The Choice of Policy Instruments House of Representatives Standing Committee on Environment and Conservation The policy instruments for regulation of environmental degradation available to governments fall into three groups: fiscal controls; regulatory controls; and mixed systems involving elements of fiscal and regulatory measures. The main difference between fiscal measures and regulatory controls is that the former operate on relative prices whilst the latter involve explicit regulations relating to the quantities involved in commercial or industrial activities, for example, pollution regulations prohibiting the quantities of pollution from exceeding some specified level. The Department of Resources and Energy advised the Committee that direct regulatory controls are at present the most widespread form of policy instrument for environmental protection but that the use of either fiscal or regulatory measures depends on the circumstances in which they are to be introduced and an effective environmental policy may include elements of both. Economists generally regard fiscal measures such as subsidies and penalty taxes with more favour than regulations. Direct regulations are considered to be administratively more demanding requiring substantial amounts of technical information and they tend to be inflexible and inefficient. However there are advantages and disadvantages associated with both direct controls and fiscal measures. In relation to pollution it can be seen that direct controls have the following advantages: they determine objectives and means without being dependent on economic factors; they are the surest means of preventing irreversible effects or a totally unnacceptable level of pollution; and the objectives, criteria and surveillance measures are widely understood. they do not provide incentive to provide more than minimal compliance with the prescribed standard; and they are generally difficult to administer and the cost of obtaining the information required to implement them can be high. they are flexible enabling each polluter to choose the most effective and efficient way of reducing pollution; they provide an incentive to continue improving pollution abatement; they achieve a desired improvement in environmental quality at a minimum overall cost; and they make available financial resources for restoring damage and for the provision of pollution abatement procedures generally. There are also disadvantages associated with such an approach including: trial and error appear necessary to determine the appropriate level of charges; and the cost of setting up arrangements for supervising and measuring are usually high. The Department of Resources and Energy advised the Committee that the regulatory approach has been in place for some time. The controls and the underlying policies are now seen as being well accepted and well understood by all parties involved information costs and other costs associated with making a large scale move to fiscal measures would outweigh the benefits that would be achieved. The Committee does not propose to detail all the arguments for or against the alternative approaches nor does it intend to make a judgement on the arguments about whether fiscal measures or direct regulation should be used. However the Committee considers that there may be some merit in the observation that different approaches might be appropriate in different circumstances. After political, social and administrative factors are considered--together with economic principles the result may well be an enyironment program involving a mixture of several different approaches. Source: House of Representatives Standing Committee on Environment and Conservation, Fiscal Measures and the Achievement of Environmental Objectives, AGPS, Canberra, 1987, pp13-15.