Guidelines for the Development of EIs

We present here some detailed guidelines for EI applications for environmental management in the region. They are presented in three phases: policy analysis, instrument analysis, and instrument development.

Policy Analysis Phase

Prior to any attempt to develop an EI, regulators may first need to analyze the policy aims and the current status of the natural resource uses.

The Objective of the Environmental Policy

This is the most important step in formulating an EI. It is an obvious step, but is often neglected, particularly when regulators are eager to transfer a “good” OECD experience of a particular EI to their country. Regulators must first clarify the environmental policy and the aims for which the EI is being considered. The main outcome of this phase should be to set the policy objectives and the role of the EI, such as an externality correction and/or revenue- raising.

Current Command-and-Control Mechanisms

It is important to identify the reasons for the failures of whatever CAC is already in place to serve the environmental policy aims that the EI is supposed to replace. Very often the monitoring capacity, environmental and growth conflicts, and political constraints identified may also be barriers to EI application. In some cases, such barriers may prove to be higher for price devices than for generalized CAC. Note also that ambient standards and environmental sanctions will be pertinent to EI enforcement.

Current Distortionary Fiscal Instruments Affecting the Environmental Goals

Sectoral policies also apply EIs for their own aims. A subsidy or a tax on an economic activity may encourage the overuse of a certain natural resource. The removal of these distortionary fiscal instruments would theoretically be necessary to increase the efficiency of an environmental EI and sometimes more practical than attempting to counteract them with a new environmental EI, although sectoral political power has to be conciliated.

Causes and Sources of the Environmental Problem Addressed by
the Policy Aims

As was said above, economic instruments are designed to act on users of natural resources by adjusting their use levels to some desirable level or making them contribute payments to finance environmental activities. Therefore, a clear identification of the causes and sources of pollution or depletion that the policy is addressing is fundamental to an understanding of users and their economic behavior.

Environmental Damage, Control, and Opportunity Cost Assessments

An EI will necessarily act on environmental damage and/or users’ control and marginal opportunity costs related to the policy aims. Therefore, some kind of estimate of damage and control costs, even a rough one, is needed before an EI is selected. Otherwise, pricing devices will lack consistency.