by concrete or asphalt. One of the four investigated authorities introduced this charge and another is planning to do so in 1999.

12.3 Waste Charges

The calculation of the waste charges differs considerably between the different investigated communities.

The charges are composed of basic charges according to the size of the container. But not all components are fund in every city. Bielefeld includes all costs in a single container charge, Dresden and Heidelberg have a split charge (basic charge for the container and a collection charge) and Nordhausen differentiates between basic charge for the piece of land according to the number of residents, a container charge and a collection charge. Dresden and Nordhausen introduced a waging system which allows to calculate exact collection charges according to the real amount (kg) of waste produced.

Still, the most common system is to set variable charges according to the size of the container. Another system also used in several European countries is a waste charge according to the size of the apartment and collection points for more than one household. In this case not only a control of the separation of different fractions of waste is made difficult, moreover this charge does not reflect the real waste production. If in your community such a system is in use you may compare the figures in the table to a charge to be paid for an apartment suitable for a typical household of 4 persons.

The waste charges per household in the table are calculated for a certain size of waste containers and a weekly removal per household. For the calculation it was assumed that a container of xy litres installed for a 4-persons-household is filled up (according to the provided volume) and emptied every week by the collection service. This was done to find a standard for the different charging systems. If the container sizes in your community differ from those in the tables you should take the next size up for the comparison.

If you want to calculate the comparative price for your community, take:

_______ Euro/year + _______ Euro/year + _______ Euro/year = _______ Euro/year

basic charge container charge collection charge waste charge

for piece of land acc. to size acc. to frequency

Of course, there can be a significant potential of saving money, especially when there is a waging system installed. Therefore a minimum waste charge was calculated for every community. The minimum charge represents the charge for a person that is producing no waste. A certain minimum charge seems to be necessary to avoid illegal dumping or burning of refuse.

The calculation of charges for organic waste corresponds in principle to those for garbage.

Waste charge - garbage

Waste charge - organic waste

12.4 Parking Fees And Transport Subsidies

The data about traffic can basically be divided into tow main parts, these are:

Parking space

The intention of the questions about parking fees was to find out to which extend public parking in inner cities is cost covering. Therefore the level of parking fees and the revenues of public parking were asked first. As the table shows they are not differing significantly in the communities. It is interesting to compare the real revenues of managed parking space and the value of the land. Managed parking spaces here include all places that are subject to charge in the streets, in multi-storey cars parks as well as residents’ parking. Time limits and other restrictions are not considered.

To reach cost-covering the parking fees should cover the renting costs of a piece of land. If you know the value of land per m2 you can multiply it with the size of the parking space (normal size 15m2). This will indicate you the value of the parking space. The annual revenue of the parking space should be 10% of the value of the land.

The calculation can be done as follows:

_______ Euro * _______ m2 = _______ Euro

value of land per m2 size of parking space value of parking space

_______ Euro / 10 = _______ Euro/year

value of parking space 10 per cent annual revenue cost covering fee

The figures reveal a significant gap between the revenues from parking fees and a cost-covering fee. Cost covering is not possible, if the difference between the real and the necessary revenue of a parking space is too big.

Parking fees

Road construction and Public traffic

Here an overview over the annual spending on road construction, road repair measures and construction of cycleways by local authorities and other funds is given - either as total sum or per inhabitant. This is mainly a collection of data. It indicates the importance of road construction in a local authority. The comparison of local spending and national or regional funds shows the financial contribution of each local authority. For Nordhausen there is no representative data available because the responsibility for the different classes of streets are distributed among the different local, county and regional authorities.

Transport subsidies

Concerning public traffic the table shows that cost covering of public traffic cannot be reached by selling tickets only. To improve public traffic there exist several possibilities: e.g. raising of charges or shifting money from road subsidies to public traffic. Every city has to decide upon this question individually.

13 SERVICE CHAPTER

13.1 Resolution of The CLRAE

Resolution 55 (1997) was debated and adopted by the Congress of Local and Regional Authorities of Europe on 4 June 1997.

The Congress,

1. Having regard to the report presented by Mr Leinen (Germany) on “Local and regional financial instruments for the environment in Europe” on behalf of the CLRAE Working Group on Environmental Protection and Sustainable Development;

2. Thanking the International Council for Local Environmental Initiatives (ICLEI) for their assistance in the preparation of the report;

3. Considering that conservation and protection of the environment requires action at all levels of government to provide guidelines to market forces, which tend to be driven by the concept of economic growth as opposed to the improvement of the quality of life;

4. Considering that the major environmental issues in Europe have become increasingly focused in urban areas and are largely a product, directly or indirectly, of rapid urbanisation;

5. Recalling CLRAE Resolution 245 (1993) on municipal and regional environmental policy in Europe, and, in particular, its point 23, which proposed that the CLRAE should examine taxation and financial matters relating to the protection of the environment;

6. Considering that in the framework of a general environmental policy financial instruments are often more effective than the common legislative instruments of rules and prohibitions, which usually do not provide sufficient incentives to implement solutions protecting the environment beyond the legislative standard;

7. Considering that financial instruments have several appealing properties, which, if properly designed, may promote environmentally friendly behaviour and penalise pollution;

8. Considering that financial instruments can influence the price to be paid for a certain activity or process in such a way that environmentally friendly behaviour becomes cheaper than environmentally damaging operations;

9. Considering that financial instruments:

• allow market agents to decide upon the best ways of reducing pollution taking cost factors into account,

• provide permanent incentives for technological improvement and emission abatement,

• are easier and cheaper to administer than regulatory approaches requiring the monitoring of compliance with legislative standards;

10. Considering that the most widely used financial instruments for the protection of the environment include:

• incentive price structures, which favour sound environmental choices and cover the full cost of service supply,

• tax differentiation, which provides lower taxes for environmentally friendly solutions,

• licenses and fees, which discourage environmentally undesirable activities,

• special taxes and surcharges on environmentally costly practices, which generate funds for local or regional environmental programmes,

• subsidies, which decrease the costs of environmentally friendly investments;

11. Considering that in cases where environmentally harmful activities are not charged for properly, or are even subsidised by public funds, the local/regional eco-system might suffer irreversible damages over the longer term;

12. Considering that in some European countries financial instruments can be implemented by local and/or regional authorities, whilst in others these authorities are allowed to employ centrally defined financial tools in a discretionary manner;

13. Considering, however, that in many European countries the policy-making power of local authorities is very limited, and only managerial responsibilities for environmental matters are in the domain of local government;

Calls on local and regional authorities to consider, wherever possible, the implementation of financial instruments in the following key areas of the environment:

A. Energy conservation

14. Where prices for electricity and gas are set by local or regional energy suppliers which are to some extent under the control of the local or regional authority, pricing decisions should be influenced so as to motivate citizens and industries to save energy;

15. The use of energy saving technologies and renewable energy sources should be encouraged by providing subsidies and/or tax concessions to their providers and users;

16. Local or regional authorities should provide house improvement grants to private sector householders to fund the capital costs of energy conservation measures;

B. Solid waste management

17. Waste collection charges should be introduced by all local authorities, and should directly depend on the amount of waste, providing an incentive for minimisation and reuse rather than disposal;

18. A landfill levy charged on local businesses placing waste in landfill sites should provide an incentive for recycling rather than dumping;

19. Although in the waste hierarchy recycling is seen as better than disposal, the ultimate goal should be avoidance and minimisation, therefore a recycling collection charge should also be considered;

20. A local charge on packaging materials in order to reduce their usage should reduce their input into the waste stream;

C. Air quality

21. Whilst taxes on harmful emissions are usually implemented at national level, local authorities should also introduce a licensing charge, whereby firms pay a fee to their local authority for a licence to emit into the air;

22. In accordance with the polluter pays principle, the licensing charges should be higher for the more polluting processes;

23. Local and regional authorities should also charge businesses for administration and monitoring costs;

D. Water and waste water

24. Water usage should be charged for everywhere, especially in countries with water shortage problems. Where local and regional authorities control the suppliers of water, pricing decisions should be influenced so as to encourage the economical use of water;

25. Ecological farming should be promoted by way of subsidies or tax concessions, in order to protect groundwater resources;

26. Where local and regional authorities control the sewage system, charges should be established so as to discourage the production of waste water;

27. Charges for sewage treatment should, as far as possible, take into consideration both the quantity of waste water and the amount of pollutant substances, such as nitrate load;

E. Land use

28. Land use taxes should be implemented by local and regional authorities in such a way that they have an environmental guiding effect;

29. Soil pollution should be minimised by charging polluters directly for the cleaning of contaminated land. The polluter pays principle is undermined if public money is used unnecessarily to bail out contaminated or derelict sites;

30. Local and regional authorities should provide incentives through grant aid or tax relief to reclaim derelict, vacant or contaminated land for environmentally sound development;

F. Traffic

31. Local and regional authorities should, as far as possible, limit road traffic, one of the main polluters in urban areas. The main financial instrument for attaining a reduction in traffic is the introduction of parking fees;

32. It is also possible to levy a development charge on new building developments, related to the extra traffic that it is estimated to generate;

33. Income from such fees and charges should be used to subsidise the price of public transport, in order to provide incentives for switching from unsustainable to sustainable modes of transport;

34. In some areas local or regional tolls for road use may be justified, provided they do not result in an undue environmental strain on other (non-paying) roads;

35. Where this is possible, local authorities should take responsibility for the enforcement of traffic offenses (such as parking in restricted areas, urban speeding, etc.). Revenue from such charges should be used for reinvestment in sustainable forms of transport;

Instructs its Working Group on Environmental Protection and Sustainable Development to continue work on this subject with a view to drawing up a draft Recommendation to be submitted to the Committee of Ministers for adoption.

13.2 Aalborg Charta: Charter Of European Cities And Towns Towards Sustainability

The Aalborg Charter was approved by the participants at the European Conference on Sustainable Cities & Towns held in Aalborg, Denmark from 24–27 May 1994.

The Charter of Aalborg consists of three parts:

Part I: Consensus Declaration: European Cities & Towns Towards Sustainability

Part II: The European Sustainable Cities & Towns Campaign

Part III: Engaging in Local Agenda 21 Processes: Local Action Plans Towards Sustainability

While the parts two and three constitute the Sustainable Cities and Town Campaign, part one declares important principles of local policy for sustainable development. It is referred here as a standard to guide local initiatives.

Part I

I.1 The Role of European Cities and Towns

We, European cities & towns, signatories of this Charter, state that in the course of history, our towns have existed within and outlasted empires, nation states, and regimes and have survived as centres of social life, carriers of our economies, and guardians of culture, heritage and tradition. Along with families and neighbourhoods, towns have been the basic elements of our societies and states. Towns have been the centres of industry, craft, trade, education and government.

We understand that our present urban lifestyle, in particular our patterns of division of labour and functions, land-use, transport, industrial production, agriculture, consumption, and leisure activities, and hence our standard of living, make us essentially responsible for many environmental problems humankind is facing. This is particularly relevant as 80 percent of Europe’s population live in urban areas.

We have learnt that present levels of resource consumption in the industrialised countries cannot be achieved by all people currently living, much less by future generations, without destroying the natural capital.

We are convinced that sustainable human life on this globe cannot be achieved without sus- tainable local communities. Local government is close to where environmental problems are perceived and closest to the citizens and shares responsibility with governments at all levels for the well-being of humankind and nature. Therefore, cities and towns are key players in the process of changing lifestyles, production, consumption and spatial patterns.

I.2 The Notion and Principles of Sustainability

We, cities & towns, understand that the idea of sustainable development helps us to base our standard of living on the carrying capacity of nature. We seek to achieve social justice, sustainable economies, and environmental sustainability. Social justice will necessarily have to be based on economic sustainability and equity, which require environmental sustainability.

Environmental sustainability means maintaining the natural capital. It demands from us that the rate at which we consume renewable material, water and energy resources does not exceed the rate at which the natural systems can replenish them, and that the rate at which we consume non-renewable resources does not exceed the rate at which sustainable renewable resources are replaced. Environmental sustainability also means that the rate of emitted pollutants does not exceed the capacity of the air, water, and soil to absorb and process them.

Furthermore, environmental sustainability entails the maintenance of biodiversity; human health; as well as air, water, and soil qualities at standards sufficient to sustain human life and well-being, as well as animal and plant life, for all time.

I.3 Local Strategies Towards Sustainability

We are convinced that the city or town is both the largest unit capable of initially addressing the many urban architectural, social, economic, political, natural resource and environmental imbalances damaging our modern world and the smallest scale at which problems can be meaningfully resolved in an integrated, holistic and sustainable fashion. As each city is different, we have to find our individual ways towards sustainability. We shall integrate the principles of sustainability in all our policies and make the respective strengths of our cities and towns the basis of locally appropriate strategies.

I.4 Sustainability as a Creative, Local, Balance-Seeking Process

We, cities & towns, recognise that sustainability is neither a vision nor an unchanging state, but a creative, local, balance-seeking process extending into all areas of local decision-making. It provides ongoing feedback in the management of the town or city on which activities are driving the urban ecosystem towards balance and which are driving it away. By building the management of a city around the information collected through such a process, the city is understood to work as an organic whole and the effects of all significant activities are made manifest. Through such a process the city and its citizens may make informed choices. Through a management process rooted in sustainability, decisions may be made which not only represent the interests of current stakeholders, but also of future generations.

I.5 Resolving Problems by Negotiating Outwards

We, cities & towns, recognise that a town or city cannot permit itself to export problems into the larger environment or to the future. Therefore, any problems or imbalances within the city are either brought towards balance at their own level or absorbed by some larger entity at the regional or national level. This is the principle of resolving problems by negotiating outwards. The implementation of this principle will give each city or town great freedom to define the nature of its activities.

I.6 Urban Economy Towards Sustainability

We, cities & towns, understand that the limiting factor for economic development of our cities and towns has become natural capital, such as atmosphere, soil, water and forests. We must therefore invest in this capital. In order of priority this requires

1. investments in conserving the remaining natural capital, such as groundwater stocks, soil, habitats for rare species;

2. encouraging the growth of natural capital by reducing our level of current exploitation, such as of non-renewable energy;

3. investments to relieve pressure on natural capital stocks by expanding cultivated natural capital, such as parks for inner-city recreation to relieve pressure on natural forests); and

4. increasing the end-use efficiency of products, such as energy-efficient buildings, environmentally friendly urban transport.

I.7 Social Equity for Urban Sustainability

We, cities and towns, are aware that the poor are worst affected by environmental problems (such as noise and air pollution from traffic, lack of amenities, unhealthy housing, lack of open space) and are least able to solve them. Inequitable distribution of wealth both causes unsustainable behaviour and makes it harder to change. We intend to integrate people’s basic social needs as well as healthcare, employment and housing programmes with environmental protection. We wish to learn from initial experiences of sustainable lifestyles, so that we can work towards improving the quality of citizens’ lifestyles rather than simply maximising consumption.

We will try to create jobs which contribute to the sustainability of the community and thereby reduce unemployment. When seeking to attract or create jobs we will assess the effects of any business opportunity in terms of sustainability in order to encourage the creation of long-term jobs and long-life products in accordance with the principles of sustainability.

I.8 Sustainable Land-Use Patterns

We, cities & towns, recognise the importance of effective land-use and development planning policies by our local authorities which embrace the strategic environmental assessment of all plans. We should take advantage of the scope for providing efficient public transport and energy which higher densities offer, while maintaining the human scale of development. In both undertaking urban renewal programmes in inner urban areas and in planning new suburbs we seek a mix of functions so as to reduce the need for mobility. Notions of equitable regional interdependency should enable us to balance the flows between city and countryside and prevent cities from merely exploiting the resources of surrounding areas.

I.9 Sustainable Urban Mobility Patterns

We, cities & towns, shall strive to improve accessibility and sustain social welfare and urban lifestyles with less transport. We know that it is imperative for a sustainable city to reduce en-forced mobility and stop promoting and supporting the unnecessary use of motorised vehicles. We shall give priority to ecologically sound means of transport (in particular walking, cycling, public transport) and make a combination of these means the centre of our planning efforts. Motorised individual means of urban transport ought to have the subsidiary function of facilitating access to local services and maintaining the economic activity of the city.

I.10 Responsibility for the Global Climate

We, cities & towns, understand that the significant risks posed by global warming to the natural and built environments and to future human generations require a response sufficient to stabilise and then to reduce emissions of greenhouse gases into the atmosphere as soon as possible. It is equally important to protect global biomass resources, such as forests and phytoplankton, which play an essential role in the earth’s carbon cycle. The abatement of fossil fuel emissions will require policies and initiatives based on a thorough understanding of the alternatives and of the urban environment as an energy system. The only sustainable alternatives are renewable energy sources.

I.11 Prevention of Ecosystems Toxification

We, cities & towns, are aware that more and more toxic and harmful substances are released into the air, water, soil, food, and are thereby becoming a growing threat to human health and the ecosystems. We will undertake every effort to see that further pollution is stopped and prevented at source.

I.12 Local Self-Governance as a Pre-Condition

We, cities and towns, are confident that we have the strength, the knowledge and the creative potential to develop sustainable ways of living and to design and manage our cities towards sustainability. As democratically elected representatives of our local communities we are ready to take responsibility for the task of re- organising our cities and towns for sustainability. The extent to which cities and towns are able to rise to this challenge depends upon their being given rights to local self-governance, according to the principle of subsidiarity. It is essential that sufficient powers are left at the local level and that local authorities are given a solid financial base.

I.13 Citizens as Key Actors and the Involvement of the Community

We, cities & towns pledge to meet the mandate given by Agenda 21, the key document approved at the Earth Summit in Rio de Janeiro, to work with all sectors of our communities – citizens, businesses, interest groups – when developing our Local Agenda 21 plans. We recognise the call in the European Union’s Fifth Environmental Action Programme “Towards Sustainability” for the responsibility for the implementation of the programme to be shared among all sectors of the community. Therefore, we will base our work on cooperation between all actors involved. We shall ensure that all citizens and interested groups have access to information and are able to participate in local decision-making processes. We will seek opportunities for education and training for sustainability, not only for the general population, but for both elected representatives and officials in local government.

I.14 Instruments and Tools for Urban Management Towards Sustainability

We, cities & towns, pledge to use the political and technical instruments and tools available for an ecosystem approach to urban management. We shall take advantage of a wide range of instruments including those for collecting and processing environmental data; environmental planning; regulatory, economic, and communication instruments such as directives, taxes and fees; and mechanisms for awareness raising including public participation. We seek to establish new environmental budgeting systems which allow for the management of our natural resources as economically as our artificial resource, ‘money’.

We know that we must base our policy-making and controlling efforts, in particular our environmental monitoring, auditing, impact assessment, accounting, balancing and reporting systems, on different types of indicators, including those of urban environmental quality, urban flows, urban patterns, and, most importantly, indicators of an urban systems sustainability.

We, cities & towns, recognise that a whole range of policies and activities yielding positive ecological consequences have already been successfully applied in many cities through Europe. However, while these instruments are valuable tools for reducing the pace and pressure of unsustainability, they do not in and of themselves reverse society’s unsustainable direction. Still, with this strong existing ecological base, the cities are in an excellent position to take the threshold step of integrating these policies and activities into the governance process for managing local urban economies through a comprehensive sustainability process. In this process we are called on to develop our own strategies, try them out in practice and share our experiences.

Sustainable Development is Mankind's biggest challenge coming into the next century. Debate in recent years has made at least two things clear. First, that sustainable development cannot be purely about keeping to ecological limits. There have to be economic benefits as well, so called 'win-win' situations. Environmental protection and economic success must go hand in hand. Second, the challenge cannot be met by national governments alone, but various groups of protagonists have to innovate their strategic scope as well as their day to day practice. One of the most important groups are local and regional authorities.

The guide aims to present a set of solutions to meet the demand for integrated ecological and economic strategies for public authorities in a market based economy. For this purpose it employs the concept of eco-efficiency, which was first developed in the private sector as a way of improving the competitiveness of individual firms. The role of public authorities in eco-efficiency is to create incentives and set a reliable framework for the individual market competitors. While numerous regulations already exist, the chance is to apply economic instruments. These provide a price incentive for environmentally friendly behaviour.

Feedback requested

ICLEI would like to offer the readers of this guide the opportunity to comment on it and to continue the discussion process about economic instruments and their implementation.

If you are working on innovative projects and you perhaps already have experience with the implementation of economic instruments, we would be glad to receive information. We will collect the information material and use it for further projects on this topic.

Please contact:

ICLEI European Secretariat
Eschholzstrasse 86
D-79115 Freiburg
Germany
telephone +49 - 761 - 3 68 92 - 0
facsimile +49-761-3 62 60
email [email protected]

or

CLRAE Secretariat
Council of Europe
F - 67075 Strasbourg
France
telephone +33 - 3 - 88 41 20 00
facsimile +33-3-88412751