NOTES

1. See, for example, Repetto (1996).

2. See recent review in Cansier and Krumm (1997).

3. “Economic instruments” is used here in sense of market-based instruments, as it is in the literature.

4. For a theoretical reference, see Baumol and Oates (1988) and for OECD country experiences see, for example, OECD (1994 and 1995) and Serôada Motta (1998a).

5. Serôada Motta (1998b) presents a comprehensive review of methodological issues and case studies on environmental valuation.

6. Ramsey rule.

7. Depending on the market power of permit holders, the initial distribution of permits may be crucial for compliance, and therefore auctioning should be avoided. See, for example, a recent analysis in van Egteren and Weber (1996).

8. Tradable permits will not be addressed here since the focus will be mainly on financing perspectives of economic instruments. For a detailed overview of tradable permits in Latin America, see, for example, Ríos and Quiroz (1995), Ryan (1995), and Serôada Motta (1998a).

9. See Serôada Motta (1997) for a detailed analysis of the Brazilian case.

10. See Serôada Motta (1998a) for a review of water charge systems in the main OECD countries.

11. This section is based on Serôada Motta (1998a).

12. There is also a rationing price based on a willingness-to-pay declaration.

13. As long as they fulfill the criteria of representation.

14. Other states are in the process of studying the introduction of water charges. In 1997, the State Water Resource Council (CRH) of São Paulo submitted a proposal to define specific water charges for all types of use, including irrigation, recreation, and navigation, which have been discussed in the last five years. The proposal advocates setting charges based on a basic unit price, a maximum unit price, and an average total cost of annual production. The pricing criteria include a restriction based on the user’s ability to pay. The definition of these thresholds, however, appears arbitrary and not based on any explicit criterion of equity. For allocation purposes, consumptive use was considered most damaging to the environment, whereas diversion was held to be least damaging since it only alters the course of rivers and does not produce pollution. All other forms of water withdrawal, regardless of the level of consumption, generate some type of pollution as they reduce flow and dilution capacity. In the case of sewerage, given the limited data available, investments were distributed solely in terms of the charge for the estimated BOD load in effluents. Regarding type-of-use charges for water consumption, higher prices are suggested for industry, medium prices for urban use, and lower prices for irrigation. For water quality, irrigation is charged more than urban use. Rather than being based on (economically) efficient pricing, this overall approach seems to be based on cost-recovery objectives.

15. This section is based on Belausteguigoitia, Contreras, and Guadarrama (1995) and Contreras and Saade (1996). Saade (1998).

16. This subsection is based on Rudas and Ramírez (1996).

17. The pertinent legislation deals with renewable resource uses, including also air, fisheries, and forests. The fisheries and forestry charges were poorly implemented, like those for water, and the air-pollution charges were never applied at all.

18. Although initially implemented for water management, these charges can be applied broadly for any environmental service.