Edgardo Héctor Ferré Olive
externalities. The purpose of their application is to assess them and to bring market competitiveness to other activities or technological alternatives less harmful to the environment. Eco-rates may be final, in which case tax collection promotes alternative technologies via subsidies, by applying an eco-rate not intended for collection purposes but as incentive for clean economic activities.
Subsidies: Subsidies for clean technologies or those substituting renewable resources for non-renewable resources are the quid pro quo for eco-rates. Therefore, if there is a positive externality (e.g., the installation of renewable energy that saves fossil or non-renewable fuel) the society can reward such externality by means of an aid or subsidy.
2. ECONOMIC INSTRUMENTS
The use of economic instruments by the State in environmental matters should lead to a rational utilization of natural resources. An efficient management of environmental resources is based on the internalization of prevention, control and damage costs deriving from pollution. Such internalization may be done in two ways: a) through administrative regulation (“command and control”) or b) through instruments based on market mechanisms (“incentive-based”) 8. As indicated by Macón9 , there are three classes of instruments intended to reduce contamination – i.e., externalities – to a level compatible with a healthy life: “administrative mechanisms”, “private transactions” and “fiscal mechanisms”.
The administrative mechanisms entail the identification of causes and the application of fines, which may lead to closure. It is criticized because these mechanisms reduce or eliminate the economic activity and solve the issue of contamination in a non-rational way. The financial mechanisms are those adopted by the Organization for Economic Cooperation and Development (OECD) through the “polluter pays” principle. The economic instruments are market-based and constitute political tools that affect the behavior of economic agents with a view to meeting environmental policy targets or modifying certain behaviors by issuing notices in the market, instead of issuing regulations on the control of the level or form of contamination.
8 These instruments are mentioned in the Agenda 21 , UN’s Conference on Environment and Development, Brazil, 1992, Chapter 8,subsection C “ Effective use of economic instruments and market and other incentives”, items 8.27 through 8.40. In the European Union, these are outlined, among others, in the Fifth Environmental Action Programme of European Communities (1993), item 31 “Wider range of instruments” , and the Sixth Action Program (2001), item 2.3 “Encouraging the market to act in favor of the environment”. They are also found in the Mercosur Frame Agreement, Act Nº 25841, which sets out actions to foster the internalization of environmental costs through the use of management economic and regulatory instruments. 9 Macón, Jorge “Economía del Sector Público”, Mc Graw –Hill Interamericana, Buenos Aires, 2000, pp.. 43 et seq. Other authors, such as Magadán Díaz, Marta and Rivas García, Jesús in “ Fiscalidad y medio ambiente en España”, Septem Ediciones, Oviedo España, 2003, p. 8, state that within the frame of a theoretical analysis of Environmental Taxation there are three ways to overcome or internalize the externalities: through taxes, by defending property rights, and lastly, through administrative rules or regulation.
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