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Chapter Four: Future Perspectives - The alternative policy studies

North America

Over the past three decades, North American environmental policies have been reasonably successful at dealing with conventional, mostly local, environmental problems such as air and water pollution. The scale of the region's economic activity has brought increased well-being and opportunities for most of the North American population. The downside of this robust economy, however, is increased stress on environmental quality, with major impacts regionally and worldwide. Perhaps the most obvious example of such environmental stress is the fact that North America remains, on a per capita basis, the world's largest source of greenhouse gas emissions that threaten to alter the Earth's climate. Contributing to these emissions are heavy dependence on automotive and air transport and sprawling suburban residential patterns that put heavy demands on energy resources. The region's robust economy also draws heavily on other natural resources - water, forest products, agricultural goods, fisheries, minerals - sometimes contributing to environmental degradation. Policies favouring low-cost energy and subsidies for natural resource extraction may encourage high levels of production and use, and thus make it more difficult to attain environmental goals.

Given that the scale of North American economic activity has both beneficial as well as harmful effects, alternative policies that change the pattern of economic activity in ways that reduce environmental harm without retarding overall economic growth are worth careful consideration. Policies that alter fiscal incentives - both reducing or eliminating perverse incentives and increasing incentives for constructive change - seem to offer particular promise. Such alternative policies are the focus here (UNEP 1999e).

Subsidies for natural resource extraction are one widely-used though difficult-to-measure fiscal incentive. The United States, for example, indirectly subsidizes logging in national forests by providing logging roads built with public funds, and grazing of livestock on federal lands, by charging less than market rates for grazing permits (US Congress 1995). Similar subsidies support use of water for irrigation in the arid, western portions of the country, and mineral extraction from and recreational use of public lands. These subsidized activities have placed heavy burdens on the country's natural resources (US Government 1997). According to the OECD, the United States provided about US$46 960 million in agricultural producer support in 1998; the corresponding figure for Canada was US$3 184 million (OECD 1999). Farmers using irrigation water from federally-supported projects pay on average only about 17 per cent of the actual cost, and the total water subsidy in the western United States is estimated at about US$4 400 million (Repetto 1986, Pimentel and others 1997). Energy subsidies in the United States, according to one recent estimate, amount to perhaps US$30 000 million per year (Myers 1998) although a 1992 study by the Energy Information Administration estimated that approximately 30 per cent of energy subsidies were spent on renewable energy sources and improving energy efficiencies.

Subsidies for road transportation are also large. Road transportation in the United States, with 220 million vehicles (International Road Federation 1997) and more than 6 million kilometres of roads, has the world's largest system, and accounts for 80 per cent of the energy used in transport and 25 per cent of the country's carbon dioxide emissions. Subsidies for road transport include those for road construction, oil extraction, production and use, automotive research and safety programmes, highway patrols, and related government programmes; they have been estimated at US$91 000 million a year (Roodman 1996). Other related subsidies include those for parking, estimated at US$50 000 million (Myers 1998).

Reducing or eliminating direct and indirect subsidies for road transport could play a significant role in reducing congestion, improving urban air quality, and slowing the growth of carbon dioxide emissions to meet climate goals. Without parking subsidies, for example, many people might choose mass transit alternatives. Subsidized investments in road construction can have enormous leverage, since they appear to have a significant influence on per capita automobile travel rates (Litman 1996).

Similarly, US policy could eliminate subsidies for grazing livestock on public lands. The US Forest Service and the Bureau of Land Management administer the country's livestock grazing programme. The two agencies charge ranchers a fee based on an 'animal unit month', which is the amount of forage that one adult cow with calf or five adult sheep require for one month. Studies show that the fees do not cover the costs for administering the programme, and that they are below the market rate for grazing on private lands (Maxwell 1995). Such subsidies are opposed by those who argue that low grazing fees and lax supervision have encouraged overgrazing and have led to soil erosion, watershed destruction, loss of native grasses and other vegetation needed as food for wildlife and livestock, and elimination of forage reserves needed to withstand periodic drought (Hess and Holechek 1995). The most direct reform policy would be to raise grazing fees to cover the administrative costs, or to match estimates of market value (Maxwell 1995), thus eliminating subsidies.

In short, the North American region constitutes a good example of the potential to reduce environmental pressures by reform of various forms of subsidies. Proposals for such reforms are already being made. In relation to the Western States, for example, the maturation of economies with reduced reliance on resource extraction, the increased value placed on the environment by the public, and a desire to reduce the federal deficit are motivating new objectives for federal natural resource policy which will place more emphasis on market mechanisms while reducing subsidies (US Government 1997). Ironically, this form of alternative policy ultimately results in the reduction of government involvement - contrary to the widely-held belief that environmental policy always requires more government involvement.

The impact of taxes in the marketplace makes taxes another potentially powerful policy tool. In current industrial economies, there are visible costs that are paid by economic actors and external, hidden costs from environmental degradation that are paid by society as a whole or by other economic actors. In the case of air pollution from energy production, for example, these external costs may be borne by the population at large in the form of health costs and by other economic sectors such as agriculture in the form of reduced productivity. If energy producers had to bear these costs, then alternative, less-polluting energy sources might become more competitive. One way to internalize these hidden costs is through taxation of pollution, resource depletion or ecosystem degradation.

Environmental taxes have already been used in North America by individual states and provinces, and by national governments. Ontario, for example, has implemented a Tax for Fuel Conservation that taxes new car purchases based on their fuel efficiency and offers rebates for the most efficient vehicles. For more than a decade, California has offered state tax credits for renewable energy producers that have helped to stimulate the industry within the state. At a national scale, the US tax on ozone-depleting chemicals is credited with helping to phase out production of these chemicals in a rapid manner, coupled with an accelerated phase-out schedule imposed by the United States, supporting US commitments under the Montreal Protocol (see page 304).

Taxes on greenhouse gas emissions such as carbon dioxide have been proposed as one policy measure to help the United States and Canada reduce these emissions and thus lower the high burden that North America places on the global climate (Dower and Zimmerman 1992). Such taxes, known as carbon taxes, are controversial, even though their ability to reduce emissions is not in doubt. There is strong resistance in North America to higher energy taxes, and some economic studies argue that taxes high enough to reduce emissions markedly would also slow economic growth. However, Scandinavian countries including Finland, Sweden and Denmark have introduced such taxes, providing a strong incentive for greater energy efficiency and for fuel-shifting to renewable energy sources or to less carbon-intensive fuels. The United States intends to meet its commitments under the UNFCCC primarily through the use of another form of market mechanism: emission caps and emissions trading, which better fits the US domestic context and may, in fact, provide greater assurances of compliance than tax approaches.


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