Practice Advice on Environment Policy
Environmental Policy: OECD Advice for Italy
Description: In its review of Italy, the OECD advises that successful environmental policy needs to balance the benefits of environmental policy against the economic costs of such a policy. Economics activities should be reoriented to reduce their environmental impact and governments should let rely on the market to correct environmental externalities.
Commentary: Governments can approach environmental policy in two ways. Firstly, through taxes and/or tradable permits, which are set to reflect the environmental and economic costs of operations. The government, under this scenario, relies on market forces to balance the needs of the environment and the economy. The second option is to adopt a direct regulatory approach and conduct Environmental Impact Assessment (EIA), Strategic Environmental Assessment (SEA) and other projects to gain a coherent picture of the environmental impact. The general tools used to evaluate the economic impact of regulatory policies are Regulatory Impact Analysis (RIA) and Cost-Benefit Analysis (CBA). Italy, according to the OECD, has fallen short in its environmental and economic objectives, partially because resources were not allocated efficiently and policies could have been achieved at a lower cost. The OECD recommends the following practices:
- Evaluating environmental policy. According to the OECD, the use of SEA, CBA and EIA approaches to evaluate economic impact of environmental regulatory policies in Italy has been constrained by a number of administrative issues.
- Insufficient use of expertise in ministries. The legislative process in Italy does not allow for sufficient time to analyse policy impacts. Much of the legislation is first passed as a government decree, which does not automatically trigger the need for an analytical assessment, and, once the legislation reaches the second stage, it is complete and there is only limited timeframe to analyze the framework and include amendments. There is not sufficient emphasis on outcome and performance evaluation within the public administration sector. Lack of transparency ensures that outside analysis and evaluation of government policies is challenging.
- Pricing of environmental policy. Pricing is important if the government intends to allow the market to correct environmental externalities. Specifically environmental taxes may not raise enough revenue due to exemptions. Italy imposes a number of environmental taxes. Yet, environmental tax on fertilizers, pesticides and furl tax exemptions in the agricultural, aviation and fishing sectors are both subject to collective, self-financing and commercial agreements. As a result, these taxes do not raise enough revenue. Through a Cost-Benefit- Analysis of the environmental taxes, government can evaluate the net benefits it its environmental policy and its implications on infrastructure projects in the sectors that are subject to tax exemptions. A governmental unit needs to be responsible for developing and establishing methodologies and study the “prices” of environmental policy required to conduct cost-benefit analysis.
- Decentralization of environmental policy. The implementation of environmental policy occurs at the sub-national level, yet the implementing body is not always granted full authority to amend policy as required. It is therefore important to develop administrative rules at the national level, especially where the policy issue is specific to the area, but may potentially have regional or international implications. Not all arrangements for decentralization are effective. Regions, and sub-national governments should not be allowed to conduct uncoordinated policies, as this would result in inefficiencies and increase operating costs of the environmental policy in place. Administrative guidelines for all levels of government (central, regional, provincial and municipal) must be in place in order to prevent ambiguities on policy enforcement and implementation.
Specific recommendations for the Energy Sector:
Governments in the EU have attempted to reduce the impacts of energy generation, processing and usage on the environment through the imposition of taxes, fines and other regulations. Often energy policy objectives conflict with the objectives of a government’s environmenta; policy. To counter this, the OECD suggests that governments encourage energy providers to countries diversify the energy sources and limit their reliance on a single source or on imports of energy from abroad.
Governments may encourage the development and use of alternative sources of energy by providing energy distributors with economic incentives. As an example, the OECD cites CO² emissions caps, and “green certificates” for electricity distributors who supply “renewable” electricity.
Administrative delays and bureaucratic hurdles are cited as barriers to the development of renewables. Despite the existing subsidies, investor uncertainty is present due to constantly changing legislation and regulatory amendments. Authorisation procedures and delays in accessing power grids are cited as another barrier to entry. The OECD recommends that governments streamline the administrative requirements, the regulatory and legislative guidelines as well as the broader policy objectives of environmental policy in order to regain investor confidence in renewables.
Governments should also encourage consumers to reduce energy consumption and invest in energy efficient products by introducing policies targeting energy efficiency of households and service sectors. The caveats to the introduction of energy efficient products and reduced energy consumption are lack of information on the consumers’ side, financial constraints associated with investing in energy efficient products and general consumer preferences. To address these caveats, governments are advised to launch campaigns for social responsibility and raise public awareness about the benefit of alternative and renewable energy sources.
Source: OECD Economic Surveys, Italy 2011, "Environmental Policy: getting prices and governance right", (2011) at: http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-italy-2011/environmental-policy_eco_surveys-ita-2011-6-en (accessed October 28th, 2012).
Page Created By: Khilola B. Zakhidova on 1 December 2012. Updated by Ian Clark on 2 January 2013. The content presented on this page is drawn directly from the source(s) named above, and consists of direct quotations or close paraphrases of material drawn from it. The opinions expressed in the source and presented on this page do not necessarily reflect the official institutional positions of the organization responsible for the source’s publication.