Concluding remarks
In this contribution we have analysed from a law and economics point of view the efficiency of different environmental policy instruments on the basis of the achieved targets and taking informational problems into account.
The literature on the choice between regulation and liability has been reviewed, showing evidence of an increasing interest in informational issues.
Concerning other forms of environmental policies inside the two main categories of regulation and liability, as a general rule whenever the nature of the activities carried out by the firms is such that the private parties have better information about the benefits and costs of reducing risks, then the market-based system is to be preferred. The advantage of making the private parties directly responsible for risk control is clear but an indirect form of involvement, such as through a tax system or through financial responsibility, could also have positive effects.
Moreover, when there are large differentials among firms in the abatement cost of pollution, relying on market-based instruments provides the advantage of economies on the need for public agencies to acquire information. But it is also possible that a public agency is better informed about those risks because information and decisions can be centralized, particularly when a better awareness of the risk factors requires special expertise to be shared in different cases and situations.
Finally, an important advantage emerges in the analysis of the enforcement of financial responsibility because through this instrument financial institutions, such as banks or insurance companies, can play an important role by using the capital market to create guarantees in favour of companies operating in risky sectors.
Notes
1. For the contrast between private and public enforcement, see Cooter (1984).
2.
Commission of the European Communities, White Paper on Environmental Liability, COM (2000), 66 final, Brussels, 9 February 2000.3. In the words of the European Commission: ‘Strict liability means that fault of the actor need not be established, only the fact that the act (or the omission) caused the damage. At first sight, fault-based liability may seem more economically efficient than strict liability, since incentives towards abatement costs do not exceed the benefits from reduced emissions. However, recent national and international environmental liability regimes tend to be based on the principle of strict liability, because of the assumption that environmental objectives are better reached that way. One reason for this is that it is very difficult for plaintiffs to establish fault of the defendant in environmental liability cases. Another reason is the view that someone who is carrying out an inherently hazardous activity should bear the risk if damage is caused by it, rather than the victim or society at large. These reasons argue in favour of an EC regime based, as a general rule, on strict liability’ (see note 2: para. 4.3, under the title ‘The type of liability, the defences to be allowed and the burden of proof’).
4. The comparison between liability and regulation can also be modelled using a fomal economic approach based on a principal-agent kind of representation. See Boyer and Porrini (2002a, 2002b).
5. Financial responsibility is provided for by CERCLA, by the Safe Drinking Water Act (SDWA), by the Outer Continental Shelf Lands Act (OCSLA), and by the Surface Mining Control and Reclamation Act (SMCRA). Also in the Resource Conservation and Recovery Act (RCRA) and in the Oil Pollution Act (33 U.S.C. §2716 of 1990).
6. In fact, in §4.9 of the White Paper, on ‘Financial security’, we can find the statement: ‘When looking at the insurance market - insurance being one of the possible ways of having financial security, alongside, among others, bank guarantees, internal reserves or sector-wise pooling systems - it appears that coverage of environmental damage risks is still relatively undeveloped, but there is clear progress being made in parts of the financial markets specialising in this area’.
And the enforcement of such an instrument seems to be delayed in time, according to the statement that ‘Moreover, the EC regime should not impose an obligation to have financial security, in order to allow the necessary flexibility as long as experience with the new regime still has to be gathered. The provision of financial security by the insurance and banking sectors for the risks resulting from the regime should take place on a voluntary basis’.7. For example, in Italy, the Ministero dell’Ambiente [Ministry of the Environment], in a decree of 8 October 1996, defined the method for granting financial guarantees in favour of the state by companies that carry out waste transportation activities related to reclaiming, restoration of site conditions, waste transportation and disposal, as well as the reimbursement of any further damage caused to the environment. Another example is the Flemish experience, and more particularly the proposals of the Interuniversity Commission for the revision of environmental law in the Flemish region, which made elaborate provisions concerning financial guarantees (Faure and Grimeaud, 2000).
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