EFR Environmental Fiscal Reform

Economists have cause to be concerned that environmental and health damage from emissions – albeit of otherwise useful and essential substances – in amounts and places that upset the natural balance cost more than the benefits of the activity they are emitted from.

Nitrogen is just one key area

Take nitrogen in fertilizers for example: a report from the the European Nitrogen Assessment by 200 experts from 21 countries in Europe, puts the annual cost of nitrogen pollution on air, soils, water, increased greenhouse gases and damage to wildlife at €70bn-€320bn.

The cost works out at between €167 and €720 a year for everyone in Europe.

The environmental effects of nitrogen were estimated at €25bn to €145bn, compared with the €25bn to €130bn benefits to agriculture that fertilisers deliver.

Nitrogen contributes to air pollution that causes respiratory problems, such as asthma and cancers, and reduces life expectancy by six months across much of Europe. Nitrates in water are bad for human health and damage wildlife including fish stocks. Nitrous oxide is also a greenhouse gas.

This pollution – often called externalisation of costs of emission – cannot be reasonably allowed to continue. At the same time, many livelihoods and indeed the whole food provision system is reliant on current practices.

Devleoping economic instruments to drive the change

The challenge is to find economic mechanisms that can be introduced – and many would like to see them as market-based instruments (MBI) – to encourage a circular economy for these pollutants and at the same time ensuing society can function and offer jobs.

Together with the Swedish Sustainable Economy Foundation we have been developing approaches like Flexible Pollutant Surcharges- a steadily raised fee on pollutants that increases until emissions of the pollutant come under control.

We have produced several white papers, been involved in reports and investigations and are now offering a simulation session to help spread the understanding of the issues involved and how flexible surcharges work.

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