The choice of instrument can make a world of difference.
Policy Instrument Choice and Design
To achieve their environmental goals, governments can choose from among many policy instruments – the tools of government – to create and spread information and to induce changes in behavior.
The range of policy instruments can be overwhelming, from regulations and emissions fees to subsidies and government enterprises; from labeling and information campaigns to X-prizes and research grants. Faced with so many options, policymakers often choose the most familiar approach, which may not be the most effective.
GTSI brings a unique understanding of the range of options available to decisionmakers. We have created a typology of policy instruments that draws on principles from economics, public finance, public administration, contract theory, political science, and law to identify the most suitable instruments for a given objective.
We ask four critical questions:
- What is the underlying cause of the problem? Is it that we do not understand why the problem is occurring? Are we lacking suitable solutions? Are producers and consumers missing critical information? Or, if all the information is in place, are parties reluctant to take the needed steps?
- What is the fundamental role of government in the subject issue? Is it to create basic property and liability rules and to provide adjudication when needed? Or is it to set goals, establish programs, monitor compliance, and initiate enforcement?
- How much discretion will private parties have and how much control will the government retain regarding how pollution is abated, the environment is protected, and resources are conserved?
- Where will the costs of compliance fall – on the government and the public or on the polluting firms?
This approach helps decisionmakers understand the full range of their options and exploit synergies among policy instruments.
GTSI has developed, applied and refined this approach over three decades, starting with the earliest IPCC international climate change initiatives, through comparative work on renewable energy and energy efficiency dissemination and nonpoint source water pollution control. Further examples include using this approach to develop the World Bank Carbon Tax Guide; to design, model and analyze an air pollution emissions levy for the Government of Costa Rica; and to develop a high-level review for the Government of Azerbaijan of that country’s environmental legislation, regulation, and institutions.