receptacles for human wastes, disposed consumer goods and the by-products of industrial production has no price attached to it and thus neither private nor public waste producers have any economic incentive to reduce their abuse of these resources' assimilative capaciWhile the use of these media imposes no costs on producers, costs are imposed on society at large, in the form of increased medical bills, increased maintenance requirements for materials, and restricted uses of common property resources. Moreover, in the case of industrial production, because these production costs are passed on to society generally, the market price to the consumer of the products manufactured does not reflect the total social cost of production; the result may be the oversupply of environmentally costly goods to satisfy a demand induced by artificially low prices. Similarly, the costs of public waste disposal services may be kept artificially low. By attaching a price to the use of hitherto free atmospheric and hydrospheric resources, it is argued, their abuse and the costs unilaterally imposed upon society by polluting producers can be reduced. In some proposals, the price takes the form of a fee per unit discharge and is an approximation of the damage caused by a polluter's effluents and emissions. Once the amount of damage is determined the price can be set at which a maximally efficient solution to the pollution problem exists. At this price, each polluter will abate his discharges to the point where the marginal cost of abatement is equal to the marginal cost of social damage. For further abatement below this level of discharge, the cost to the polluter of each additional unit of abatement will be greater than the reduction in social damages resulting from such abatement. It will be cheaper -- and economically more efficient -- to pay a fee on the remaining residuals than to abate them. The efficiency of pollution charges has made them theoretically far more appealing to economists than regulatory schemes in which all polluters have to reduce their effluents by a uniform percentage to meet a legislatively or administratively determined standard. While having apparent equity, such uniform reductions can be quite an inefficient means of achieving standards, for they ignore A. Myrick Freeman and Robert H. Haveman, "Residuals Charges for Pollution Control: A Policy Evaluation," Science, 177:322 (July 28, 1972). Robert M. Solow "The Economist's Approach to Pollution and its Control, Science, 172:498 (August 6, 1971). the differences in marginal abatement costs that exist for large and small dischargers. Proponents of pollution charges have also argued that they provide a powerful incentive to abate pollution quickly because they impose an immediate economic cost on dischargers. Under regulatory schemes, it is contended, dischargers do not have such a strong motivation to abate, but rather have a considerable incentive to delay implementation of required pollution control schemes. Rulings will be judicially contested, variances sought, and other efforts at delay will be employed, so as to postpone an investment in pollution control equipment which represents either a company's use of capital from which it receives no financial return or a significant burden on a municipality's budget. Yet another argument made for pollution charges is that they provide a continuous incentive to abate pollution. Functioning alone and not in conjunction with a system of ambient air or water quality standards, the continuous cost they impose on a polluter provides him with an incentive to find new ways of reducing his total effluent discharge. Proponents of pollution charges also contend that they provide considerable flexibility in achieving abatement. Each company could decide for itself how to abate in order to reduce its charges. Because the assimilative capacity of a water course or air shed may vary with hydrological or meteorological conditions, a uniform percentage of effluent or emission reduction or a specified level of treatment that might be required by a regulatory scheme may produce abatement action which is overly effective and expensive during one season, yet is grossly inadequate at another time of year. In contrast, charge levels might theoretically be adjusted to produce discharger abatement behavior better adapted to changing environmental conditions. The principal argument against true effluent charges is that it is so difficult to establish societal damage functions that the level for the effluent charge based on such functions cannot be found. Even the strongest proponents of effluent charge systems concede that this is true, but respond that surrogate damage functions can be established. Often these surrogate damage functions can be established to work in conjunction with some form of ambient or effluent standard system; the price per unit of discharge is set at a level whereby it becomes more expensive for polluters to pay the charge than to install the pollution control equipment that will permit water quality or effluent standards to be achieved. The demand for surrogate damage functions serves to undercut one of the arguments made in favor of pollution charges namely that they reduce the information burden of regulatory agencies and lay it principally on polluters. The regulatory agency, to establish an artificial price, must have considerable knowledge about industrial abatement costs so as to enable it to establish charge rates which will induce pollution abatement by dischargers. This information demand is not so great, however, when the pollution charge takes the form of a municipal user charge for treatment of industrial wastes in the municipal sewage treatment plants. A municipality, in the course of designing and operating its plant will have developed cost estimates. These function as surrogates for the environmental damage avoided by effluent treatment and can be apportioned among industrial dischargers. The need to establish surrogate damage functions also undercuts somewhat the contentions of charge proponents that an effluent charge might bring about faster polluter response than some form of standard-based regulation. Promulgators of pollution charges will have to experiment with alternative charge schedules until they find the schedule that produces the amount of abatement they consider desirable. The period of time between rate establishment, initial polluter response, rate adjustment and additional polluter response may be considerable. In addition, the tentative nature of the charge structure may confound business planning because of uncertainty over future abatement and fee costs. Pollution charges may also be used as an incentive in situations where the technology for pollution abatement has yet to be developed. Because investment in pollution control research may be a highly risky investment in which little or no profit may be found, polluters having no economic incentive to do so may not devote much of their resources to the necessary research effort and may use the resultant abasence of suitable technology as an excuse for not abating their pollution. Pollution charges in such a situation might be arbitrarily selected by the legislature as a prod to industries to devote funds to an adequate research effort. The rationale behind all pollution charge schemes is that businessmen are profit-motivated and city managers cost-conscious and that if it is more expensive to pay an effluent fee than abate pollution, abatement action will be taken. While some studies of sewage treatment plant user charge schemes have suggested that this will be the case, the matter of business response is still the subject of debate. First, business response to a fee system will be dependent upon the size of the fee, its predictability, and the opportunities provided within the statutory and regulatory structure under which the fee is levied to delay its imposition or influence its magnitude. Second, business response will be conditioned by the nature of a polluter's market. A monopoly business may respond differently to a fee than a non-monopoly business. Third, business response will be conditioned by regulatory factors. If a polluter's product price structure must be approved by a government regulatory commission, his ability to pass on his abatement costs or fee payments will influence his response to the fee. The effectiveness of a fee system for achieving environmental goals will also be contingent in part on the mix of sources that contribute to the pollution of a particular medium. If a large portion of the pollution in a medium is attributable to non-point source pollution, a fee system for polluting discharges from point sources may have to be supplemented by a regulatory system for the control of nonpoint sources. Another argument made against pollution charges is that the monitoring required will be too difficult or expensive to be practical. Any effective pollution control system will require some system of monitoring and it can be implemented by means which fairly apportion the burdens, e.g., via self-reporting by dischargers complemented by periodic governmental spot-checks. Charges can also be based on formulas derived from various measures of plant activity. Allegations as to the monitoring burden must be evaluated on a case by case basis. The strongest argument usually made against pollution charges is that they impose a double burden on polluters. That is, the polluter is expected to invest his oftentimes limited resources in pollution abatement while he is simultaneously paying the government for his polluting discharges. Both industrial and municipal interests argue that it is unfair to make capital demands for pollution charges while also expecting investment in pollution control equipment on which little return is gained. The double burden argument may indeed be applicable in some industries for which effluent charge payments may comprise a considerable portion of work capital or total investment. However, the argument must be evaluated on an industry by industry basis, for in some industries, there might be sufficient capital available and so little invested in pollution control, that the double burden argument is more rhetorical than substantive. Furthermore, the double burden argument against an effluent fee can be defused somewhat by establishing a fee system in which the effluent charge starts at a low level and then rises over time. The initial capital impact on industry will be slight while the industry is on notice that if it does not accelerate its pollution control efforts, its burden may become heavier. In considering the efficacy of a charge system, the desirability of application to municipal dischargers must also be considered. While application of a fee solely to industrial dischargers may lead to allegations of discrimination in favor of municipal dischargers, charges on municipalities may not be as efficacious as those on industrial dischargers. The ultimate aim of an effluent fee is to provide an incentive for the discharger to find the most efficient means of abating his pollution. For the industrial discharger, the abatement process might include an end of the pipe control process, but it might also entail a process change, increased recycling and waste recovery, changed inputs, or other adjustments. The spectrum of choices available to municipalities amy not be as wide as the spectrum for industries because the inputs in the form of human wastes can scarcely be modified. Municipal response to an effluent charge, furthermore, might be different from industrial response, for it might have to be conditioned upon voter approval of a bond issue. Also, to the extent that municipal response is governed by allocation of federal sewage treatment plant subsidies, it is contingent upon congressional appropriations and the smooth functioning of the federal bureaucracy in the timely allocation of construction grant funds. The considerations of fairness embodied in the dispute over municipal effluent taxation can be found as well in discussions over the scope of pollution charges. Should they be national or regional, or should both national and regional charges be developed? National charges may be inequitable because they take insufficient account of differences in the regional impact of pollutants, but regional charges may not be functional because political considerations, i.e., fear of industrial loss, may preclude their being levied. The levying of regional charges also raises the question of political and administrative responsibility. If a regional organization fixes assessments, how are its boundaries to be defined and how are states and local interests to be represented? The discussion that follows of sulfur emission taxes, lead additive taxes, and parking surcharges demonstrates how many of the points raised above figured in deliberations over three specific federal disincentive proposals. POLITICS OF DISINCENTIVES Sulfur Emission Taxes Sulfur oxides constitute a threat to human health and can damage vegetation and property. The cost to human health of sulfur oxide emissions is estimated at over $3.3 billion annually and property and vegetation damage is estimated to amount to an additional $5 |