The elements of sustainable development are already finding their way into legislation and industry guidelines. BATNEEC (best available technology not entailing excessive cost) and BPEO (best practicable environmental option) are just two examples of this, (not to be confused with CATNAP^*). As is the new IPPC (integrated pollution prevention and control) legislation where waste minimisation and energy efficiency are now being incorporated into standard industry operation.

Since traditional markets fail in efficient "valuing" or "allocation" of resources with particular emphasis on environmental issues, the government is likely to increase its use of "economic instruments" in order to encourage industry to improve environmental performance and encourage the development of new markets and environmentally responsible behaviours.

Economic instruments come in different guises either as benefits or penalties. Economic instruments can be looked at using the following categories,

• Property Rights
• Market Creation
• Fiscal
• Financial
• Liability
• Performance bonds

Property Rights

Although not a clear instrument, if property rights can be correctly assigned and valued then more appropriate pricing of the use of natural resources will be achieved and this will safeguard those resources. This is particularly useful for landowners whose stewardship may be undervalued which can lead to unsustainable land use practices rather than encouraging enhancement projects that could be funded by local authorities.

In addition where somebody is using natural resources from somebody else in a specific area, e.g. groundwater drawn freely from a local bore, secured and tradable property rights will ensure that they will negotiate and internalise costs.

Market Creation

This type of instrument emphasises industrial operation because a market is created by the government such that the environment is treated as a waste sink into which business can emit, within limits, and subject to the purchase of pollution permits, i.e. tradable emission permits. There has been some talk of this type of programme being implemented at global level with internationally traded CO₂ permits. This tends to find favour with both users and polluters since they do not sacrifice environmental quality, i.e. the number of permits is controlled by the regulatory authority and they leave the polluter with the flexibility as to how to adjust to the environmental standard. Charges levied on the emission of pollutants into the environment i.e. discharge consents agreements although less flexible do also serve to go some way toward valuing property rights.

Fiscal

Taxes can be levied on environmentally unsustainable products, (e.g. leaded petrol, CFC aerosols, pesticides, etc) or practices e.g. inefficient waste control.

Taxes can include both the consumption and disposal processes compounding the penalty for using a given product. Ideally the charges are directly related to environmental damage costs, thus the price of the good is adjusted exactly by the reduction in social welfare caused by the externalities associated with the product.Alternatively subsidies can be implemented for environmentally sound production.

Taxes are seen to be both ecologically and economically efficient, since every further reduction of the use of the product in either industrial production or the consumer cycle will lead to benefits for the environment. This instrument again allows some flexibility for business since paying taxes initially can serve to free up the time required to develop or invest in cleaner production technology.

Financial Instruments

These can serve to encourage environmentally responsible behaviours but do nothing to help internalise the environmental/social costs. Examples are subsidised interest rates to encourage certain types of business, or aid in the purchase of cleaner technology. Green funds and soft loans can also mobilise additional financial resources for conservation.

Liability Systems

This can be expensive to administer and requires an advanced legal system and clear fine structure. Clear definitions of personal liability particularly for industry are increasing within UK legislative framework but fines imposed are still relatively small in comparison to the USA for example.

Specific companies are now required to take account of industry best practice guideline, i.e. BREF notes and fines may increase as the environmental legislative structures become more coherent. This can act as a preventative influence but liability is obviously applied after an environmentally damaging or irresponsible event.

Performance Bonds

This instrument if used properly can have a strong influence on environmental performance in the industrial arena. Companies can either enter into a structured environmental performance improvement plan worked out between themselves and local regulatory authorities or can sign up to a simple agreement to operate by using the environment sustainably and in compliance with a defined set of environmental rules. A "Bond" or agreed sum of money based on company size and turnover etc is then either actually handed over to the authority or promised based on some contract. If the company defaults it forfeits its environmental "bond" or deposit and has to fulfil its financial obligation. This is an unused instrument as such probably most useful in potentially sensitive environmental areas where environmental clean up costs, should a damaging event occur, would be prohibitively expensive, thus this acts as further financial insurance. Companies exhibiting environmentally sustainable behaviour would have the greatest proportion of the money returned to them over time.

• Economic efficiency
• Low information requirements
• Administrative low cost and complexity
• Dependable - environmental effectiveness should be understood and reliable
• Equity - heavily regressive schemes should be avoided
• Adaptability - system should be sufficiently flexible to incorporate technology, price and operational changes
• Dynamic - system should encourage continual improvement
• Political Acceptability - system should not be too radical - greater risk of being abandoned during political change

Economic instruments, environmental impact assessments, natural resource accounting, and other policy instruments are tools that can be used to achieve environmental objectives. For such instruments to be efficient and effective, they need to take into account the full social, economic, and environmental costs of drawing on natural resources and environmental goods and services, including those which are considered free (air, water, soil, the ozone layer).

Estimating the full social and economic costs of environmental degradation, the value or benefit of its enhancement, and the true costs and benefits of utilising natural resources is a major challenge. Achievement of this will improve the allocation of investment to meet the environmental management needs for sustainable development.