E C O N O M I C I N S T R U M E N T S
CEE already on its way
By Jernej Stritih
The emerging environmental authorities in the struggling communist economies of the Central and Eastern Europe (CEE) of the 1980s faced a daunting task when they tried to implement environmental policies.Central planning meant that enterprises were not responsible for environmental damage, since they supposedly worked for the benefit of society and depended on central decisions to make environmental investments. The normal checks and balances between the business sector and public authorities were also missing or were overridden by party structures, leading to a culture of non-compliance and a total inability to enforce law by administrative or legal action. A way to motivate enterprises was found by setting up central funds for environmental investments, fed by economic instruments such as pollution charges.
Most CEE countries thus entered the transition period with at least some economic instruments already in place. With environment high on the political agenda, some countries, with Poland in the lead, managed to upgrade these into a system of environmental funds, mirroring West European public financial institutions for infrastructure investments such as the EU Cohesion Fund or the German Ausgleichsbank.
During the transition, the environment began to lose political importance. It was again almost impossible for environmental authorities to rely on the enforcement of command-and-control mechanisms. Again, the easiest way to motivate environmental investments was through financial incentives - collecting pollution charges on the one hand and providing grants or loans on the other.
As a result, most CEE countries have implemented a wide variety of economic instruments, and are, in some respects, ahead of EU members.
As for the EU, while environmental policy is moving toward using more economic instruments, most EU directives are still command-and-control based. One of the key priorities for future EU members will thus be to develop their enforcement capacity. But it would be more cost-effective if they use this more as a backup than as the main method of policy implementation. So the question is: Will EU candidates be able to persuade EU negotiators and the courts that economic instruments are a valid implementation mechanism under EU law?
Fiscal and free market supporters in the EU also have their eye on environmental funds, looking at them as a distortion of the fiscal system because of their earmarking of public funds and providing state subsidies to industry. However, EU funding mechanisms also see them as interesting in-country mechanisms for delivering EU funds and for co-financing EU-supported projects.
Regarding CO2 taxes, EU member countries still have not agreed on a common use of this mechanism while some individual CEE and EU countries have already proceeded with implementation.
Let's hope that new EU members will be able to take EU environmental policy further toward economic instruments, rather than having to move back to traditional command-and-control themselves.
