Using economic instruments to manage environmental health costs

There is increasing interest in policies that rely on economic instruments since they are appropriate to meet the new challenges to environment and health such as the rise of new patterns of pollution and the increasing privatization and liberalization of economic activities. Economic instruments such as environmental taxes or tradable permits are promising ways of advancing the internalization of environment and health costs, as is the removal of subsidies that support practices harmful to the environment and health.

Economic analysis, by providing arguments for environmental health improvements, can help set priorities for policies and actions.

Future environmental health status will depend largely on progress in pricing goods and services at their real costs, and on the preparation of strategies for achieving this. The authorities in charge of health and of the environment should try to play a pro-active role in this field. This implies building up a common understanding with the authorities in charge of fiscal policy and of the reform of economic regulation.

Economic analysis can serve as a vehicle for intersectoral negotiations. The framework of economic analysis helps clarify the stakes, as it draws a broad picture of the consequences, positive and negative, of the different options. This makes the various stakeholders involved reveal their preferences and valuations and open them up to debate. The economic evaluation of these impacts provides a practical basis for comparing the different choices and trade-offs they imply. It also offers a rationale for compensating or mitigating negative impacts on economic sectors or on environment and health.

The economic approach to some environment and health issues also gives rise to scientific controversy. In such cases, the precautionary principle is sound, recognized guidance for decision-making. However, economics analysis can clarify the stakes around different hypotheses or scenarios. It is therefore a helpful tool for fostering the debates that are needed to prepare for making the decisions.

The Environmental Health Action Plan for Europe, adopted during the Second European Conference on Environment and Health (Helsinki, June 1994) stated (paragraph 338): "The integration of environmental health policies in economic sector policies is a common problem to all countries in the Region and applies to agriculture, energy, industry, tourism and transport. One of the tasks of the European Environment and Health Committee will be to explore, in partnership with the United Nations Economic Commission for Europe (UN/ECE) and the European Commission (EC), the possibilities for cooperative action with other relevant international organizations aimed at helping countries arrive at policies which adequately protect the environment and health without preventing economic development."

Recommendation A from the European Environment and Health Committee, in their paper, Economic Perspectives on Environment and Health (June 1999), states: "European Member States should strengthen the skills of their environment and health authorities in economics, so that they can more successfully ensure that environment and health considerations are taken into account."

Environment and health authorities should increasingly be in position to take advantage of economic analysis for: (a) improving the use of resources devoted to the implementation of local and national environment and health programmes, in particular through the prioritization of environment and health problems and through the design and selection of corrective measures; (b) enhancing cooperation among them as well as with agriculture, transport, energy, industry and tourism; a main objective of this cooperation is the development of policies that take into account the impacts on environment and health; (c) building a common understanding with authorities in charge of fiscal policy and of the reform of economic regulation. The aim here is to advance the pricing goods and services at their real costs, focusing on internalization of health and environmental costs, and in particular on application of the polluter-pays and user-pays principles; and (d) promoting cooperation among countries on transboundary issues.

In the workplace, there is increasing concern that enterprises seek to pass on or "externalize" the costs of work-related injuries and ill health, even when the enterprise itself is responsible for causing the costs as a result of its poor health and safety management. Internalization of such costs can help to reduce this economic burden on society. Economic appraisal in this context is the process of assessing and establishing the economic effects of effective health, environment and safety management.

Environment and health authorities have to become familiar with the pitfalls of economic analysis, in order to make the best use of such economic instruments in intersectoral negotiations.