4 Framework for assessment
The design of environmental policy in a unitary government system is seen as involving two steps, setting policy goals and choosing the set of instruments to be used in achieving the goals (Braden and Proost 1997). In contrast, it is argued, environmental policy in a federal system is more complex because it involves at least three dimensions: across levels of government (federal, state and local); across branches of government (executive, legislative, judicial) and across agencies at the same government level. In reality, the design of environmental policy in New Zealand’s unitary system of government has some of the dimensions associated with a federal system: central, regional, local government; executive, legislative, judicial; across agencies at the level of central government. While there are obvious differences to consider, for example New Zealand does not have a written constitution, insights gained from environmental policy in a federal system may provide insights for New Zealand.
4.1 Environmental governance
The structure of governance is of interest because it carries with it implications for patterns of resource use and income distribution, both of which are relevant to sustainable development. More significantly, environmental outcomes are co-determined by the policies, rules and mechanisms fashioned in the public sector to provide incentives for correcting externalities. An economic analysis of environmental governance must account for many layers and the possibility of multiple objectives. To simplify things we can describe a set of sustainable development indicators Q = { qe , qw , qa , …, qn } where qe = economic growth, qw = water quality, qa = air quality, and so on.
The following aspects of governance are worthy of explicit consideration.
4.1.1 Setting policy goals
In contrast to a “one size fits all” approach to regulation, devolution to lower levels of government can result in greater efficiency because of the ability to weigh benefits and costs to be different from place to place. For example, it might be appropriate for legislation to allow for different levels of water quality to be set across the country. A national standard could be set as a “minima” (say, qw = minimum dissolved oxygen level) and lower levels of government would then target the minima plus any increase in the standard after explicitly assessing the costs and benefits of a higher standard.
4.1.2 Bargaining power
Environmental outcomes (eg, air quality) often display the characteristics of a public good. In Section 2 we discussed the particular problems associated with public goods. Through the political process interest groups can influence both the quantity and “price” of environmental outcomes. Power concentrated at a national level places the regulator in the position of a monopolist. This might prove advantageous in situations where bargaining involves large powerful commercial interests. On the other hand, devolving decision making down to local units of government gives local interest groups relatively more focussed power because of reduced heterogeneity of preferences.
4.1.3 Uncertainty
Uncertainty spans not only scientific knowledge but also the outcomes of environmental policy. Research leading to an improvement in the understanding of environmental processes might have the characteristics of a pure public good and may be best financed by the population as a whole. In contrast, research leading to an improvement of an outcome that is shared by sectors within the community might be better financed by a differentiated contribution from the sectors involved, depending on the ability to monitor and measure those deriving benefit. For example, this principle is used as a basis for cost-recovery in the fishing industry.
In the presence of uncertainty, it may be appropriate to allow lower-level regulators to attempt different approaches to common problems. For example, the outcome of alternative policy instruments for controlling non-point sources of water pollution is uncertain and there may be benefit from different units of local government “experimenting” with different approaches. A higher-level government could set broad parameters that limit the scope of experimentation. Of course, realisation of the benefits of experimentation is contingent on monitoring, measuring and sharing information on the outcomes associated with the various approaches.
4.1.4 Transboundary problems
When external impacts spill over into neighbouring jurisdictions the rational unit of government will pay attention only to the local fraction. This behaviour would result in too little environmental protection. For example, consider a river flowing through two jurisdictions (A and B) and jurisdiction A has a concentration of pulp mills on the river. The mechanism adopted by jurisdiction A has obvious implications for the level of external damages visited on the community in jurisdiction B.
4.1.5 Market integration
The potential for economies of scale and comparative advantage should be considered in the design of environmental governance. It would be unrealistic for all coastal communities to equip themselves to cope with major oil spills. Central government can most effectively design monitoring and reporting protocols. Many local governments lack technical expertise to set, monitor and enforce standards. Comparative advantage calls for different levels of government to specialise in different tasks.
4.1.6 Ecological dumping
The pollution haven hypothesis suggests that polluters will move their activities to the most lenient jurisdiction (Markusen, Morey and Olewiler 1993). A second hypothesis is that local units of government will compete for economic development by weakening their environmental standards. However, these effects will be moderated by the cost of relocation, rapid diffusion of technology and increase in the demand for environmental protection. The empirical evidence of pollution havens and ecological dumping is weak (Jaffe, Peterson and Portney, 1995).
4.1.7 Fiscal capacity
Local government might be especially vulnerable to industry threats to relocate and or to free ride on service supply. Segerson, Miceli and Wen (1997) show that central government will over-regulate if it does not pay any cost and local government will fail to minimise costs if it bears no financial exposure. Thus there exists a threshold assignment of costs across levels of government.
4.1.8 Policy innovation
Environmental policy design occurs under uncertainty about the consequences. With central government policy, only one design can be implemented at once. With devolution it would be possible to observe a number of policies attempting to address the same issue. Of course the challenge is to encourage innovation while maintaining or improving environmental outcomes.
