Designing International Environmental Agreements

Environmental Protection
in a Knowledge-Based
Delhi Sustainable Development Summit
February 6-9, 2003
Charles D. Kolstad
3M Visiting Professor of Environmental Economics, MIT
Donald Bren Professor of Environmental Economics & Policy, University of
California, Santa Barbara
Economic Solutions to
Environmental Problems
• Price emissions (pay to emit)
– Charge urban polluters based on where,
when, what
– Power plants pay for using the public air
• Set up tradable rights for emissions
– Polluters buy and sell right to emit
– Aggregate emissions kept under control
• BUT what works in theory does not always
work in practice!!!
Two fundamental problems with economic
solutions to environmental problems
• Distributional – where the burden falls
– Often falls disproportionately on the poor
• Eg, older polluting cars often owned by poor
– Burden often falls on narrow sectors
• Certain industries bear much of the cost of cleanup
• Coal-rich countries bear cost of climate control
• Monitoring – Need to know who, what, where
– Easiest sources – big stationary sources
– Tough sources: smaller diffuse sources
– Cost of monitoring often not justified
– Thus technology regulations
Technology Advances in Monitoring
Example 1: Road Congestion
• Levying tolls is the
economic solution but is
difficult and costly
• Automatic toll collection
becoming reality
• Transponders
• Automatic Number Plate
Recognition Technology
Technology Advances in Monitoring
Example 2: Auto Emissions
• Technology 1: Routine
vehicle emission tests
coupled with tamperproof odometers
• Technology 2: remote
sensing of emissions
tied to number plate
• One of the great obstacles to using economic
incentives (prices) to manage the environment
has been reliable, cheap monitoring
• The knowledge-based economy and the
computer revolution is causing this obstacle to
• In a few decades, this may well be the most
important innovation in environmental