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Since measuring emission is more difficult than valuing the administrative costs, charges are likely more feasible than emission taxes for recovering these costs. For example, in relation to water pollution, a scheme of annual charges introduced in 1991 is an attempt to recoup the approximate cost to the NRA (and subsequently the EA) of granting and monitoring an authorisation. While a charge scheme is designed to reflect the whole environmental costs of emission, this term is as the same meaning of tax. Whatever the tax or charge, the overall emission reduction is achieved at lowest total costs through this cost-effective allocation. Taxes and charges would also raise the general revenue for government. The receipt of revenue offers scopes to fund additional public expenditure or to reduce overweight taxes elsewhere (e.g. Climate Change Levy is with offsetting the employers'' National Insurance Contributions ), provided it is earmarked for environmental subsidies, further improvement of environment, beyond those arising from tax effects, could be achieved. So far, we can see that both taxes and charges will fulfil the requirement of ‘polluter pays principle’. Comparing with CAC, the latter, by setting standards, forces polluters to pay costs for process design or pollution abatement equipments, however the polluters unlikely pay the damage cost of emission within their permit level, but taxes or charges can internalise the externalities of pollution because every unit of emission would be charged. Even in case of the taxes passed ultimately on to the consumer, the taxes have a function to reduce the consumption of these polluting products, so consumers in this ground are equalled to polluters.
Tradable emission rights are created through two methods as grandfathering or auction in terms of that the resources are valuable. Again the above example, the government wishes to cut pollution by 180 units, so it gives each firm a pollution permit, which is with 90 units less than its existing level. If an emission trading market were created, the price (e.g. ￡80 per unit) of a permit would be automatically fixed through a means of bargaining on market (as the dogma of Coase Theorem ). Firm B would abate the emission as far as possible so as to get profits by selling its surplus abatement units while firm A would save money by buying the permits from market. Both firms get more money in their pockets. Revenues from auction could be put into the public purse. As Pareto says ‘everyone is better off’ , the cost-effectiveness is maximized. The tradable emission rights have a more advantage than emission taxes. Because of the market price of permit, the government would only decide how many permits to be issued, then the requirements of information are less than for discretions of tax rate.
The economic instruments are of course not flawless. First of all, using pollution taxes or trading can get a cheapest approach to pollution control but cannot reduce the total quantity of pollution. As regards subsidies, why should public pay for polluters? In the international market, the domestic products, which prices comprise the imposed pollution taxes or costs of emission rights arising from auction, could be less competitive than those non-levy or non-bidding-cost products from other countries. Fairness could be also problematic in the emission-trading regime since the grandfathered tradable rights constitute a barrier to entry for new firms. In respect of effectiveness, supposing that firms’ disregards of low emission taxes lead to more pollution or avoidances of high taxes on a specific emission lead to developing techniques to transfer pollutants into another medium, can we say that the IPC standards or even in some cases the ‘end of pipe’ standards are less effective? Under the BATNEEC conditions, now that a performance standard leaving firm free to choose the technology to achieve the relevant emission standards could promote the innovation, why should the government transfer their political power to the market force? For a long-term IPC objective, particularly for the potential polluting substances, are the market mechanisms capable of handling the precautionary principle? Charges/taxes and permit prices usually rely on measurement of environmental damages or values of environmental ‘goods’, but how to measure the costs of aesthetic requirements for beautiful scenes, and how to value the public health or biologic diversity? The pure economic mechanisms likewise cause many problems to be answered.
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