Uncertainty and the Choice of Policy Instruments for Meeting an Environmental Quality Standard

Anderson Jr., R.J. (1980). Uncertainty and the Choice of Policy Instruments for Meeting an Environmental Quality Standard. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-80-163

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Abstract

Broadly stated, there are three steps in environmental quality management. These are (1) selection of environmental quality standards, (2) determination of feasible programs for reducing discharges to the environment or for increasing its assimilative capacities, and (3) implementation of a policy to bring about discharge reductions and/or expansion of assimilative capacity.

Much of REN's research program has been devoted to state-of-the-art analysis of the effects of discharges on environmental systems and modifications in environmental systems that could be made to enhance systems' abilities to assimilate discharges. For example, case studies of Lake Balaton in Hungary and Attersee and Neusiedlersee in Austria have advanced the state of the art of modeling water quality and are providing a menu of feasible programs for managing the quality of these lakes.

Subsequent REN studies will build on these modeling efforts to evaluate alternative management plans and policies. This working paper is the first of a series of reports that are planned to result from these efforts. It considers the problem of choosing a policy instrument (i.e. a means to implement environmental quality standards) that is both effective (i.e. will result in the environmental quality standard being met) and efficient (i.e. will meet standard at least cost). Three alternative policy instruments are considered. These are (1) emission standards, which prescribe maximum allowable rates of discharges of pollutants to the environment, (2) emission charges, which prescribe payments that emitters must make per unit of pollution discharged to the environment, and (3) transferable emission permits, which entitle their holder to a face value quantity of emissions, and which may be transferred among emitters.

REN's analyses of specific environmental management problems dramatically illustrate that uncertainty pervades the modeling and management process. Until recently, this fact of the modeling and management problem (i.e. uncertainty) was largely ignored in studies of the policy instrument question. This paper builds on the recent literature to show how, in the presence of uncertainty, policy might best be fashioned to meet an environmental quality standard efficiently.

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