Cultural Implications of a Market-Based Incentives Approach:
A Closer Look at Transportation in Fairfield County, CT
By Chas Offutt
Environmental Economics II - Dr. Don Comstock
It is no secret that the American public has become increasingly more dependent on vehicular transportation. Since the turn of the 20th century family cars have been transformed into sacred cows. As our relationship with inanimate objects intensifies, population soars and carbon monoxide increases, a voluntary approach-Bush Administration's response to climate change-is not enough to deter unwanted pollution.
We must look to a greater regulatory approach that is based on economic incentives. Turner, et al describes of two types of regulatory approaches: market-based incentives approach and a direct regulatory approach. For this paper, I will examine the effectiveness of a market-based incentives approach as the most efficient, culturally appropriate approach to curb the release of greenhouse gasses in our atmosphere.
A market-based incentives approach 'modifies' markets by centrally deciding the value of environmental services and ensuring that those values are incorporated into the prices of goods and services. (Turner, Pierce and Bateman, p.144) This approach is to be contrasted with a direct (command-and-control) regulatory approach, which involves the setting of environmental standards and enforced by legislation.
I will support a market-based incentive approach over a direct regulatory approach (CAC) in relation to local transportation issues in Fairfield County, CT. Further supporting a market-based incentives approach, I will present two alternatives, tax shifts and standards (fines), and show why these methods have merit in other parts of the world, but are not culturally appropriate for North America. I will then conclude that the only option remaining (despite potential flaws or unanswered questions) is what has already been proven effective and culturally appropriate in North America, a market-based incentives approach. I will then take it one step further and address Fairfield County's transportation issue using a market-based incentives approach method-polluter pay principle and environmental fees.
Local Issue: Economic Incentives as Cost-Effectiveness Benefits
In 1990, Connecticut's Department of Transportation stated that out of 166,566 workers polled in Fairfield County 74 percent drive to work solo. Highways do not grow, but traffic increases 1.5 percent a year. (Motavalli, p.4) I-95, bloodline between Fairfield County and New York City, burdens three times as many cars today as it did when John F. Kennedy opened and announced it to be the "Ribbon of Hope" in 1963.
Despite being dubbed as a vital artery of economic prosperity, congestion on I-95 today presents the greatest challenge to the region's commerce and environment. (Holtz, p.4)
A 1999 study titled Connecticut Strategic Economic Framework concluded that traffic congestion on the I-95 corridor is a major barrier to getting goods into the region, driving up the cost of living and slowing the state's rate of economic growth.
It has become imperative that our policies toward ecological sustainability and economic growth reflect an approach that creates market-based incentives and accountability for the total cost of production. Turner, Pierce and Bateman in Environmental Economics state that there is little doubt that society will demand increasingly stringent pollution controls and governments will be forced to search out cost-minimizing procedures to reduce the projected cost burden of future environmental policy. Economic incentives carry with them the promise of just such cost-effectiveness benefits. (Turner, Pierce and Bateman, p.144)
This type of regulatory market-based incentives approach, as Turner, et al describes, has begun to materialize in Connecticut. Despite only 4 percent of Connecticut residents using public transportation, economic incentives have proven to be efficient and effective for commuters. For example, Deduct-A-Ride is a program with a range of tax-free "Commuter Choices" available to employees and employers in Connecticut. The IRS allows a commuter to receive up to $280 per month tax-free to pay for commute expenses - $100 per month for transit and vanpool fares and/or up to $180 per month for qualified parking.
Turner, et al describes a market-based incentives approach as much more efficient than one based on 'command-and-control'. However, as a society that prides ourselves on our independence (hence single drivers on I-95 during rush hour) and we comprise one of few cultures who would go to the extreme of an inflatable passenger for the privilege to travel in a high-occupancy vehicle lane, the question remains: Will a market-based incentives approach be enough to curb our insatiable desire to drive cars?
Incentives are Ideal, but are they Enough for North America?
People naturally respond more positively when given incentives, but unfortunately it doesn't guarantee social responsibility. As the fat cats in the world consuming nearly 30 percent of the world's resources with only four percent of the population, we may one day be forced to subscribe to a greater direct regulatory approach to deter atmospheric loss.
Despite environmental regulations (standards and fines) proven to be inefficient, Turner, et al suggest that in the context of uncertainty over possible pollution-related environmental damage, or known hazardous waste risks, regulatory standards offer the 'best' approach. (Turner, Pierce and Bateman, p.200) Standards offer a firm, decisive hand to alter our current state of environmental quality, but the level of acceptance will be limited to cultural norms. In North America we will denounce being 'told what to do', leaving a direct regulatory approach as an extreme alternative.
If a direct regulatory (CAC) approach is an extreme alternative and a market-based incentives approach potentially too lenient to address the times, what additional options exist? There are two possibilities, but as effective as they may be in other countries, they do not address the cultural norms of North America. The two candidates, tax shifts and standards (fines), are unrealistic alternatives to a market-based incentives approach.
Why Tax Shifts Will Not Work
In an interview with E/The Environmental Magazine, Alan Thein Durning founder of the Northwest Environment Watch said that seven European countries have enacted some kind of tax shift, specifically reducing taxes, especially on labor, while also increasing them on pollution, solid waste generation or some other environmental ill. However, as opportunistic this approach appears to be, there are greater cultural and historical implications (Europe has a far higher rate of unemployment).
Durning says, "It was a more natural progression for them [Europe] to go to a tax shift, their overall tax burden on labor is higher than here [North America], and Europe has always been more inclined to use environmental fines." Tax shifts are a proven effective means of accountability for the total cost of production in Europe, but it will not be as effective in North America.
Why Standards (fines) Will Not Work
Will the day arrive in North America that our government assigns specific days of travel? And what would the public response be? Could the North American culture sustain a program similar to Mexico's "day without a car" program? Mexico's program is a great example of how culturally relevant environmental standards can impact society. The program has placed restrictions on when vehicles can be operated, depending on their emission levels, or risk a fine ($85 in 2001) by the ecological police.
This type of change in policy and level of public acceptance relies on cultural norms. The program has had significant success in Mexico due to the size of the fine. However, many Americans would be willing to take the risk and pay a minimal fine, as opposed to a fine in a developing country where it may equal a year's wage. We give great importance to cars and to travel, it is common in our culture to travel significant distances to get to work, while at work and on the weekends. A "day without cars" program would not work in North America because we would find it too limiting.
As a result, standards (fines) or a tax shift do not appear to be effective, which leaves a market-based incentives approach as having the greatest potential in the U.S. An example of a market-based incentive approach is the use of environmental fees to enable a polluter to choose how to adjust to the environmental quality standard
Culturally Appropriate Fees compliment a Market-Based incentives Approach
Will our individualistic nature and industrialized driven culture readily accept environmental fees? Bush's voluntary plan to reduce global warming, individuals who believe National Parks should be free with unlimited public access and those who see increased gas taxes as a hindrance suggest we might not be culturally ready to shift environmental costs onto the consumer. However, we have observed that a direct regulatory approach that creates standards and tax shifts are not culturally accepted in North America. The most probable option as a result is fees. Environmental fees provide an excellent opportunity to change our behavior. But in order for fees to work as an effective arm of a market-based incentives approach, we must rethink who are the polluters.
Consumers as Polluters
The basic understanding of the polluter pay principle is that the price of a good or service should fully reflect its total cost of production, including the cost of all the resources used. (Turner, Pierce and Bateman, p.144) The PPP was the underlining reason behind industry tax and the creation of the Federal Superfund Law, however unfortunately it was eliminated by congress in 1995. These are the types of initiatives that will have to surface in the near future, because they are culturally relevant to the growing demands of our society.
Until an industry tax reemerges, we will need to reevaluate PPP's primary stakeholders, consumers. Since we are free to purchase any vehicle we can afford, regardless of environmental impact, consumers are essentially polluters. Consumers must accept a greater amount of accountability when purchasing a vehicle. Car manufacturers produce a product, but it is consumers who determine the value. Taxing pollution and creating car manufacture regulations to ensure more energy efficient vehicles are produced is not widely accepted by the current administration. A larger emphasis will have to be placed on consumers as polluters (utilizing their purchasing power), and encourage environmentally positive behavior through road tolls.
Environmental Fees as a Solution
Evidence suggests that as the 'fat cats' of the world we will not be told what to do and how to live, but for those who behave egocentrically we can create economic guidelines to help with the addiction. Jim Motavalli's book Breaking Gridlock believes as annoying as tolls are they serve a very important function, which is often referred to as "congestion pricing." Tolls have been around since the 1800's, but today people consider mature highways to be "paid for", when actually the public continues to spend inordinate amounts of money on maintenance and improvements. (Motavalli, p.33)
Reintroducing tolls could potentially subsidize maintenance of highways as well as provide funds for the extension and improvement of public transportation (public transportation is largely a service than a business). The idea of converting our desire to drive into cash cows for public transit is ideal. Incentives work well, but we also need to discourage people to drive through increased tolls while providing safe, fast and economically viable alternatives. Those who continue to drive will be forced pay for it and thus support our public transportation system.
Turner describes two types of regulatory approaches, a market-based incentives approach and a direct (CAC) regulatory approach. I stated that a market-based incentives approach is not only more effective than a direct regulatory approach, but it is culturally more appropriate. A market-based incentives approach (Deduct-A-Ride) in Fairfield County has been received with success, suggesting that if commuters are given economic incentives, they will behave accordingly. This example in CT represents a larger, cultural picture in North America. Since it has worked in CT, there is evidence to support the success nationwide.
I then examined the effectiveness of a market-based incentives approach by proposing the question: Is this type of approach strong enough to curb our dependence on cars? The jury may be out or time will tell, but after exploring effective approaches overseas (but not culturally relevant to North America), a market-based incentives approach has the greatest potential in North America. I then attempted to take this information-a market-based incentives approach has the greatest potential in North America-and applies it to the transportation issue in Fairfield County.
In order to implement a greater market-based incentives approach in this region I suggested the use of environmental fees as the best means to compliment such an approach. Environmental fees allow greater consumer accountability. Strategically placed tolls on I-95 throughout Fairfield County will greatly reduce congestion on the highway while subsidizing alternative forms of transportation. Commuters will be forced to pay for the time on the road, highlighting the polluter pay principle, and thus be encouraged to carpool, bicycle and take mass transit. And the end result, a reduction of greenhouse gasses emitted in the atmosphere.
Motavalli, Jim. Breaking Gridlock, moving toward transportation that works. Sierra Club Books, San Francisco, CA 2001
Turner, Pearce & Bateman. Environmental Economics, an elementary introduction. The John Hopkins Press, Baltimore, MD 1993
Holtz, Jeff. Another Fine Mess. The New York Times, NY March 10, 2002
Dunkiel, Hamond and Motavalli. Sharing the Wealth: If We Shift the Tax Burden From Work to Waste, Everyone Benefits. E/The Environmental Magazine. March/April 1999.
Motavalli, Jim. Alan Thein Durning: Environmental Tax Crusader. E/The Environmental Magazine, March/April 1999
Deduct-A-Ride. World Wide Web, www.deductaride.com. Retrieved March 2, 2002.
© Chas Offutt April 2002 firstname.lastname@example.org