Greenhouse gases

Many chemical compounds present in Earth's atmosphere behave as 'greenhouse gases'. These are gases which allow direct sunlight (relative shortwave energy) to reach the Earth's surface unimpeded. As the shortwave energy (that in the visible and ultraviolet portion of the spectra) heats the surface, longer-wave (infrared) energy (heat) is reradiated to the atmosphere. Greenhouse gases absorb this energy, thereby allowing less heat to escape back to space, and 'trapping' it in the lower atmosphere. 

Many greenhouse gases occur naturally in the atmosphere, such as carbon dioxide, methane, water vapor, and nitrous oxide, while others are synthetic. Those that are man-made include the chlorofluorocarbons (CFCs), hydrofluorocarbons (HFCs) and Perfluorocarbons (PFCs), as well as sulfur hexafluoride (SF6). 

Atmospheric concentrations of both the natural and man-made gases have been rising over the last few centuries due to the industrial revolution. As the global population has increased and our reliance on fossil fuels (such as coal, oil and natural gas) has been firmly solidified, so emissions of these gases have risen. While gases such as carbon dioxide occur naturally in the atmosphere, through our interference with the carbon cycle (through burning forest lands, or mining and burning coal), we artificially move carbon from solid storage to its gaseous state, thereby increasing atmospheric concentrations.

Each gas's effect on climate change depends on three main factors:

How much of these gases are in the atmosphere?
Concentration, or abundance, is the amount of a particular gas in the air. Larger emissions of greenhouse gases lead to higher concentrations in the atmosphere. Greenhouse gas concentrations are measured in parts per million, parts per billion, and even parts per trillion. One part per million is equivalent to one drop of water diluted into about 13 gallons of liquid. 

How long do they stay in the atmosphere?
Each of these gases can remain in the atmosphere for different amounts of time, ranging from a few years to thousands of years. All of these gases remain in the atmosphere long enough to become well mixed, meaning that the amount that is measured in the atmosphere is roughly the same all over the world, regardless of the source of the emissions.

How strongly do they impact global temperatures?
Some gases are more effective than others at making the planet warmer and "thickening the Earth's blanket."

For each greenhouse gases, a Global Warming Potential (GWP) has been calculated to reflect how long it remains in the atmosphere, on average, and how strongly it absorbs energy. Gases with a higher GWP absorb more energy, per pound, than gases with a lower GWP, and thus contribute more to warming Earth.

The primary sources of greenhouse gas emissions are:

Electricity production
electricity comes from burning fossil fuels, mostly coal and natural gas. 

Transportation
Greenhouse gas emissions from transportation primarily come from burning fossil fuel for our cars, trucks, ships, trains, and planes. 

Industry
Greenhouse gas emissions from industry primarily come from burning fossil fuels for energy as well as greenhouse gas emissions from certain chemical reactions necessary to produce goods from raw materials.

Commercial and Residential
Greenhouse gas emissions from businesses and homes arise primarily from fossil fuels burned for heat, the use of certain products that contain greenhouse gases, and the handling of waste.

Agriculture
Greenhouse gas emissions from agriculture come from livestock such as cows, agricultural soils, and rice production.

Land Use and Forestry
Land areas can act as a sink (absorbing CO2 from the atmosphere) or a source of greenhouse gas emissions. 

Global Emissions by Source
Global greenhouse gas emissions can also be broken down by the economic activities that lead to their production. 

Energy Supply (26% of 2004 global greenhouse gas emissions) - The burning of coal, natural gas, and oil for electricity and heat is the largest single source of global greenhouse gas emissions.

Industry (19% of 2004 global greenhouse gas emissions) - Greenhouse gas emissions from industry primarily involve fossil fuels burned on-site at facilities for energy. This sector also includes emissions from chemical, metallurgical, and mineral transformation processes not associated with energy consumption. (Note: Emissions from electricity use are excluded and are instead covered in the Energy Supply sector.)

Land Use, Land-Use Change, and Forestry (17% of 2004 global greenhouse gas emissions) - Greenhouse gas emissions from this sector primarily include carbon dioxide (CO2) emissions from deforestation, land clearing for agriculture, and fires or decay of peat soils. This estimate does not include the CO2 that ecosystems remove from the atmosphere. The amount of CO2 that is removed is subject to large uncertainty, although recent estimates indicate that on a global scale, ecosystems on land remove about twice as much CO2 as is lost by deforestation.

Agriculture (14% of 2004 GHG emissions) - global greenhouse gas emissions) - Greenhouse gas emissions from agriculture mostly come from the management of agricultural soils, livestock, rice production, and biomass burning.

Transportation (13% of 2004 global greenhouse gas emissions) - Greenhouse gas emissions from this sector primarily involve fossil fuels burned for road, rail, air, and marine transportation. Almost all (95%) of the world's transportation energy comes from petroleum-based fuels, largely gasoline and diesel.

Commercial and Residential Buildings (8% of 2004 global greenhouse gas emissions) - Greenhouse gas emissions from this sector arise from on-site energy generation and burning fuels for heat in buildings or cooking in homes. (Note: Emissions from electricity use are excluded and are instead covered in the Energy Supply sector.)

Waste and Wastewater (3% of 2004 global greenhouse gas emissions) - The largest source of greenhouse gas emissions in this sector is landfill methane (CH4), followed by wastewater methane (CH4) and nitrous oxide (N2O). Incineration of some waste products that were made with fossil fuels, such as plastics and synthetic textiles, also results in minor emissions of CO2.

Fossil Fuel and Uses

Fossil fuels are fuels formed by natural processes such as anaerobic decomposition of buried dead organisms. The age of the organisms and their resulting fossil fuels is typically millions of years, and sometimes exceeds 650 million years. Fossil fuels contain high percentages of carbon and include coal, petroleum, and natural gas. They range from volatile materials with low carbon:hydrogen ratios like methane, to liquid petroleum to nonvolatile materials composed of almost pure carbon, like anthracite coal. Methane can be found in hydrocarbon fields, alone, associated with oil, or in the form of methane clathrates. Fossil fuels formed from the fossilized remains of dead plants by exposure to heat and pressure in the Earth's crust over millions of years.

Origin

Petroleum and natural gas

Petroleum and natural gas are formed by the anaerobic decomposition of remains of organisms including phytoplankton and zooplankton that settled to the sea (or lake) bottom in large quantities under anoxic conditions, millions of years ago. Over geological time, this organic matter, mixed with mud, got buried under heavy layers of sediment. The resulting high levels of heat and pressure caused the organic matter to chemically alter, first into a waxy material known as kerogen which is found in oil shales, and then with more heat into liquid and gaseous hydrocarbons in a process known as catagenesis.

There is a wide range of organic, or hydrocarbon, compounds in any given fuel mixture. The specific mixture of hydrocarbons gives a fuel its characteristic properties, such as boiling point, melting point, density, viscosity, etc. Some fuels like natural gas, for instance, contain only very low boiling, gaseous components. Others such as gasoline or diesel contain much higher boiling components.

Coal and methane

Terrestrial plants, on the other hand, tend to form coal and methane. Many of the coal fields date to the Carboniferous period of Earth's history. Terrestrial plants also form type III kerogen, a source of natural gas.

Fossil fuels are of great importance because they can be burned (oxidized to carbon dioxide and water), producing significant amounts of energy per unit weight.

Years of production left in the ground with the current proved reserves and flows above

Coal: 148 years

Oil: 43 years

Natural gas: 61 years

Years of production left in the ground with the most optimistic proved reserve estimates (Oil & Gas Journal, World Oil)

Coal: 417 years

Oil: 43 years

Natural gas: 167 years 

Uses of Fossil Fuels

Despite global warming, fossil fuels top the list of non-renewable energy sources that are most abundantly used. Fossil fuels serve the following purposes:

Electricity: The most common use of fossil fuels is the generation of electricity. Fossil fuels like coal run most of the power plants in the world that generate electricity.

Transportation: Most modes of transport are powered by coal and petrol. Though hybrid and electric vehicles have made inroads into our lives, fossil fuels still power millions of vehicles.

Industrial production: Fossil fuels, especially coal and oil, power most of the industries throughout the world.

Kitchens:  Nearly one-third of world's population uses fossil fuels like coal and biomass, such as wood and dung for cooking and heating.

Heating: During winters, fossil fuels like coal, wood, and gas serve as great heating generators.

Coal is the most abundant fossil fuel that triggered the industrial revolution. Coal alone produces the largest amount of electricity on earth.  The large coal reserves on this planet make it a popular candidate to serve the energy needs of the global community.

Energy policy - General and in India

Energy policy is the manner in which a given entity (often governmental) has decided to address issues of energy development including energy production, distribution and consumption. The attributes of energy policy may include legislation, international treaties, incentives to investment, guidelines for energy conservation, taxation and other public policy techniques.

Measures used to produce an energy policy

A national energy policy comprises a set of measures involving that country's laws, treaties and agency directives. The energy policy of a sovereign nation may include one or more of the following measures:

• statement of national policy regarding energy planning, energy generation, transmission and usage
• legislation on commercial energy activities (trading, transport, storage, etc.)
• legislation affecting energy use, such as efficiency standards, emission standards
• instructions for state-owned energy sector assets and organizations
• active participation in, co-ordination of and incentives for mineral fuels exploration and other energy-related research and development
• fiscal policies related to energy products and services (taxes, exemptions, subsidies ...)
• energy security and international policy measures such as:
• international energy sector treaties and alliances,
• general international trade agreements,
• special relations with energy-rich countries, including military presence and/or domination.

Frequently the dominant issue of energy policy is the risk of supply-demand mismatch. Current energy policies also address environmental issues. Some governments state explicit energy policy, but, declared or not, each government practices some type of energy policy. Economic and energy modelling can be used by governmental or inter-governmental bodies as an advisory and analysis tool.

Factors within an energy policy

There are a number of elements that are naturally contained in a national energy policy, regardless of which of the above measures was used to arrive at the resultant policy. The chief elements intrinsic to an energy policy are:

• What is the extent of energy self-sufficiency for this nation
• Where future energy sources will derive
• How future energy will be consumed (e.g. among sectors)
• What fraction of the population will be acceptable to endure energy poverty
• What are the goals for future energy intensity, ratio of energy consumed to GDP
• What is the reliability standard for distribution reliability
• What environmental externalities are acceptable and are forecast
• What form of "portable energy" is forecast (e.g. sources of fuel for motor vehicles)
• How will energy efficient hardware (e.g. hybrid vehicles, household appliances) be encouraged
• How can the national policy drive province, state and municipal functions
• What specific mechanisms (e.g. taxes, incentives, manufacturing standards) are in place to implement the total policy

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Energy Policy of India

The energy policy of India is largely defined by the country's burgeoning energy deficit and increased focus on developing alternative sources of energy, particularly nuclear, solar and wind energy.

About 70% of India's energy generation capacity is from fossil fuels, with coal accounting for 40% of India's total energy consumption followed by crude oil and natural gas at 24% and 6% respectively. India is largely dependent on fossil fuel imports to meet its energy demands — by 2030, India's dependence on energy imports is expected to exceed 53% of the country's total energy consumption. In 2009-10, the country imported 159.26 million tonnes of crude oil which amounts to 80% of its domestic crude oil consumption and 31% of the country's total imports are oil imports. The growth of electricity generation in India has been hindered by domestic coal shortages and as a consequence, India's coal imports for electricity generation increased by 18% in 2010.

Due to rapid economic expansion, India has one of the world's fastest growing energy markets and is expected to be the second-largest contributor to the increase in global energy demand by 2035, accounting for 18% of the rise in global energy consumption. Given India's growing energy demands and limited domestic fossil fuel reserves, the country has ambitious plans to expand its renewable and nuclear power industries. India has the world's fifth largest wind power market and plans to add about 20GW of solar power capacity by 2022. India also envisages to increase the contribution of nuclear power to overall electricity generation capacity from 4.2% to 9% within 25 years. The country has five nuclear reactors under construction (third highest in the world) and plans to construct 18 additional nuclear reactors (second highest in the world) by 2025.

Total Installed Capacity (December 2012) is: Coal- 120,873.38 MW or 57.29%, Hydroelectricity- 39,339.40 MW or 18.64%, Renewable energy source- 25,856.14MW or 12.25%, Gas- 18,903.05MW or 8.96%, Nuclear- 4780MW or 2.26%, Oil- 1,199.75MW or 0.56%. 

 Sector wise distribution is State Sector- 86,405.85MW or 40.96%, Central Sector- 62,886.63MW or 29.81%, Private Sector- 61,659.24MW or 29.22%,.

Energy conservation

Energy conservation has emerged as a major policy objective, and the Energy Conservation Act 2001, was passed by the Indian Parliament in September 2001, 35.5% of the population still live without access to electricity. This Act requires large energy consumers to adhere to energy consumption norms; new buildings to follow the Energy Conservation Building Code; and appliances to meet energy performance standards and to display energy consumption labels. The Act also created the Bureau of Energy Efficiency to implement the provisions of the Act.

Rural electrification

Some rural areas in India remain to be connected to the electricity grid. The key development objectives of the power sector is supply of electricity to all areas including rural areas as mandated in section 6 of the Electricity Act. Both the central government and state governments would jointly endeavour to achieve this objective at the earliest. Consumers, particularly those who are ready to pay a tariff which reflects efficient costs have the right to get uninterrupted twenty four hours supply of quality power. About 56% of rural households have not yet been electrified even though many of these households are willing to pay for electricity. Determined efforts should be made to ensure that the task of rural electrification for securing electricity access to all households and also ensuring that electricity reaches poor and marginal sections of the society at reasonable rates is completed within the next five years. 

India is using Renewable Sources of Energy like Hydel Energy, Wind Energy, and Solar Energy to electrify villages.

Particular attention would be given in household electrification to dalit bastis, tribal areas and other weaker sections.

Rural Electrification Corporation of India, a Government of India enterprise will be the nodal agency at Central Government level to implement the programme for achieving the goal set by National Common Minimum Programme of giving access to electricity to all the households in next five years. Its role is being suitably enlarged to ensure timely implementation of rural electrification projects.

Targeted expansion in access to electricity for rural households in the desired timeframe can be achieved if the distribution licensees recover at least the cost of electricity and related O&M expenses from consumers, except for lifeline support to households below the poverty line who would need to be adequately subsidized. Subsidies should be properly targeted at the intended beneficiaries in the most efficient manner. Government recognizes the need for providing necessary capital subsidy and soft long-term debt finances for investment in rural electrification as this would reduce the cost of supply in rural areas. Adequate funds would need to be made available for the same through the Plan process. Also commensurate organizational support would need to be created for timely implementation. The Central Government would assist the State Governments in achieving this.

The electricity industry was restructured by the Electricity Act 2003, which unbundled the vertically integrated electricity supply utilities in each state of India into a transmission utility, and a number of generating and distribution utilities. Electricity Regulatory Commissions in each state set tariffs for electricity sales. The Act also enables open access on the transmission system, allowing any consumer (with a load of greater than 1 MW) to buy electricity from any generator. Significantly, it also requires each Regulatory Commission to specify the minimum percentage of electricity that each distribution utility must source from renewable energy sources.

In general, India's strategy is the encouragement of the development of renewable sources of energy by the use of incentives by the central and state governments. 

Green Funding

A mutual fund or other investment vehicle that will only invest in companies that are deemed socially conscious in their business dealings or directly promote environmental responsibility. A green fund can come in the form of a focused investment vehicle for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living.

Investopedia explains 'Green Fund'

A green fund's strategy can be based on avoiding negative company criteria (businesses such as guns, alcohol, gambling, animal testing, etc.), choosing positive company criteria (environmental programs, energy conservation, fair trade, etc.), or a combination of both strategies. 

Based on performance, it is not yet clear whether green funds and socially responsible investing can consistently create better returns for investors. But they do represent a proactive step toward environmental consciousness, which many investors appreciate. 

Socially conscious investing is on the rise, which is due largely to increased worldwide exposure to the issue, as well as increased federal funding for alternative energy and other programs.

There's so much pollution in the air now that if it weren't for our lungs there'd be no place to put it all.  -Robert Orben

Go Green With Socially Responsible Investing : Go Green With Socially Responsible Investing Socially responsible investing (SRI), also known as values-based or ethical investing, is an investment process that considers social and environmental factors, both positive and negative, within the context of securities and investment analysis. Social investment managers often use social and environmental analysis in conjunction with traditional quantitative securities analysis to make their investment decisions

Evaluating Green Equity Investments : Evaluating Green Equity Investments Mutual funds provide an easy way to go "green". From socially responsible funds that include green companies in their portfolios to funds that exclusively focus on green companies, there are many possibilities to consider. Some funds focus on large cap companies, while others stick with small caps

STOCKS If you prefer to build your portfolio one company at a time, individual stocks provide plenty of opportunities to choose from. Small cap companies provide pure-play opportunities in the form of opportunities to invest in companies that engage in eco-friendly efforts as part of their primary business. The development of a host of new technologies in everything from waste management to energy efficiency is being pioneered by small cap companies

Exchange-traded funds (ETFs) provide another way to go green. Unlike mutual funds, in which actively managed portfolios provide an opportunity for investment managers to implement their best ideas and change the portfolio as necessary, ETFs are passively managed investments that often track benchmark indexes. In the green space, there are ETFs that track indexes related to producing green and renewable energy, the transition from old to new technologies, nuclear power, technological innovation and more. Numerous choices are currently available and more are in the works

Green investments are traditional investment vehicles (such as stocks, exchange-traded funds and mutual funds) in which the underlying business are somehow involved in operations aimed at improving the environment. This can range from companies that are developing alternative energy technology to companies that have the best environmental practices.

Is there a difference between socially responsible investing (SRI) and green investing??? 

Green Investing Green investing is mainly focused on investing in companies and technologies that are deemed to be good for the environment. This includes individual companies that have a solid track record of reducing the environmental impact of their operations, as well as companies that offer alternative energy technologies such as solar and wind power. Green investors will also avoid investing in companies that have a negative impact on the environment, such as companies with poor emissions standards. Socially responsible investing Socially responsible investing is broader in its focus in that it considers companies that create a social and environmental benefit, and avoids companies that have a negative effect on society. Companies with a strong record of charitable contributions, that provide a fair and diverse workplace, and/or that have a minimal impact on the environment are just a few examples of social responsibility. A major part of socially responsible investing is the exclusion of certain industries that are deemed to have a negative impact on society, including those involved in alcohol, tobacco and defense

Green Economics : Green Economics A methodology of economics that supports the harmonious interaction between humans and nature and attempts to meet the needs of both simultaneously. The green economic theories encompass a wide range of ideas all dealing with the interconnected relationship between people and the environment. Green economists assert that the basis for all economic decisions should be in some way tied to the ecosystem

Does investing in sustainable or "green" companies provide lower returns? The green industry is comprised of companies whose products or services directly benefit the environment.. As environmental consciousness has moved to the forefront of our culture over the last few decades, the green industry is a sector that may be poised for substantial growth. On the flip side, the effects that green policies have on stocks in conventional industries also must be taken into consideration. While companies in the green industry are poised for growth, their profits will come at the expense of the established companies they serve.

"Going green" may be the right thing to do for many companies and sectors, but doing so doesn't necessarily come cheap. Whether the goal is to clean up a factory or to switch to alternative fuels for delivery vehicles, the cost of environmental responsibility can reduce a company's profits and slow the growth of its stock. Investors should take note of the current and potential costs of going green for any company they consider adding to their portfolios.

Top 10 Green Industries Wind Windmill farms are sprouting up around the world. Australia, Europe and the United States are all investing in wind as a leading source of renewable energy. The business of wind not only includes the generation and sale of power, but also the design and construction of wind turbines. Few countries rely on wind for more than a tiny fraction of their power generation needs, but many countries are interested in the possibility.

Water To investors this has created a clear opportunity to invest in companies that collect, clean and distribute water. The largest water utility company in the U.S. is Aqua America, which supplies water to nearly 3 million people. Another company in the industry, on the purification side, is ITT Industries, which produces water purification systems that help to make drinkable water.

Solar Energy Solar energy is powering homes, buildings and a variety of other items from lights to radios. As the cost of fossil fuels continues to rise and their availability continues to decline, the future looks bright for solar energy.If you think the sun is just starting to rise on this industry the companies to look at are those that produce solar energy panels, which will benefit if homeowners and businesses adopt solar technology. Two of the leading producers of solar panals are Evergreen Solar and Sunpower Corp, which both develop, manufacture and sell panels and components and will directly benefit from the increased adoption of solar power.

Fuel CellsOn a smaller scale, researchers are working with fuel cell technology to develop an alternative method of powering automobiles. The U.S. government hopes that hydrogen powered cars will be commonplace by 2020. If this technology works, there are millions of cars - and millions of consumers - waiting for it.If you think this is the type of energy is the wave of the future there are a few companies that operate in the space and and develop fuel cell technology. For example, some of the largest producers include Ballard Power Systems , which produces cells that can be used in from cars to power plants, and Fuel Cell Energy, which focuses on providing power options to commercial and industrial facilities.

EfficiencyJust about every aspect of efficiency is good for the environment. Energy efficient construction and appliances reduce home energy use and energy efficient cars reduce our dependence on oil. From efficient lighting to creating the paperless office, innovative companies are developing innovative products that maximize the benefit that we get from the resources that we use. Efficiency is the watchword of the day and a developing field that will create the technologies that we will use tomorrow. This area is a little more difficult to invest in as there are no real pure play companies dealing strictly in efficiency. However, there are some companies that have done a great job at leveraging efficiency such as General Electric with its Ecomagination business unit.

Pollution ControlsReduction is the key term here. From reducing green house gas emissions on industrial power plants to minimizing the emissions that come out of the tailpipe of your car, the pollution control industry is on the rise. Every time legislation mandates an improvement in the amount of some harmful chemical that can be released into the environment, the pollution control industry responds.If this is something you are concerned about, look for companies that develop pollution control technologies such as Fuel-Tech and Versar.

Waste Reduction Recycling has become a standard practice for many people in recent decades. The stuff that was formerly thrown away and trucked off to the landfill is now turned into useful products. Most people are aware that household products such as paper, metal and glass are reprocessed and reused, but they never stop to consider the business behind these endeavors. Of course, these aren't the only items that are reused; waste oil, vegetable oil, batteries, cell phones, computers and even parts from cars can have a second life. Recycling these items involves a business enterprise humming along in the background. In terms of your portfolio, waste management companies with a large base of recycling facilities may be of interest including companies such as Allied Waste Industries and Waste Management .

OrganicsOrganic farms eschew the use of pesticides, engage in sustainable farming practices and sell products that are often healthier to eat than the stuff composed of three-syllable words that you can't pronounce and a shelf-life measured in decades. They also engage in animal management practices that avoid the use of hormones and antibiotics, keeping those chemicals out of the food chain and out of the ground and water surrounding the farms. It's good food - and good business.With U.S. organic food sales reaching $17 billion in 2006, there is a huge market for organic food producers and grocery stores. Some of the biggest organic food companies include Whole Foods Markets , United Natural Foods and among others.

Best In Class For many companies, the urge to go green is a relatively recent phenomenon. Like change everywhere, some firms adapt and some don't. Investment managers in the "green" space have begun to categorize firms by the place they hold along the "green" spectrum. Take oil companies for example. One would be hard pressed to think of these firms as green, and for the most part, they aren't. But if you take a closer look at their business models, it is easy to see that some are greener than others. Choosing the firms with the best environmental records and practices is another way of looking at "green".

How to Grow a Green PortfolioIf a "green" investment catches your eye, there are plenty of ways to find a place for it in your portfolio. Mutual funds, exchange-traded funds, stocks, bonds and even money market funds that focus on the environment are all available.

The problem is no longer that with every pair of hands that comes into the world there comes a hungry stomach.  Rather it is that, attached to those hands are sharp elbows.  Paul A. Samuelson

I would feel more optimistic about a bright future for man if he spent less time proving that he can outwit Nature and more time tasting her sweetness and respecting her seniority. -Elwyn Brooks White

Environmental Taxes

When tax is imposed on a polluting or environmentally harmful substance or activity, it introduces an economic cost that the polluter will take into account when making the decision on whether or not to carry on the activity or, how it is done or its extent. This applies whether the activity is part of a production process, consumption, or the way waste is disposed of. Harming the environment can be seen as claiming a service from nature. The producer or consumer should bear the full costs of their various input factors so as to ensure that production and consumption is economically justifiable, and that inherent or ensuing costs are not carried over to others. Introducing a well measured tax implies that the relevant external costs are internalized in the decision process.

Environment taxes effectuate the principle that the polluter shall pay.

The OECD, IEA and the European Commission have agreed to define environmentally related taxes as any compulsory, unrequited payment to general government levied on tax-bases deemed to be of particular environmental relevance. The relevant tax-bases include energy products, motor vehicles, waste, measured or estimated emissions, natural resources, etc. Taxes are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments.

Requited compulsory payments to the government that are levied more or less in proportion to services provided (e.g. the amount of wastes collected and treated) can be labelled as fees and charges. The term levy covers both taxes and fees/charges.  

According to the OECD (Organisation for Economic Co-operation and Development) 2006 report a database operated in cooperation between OECD and the European Environment Agency (EEA) has entered 375 environmentally related taxes in OECD member countries, plus some 250 environmentally related fees and charges in those countries. Of the taxes, the largest number is levied on energy products (150), on motor vehicles (125), and various forms of waste (50).There is a wide range of environmentally related taxes currently levied in the OECD-countries, among others: water pollution tax, batteries tax, logging tax, tyres tax, beverage container tax, toxic waste levy, tax on plastic bags, aircraft noise tax, tax on groundwater extraction, tax on pesticides, and artificial fertilisers, landfill tax, ozone depletion tax etc. 

Environmentally related taxes are, of course, also levied in other parts of the world; in China a tax on wooden chop sticks was increased this year in order to protect forests. 

The aim and purpose of environmental taxes is to curb or reduce the extent and amount of the use or consumption of harmful substances or activities, or depletion of a resource. When the imposition of the tax is well targeted, it will add to the costs of the subject paying the tax. The adding of costs to a producer within one country or region, that is not imposed on producers outside that country or region, may of course impact on the competitiveness of the local producer. The result may be that a polluting activity is reduced in geographical areas where environmental standards are higher, and increased or taken over by competitors in places with laxer regulatory regimes.

Governments therefore may need to consider a smooth introduction of a new environmental tax over a phasing in period, rather than abruptly imposing tax that dramatically changes the terms of market competition overnight. Other measures may be to exempt certain industries or parts thereof, or to couple the levying of a tax with refund mechanisms or to economically support certain sectors in a transitional period, thus abating the effects of the tax.

Such measures to cushion the effects of a tax will tend to reduce its effectiveness, but may be politically necessary in order to introduce the tax in the first place.

Also, introducing a general environmental related tax may have distributional effects that raise concerns, in particular where such effects are regressive in the sense that they impact more on consumers with low capability to pay and relatively less on the wealthy part of the population. If, for example, a significant levy is introduced on driving motor vehicles in certain urban areas, the levy may be effective in reducing the total amount of traffic but also have the effect that less wealthy households are prevented from driving children to school while it does not affect the well off. In order to mitigate the overall negative economic distributive effects of certain taxes and levies, Governments may need to consider other changes to the tax system to alleviate the tax burden of low income citizens, e.g. by adjusting the lower tax brackets.

Another issue that needs to be addressed is the administrative costs and difficulties. Environmental taxes often can be simple and easy to administer at low costs, but where exemptions and refund mechanisms are applied this may change the picture.

COMBINING ENVIRONMENT TAXES WITH OTHER MEASURES AND INSTRUMENTS

Imposing tax on an activity or substance, of course, is a measure applied to put limits and constraints to something that can be legally carried on, used or consumed. Certain activities and substances are harmful to such a degree that Governments, either on its own initiative or based on international agreements, outright prohibit or ban the activity. Such prohibition can be put in place more or less smoothly over a phasing in period. One well known success story in this regard is the Montreal Protocol on Substances That Deplete the Ozone Layer signed in 1987. The treaty stipulates that the production and consumption of compounds that deplete the ozone in the stratosphere –chlorofluorocarbons (CFCs), halons, carbon tetrachloride and methyl chloroform shall be phased out by 2000 (2005 for methyl chloroform). Although the ban has been largely successful it is not 100% effective as it is not yet universally implemented.

Where a harmful activity or substance is not generally disallowed, its application can be limited by regulation. Typically legislation may allow the activity only to a certain extent by authorisation or permits. In such cases the imposition of environmentally related taxes can be applied as an effective measure in combination with the regulatory measure. 

Direct regulation can also be used as a basis for allocation of tradable permits. Where a cap on an activity is imposed and a tradable permit is issued through auction or allocation in consideration for payment, the effect is similar to that of imposing a tax on the activity.

The probably best known example of a tradable permits system on the international level is the Kyoto Protocol to the United Nations Framework Convention on Climate Change . Countries that ratify the protocol commit to reduce their emissions of carbon dioxide and five other greenhouse gases, or engage in emissions trading if they exceed the set limitations. The emission reduction obligations run through the period 2008-2012. The Protocol has been ratified by more than 160 countries contributing 60% of global greenhouse gas emissions. Negotiations will determine the fate of a future treaty to succeed the current one. The European Union has signed up to the Kyoto Protocol in addition to its member states and has established an EU-wide emissions trading system based on allocated emission targets and quotas.

Environment taxes can also be applied in combination with negotiated agreements, subsidies and labelling and certification systems (informing producers and consumers in order for them to make informed choices).

Environmental economics

Economics is a body of knowledge (a science) that has certain theories, values, methods, and assumptions. One goal of economists is to understand how to produce goods for society in the most efficient manner.  This is achieved by having a better understanding of human activities in a market system.  

Environmental economics is the study of environmental uses and abuses as viewed through the lens of economics. Typical economic concerns, such as market failure, externality, or valuation, are applied to environmental topics. Topics studied include things like pollution, consumption and alternative forms of energy. One of the big concerns of today is that people are taking too much from the earth without giving enough back. The goal of environmental economics is to discover a balance between the least amount of usage and the greatest societal benefit.

Valuation in Environmental Economics

One of the big issues in environmental economics is determining the value of natural resources. Some things, such as oil, have an actual monetary value assigned to it, and many things have a value based on their use and indirect use. However, it can be nearly impossible to determine the value of having a green Earth for future generations. This is especially true since such a concept may have an infinite value to some, but be worthless to others. Other natural things, such as the value of an intact ozone layer or a lack of pollution, are intangible and therefore without a price tag.

Cost Benefit Analyses in Environmental Economics

The use of natural resources and the degradation of the environment is an expected part of life. Modern living relies heavily on energy and a variety of nonrenewable materials, and side effects such as pollution are inevitable. Though such expenditures are by no means good or healthy, they are a necessary part of life and needed for the advancement of society. Some people focus solely on reducing the carbon footprint, but environmental economists perform cost benefit analyses instead. At times, mild environmental ruin may be worth great economic benefit.

The Relevance of Externality to Environmental Economics

In economics, the concept of externality refers to a cost or benefit incurred by someone other than the buyer or seller. This effect is generally not accounted for in the price the buyer paid. A positive externality provides a benefit; a negative externality results in a cost to society. The famous story of Erin Brokovich’s case with the Hinkley groundwater contamination is a great example of a negative externality. A third party, the residents of Hinkley, suffered debilitating medical conditions from contaminated water, and this cost not included in the price the buyers paid.

Environmentalists work on reducing the overall carbon footprints without giving any thought as to how that reduction will affect society’s ability to produce and advance. Economists work to ensure the best financial situation for the maximum number of people. Environmental economists combine the two fields, encouraging economic and societal advancement without forgetting the effect they may be having on the environment.

Detailed Note

Environmental economics is a distinct branch of economics that acknowledges the value of both the environment and economic activity and makes choices based on those values.  The goal is to balance the economic activity and the environmental impacts by taking into account all the costs and benefits.  The theories are designed to take into account pollution and natural resource depletion, which the current model of market systems fails to do. This “failure” needs to be addressed by correcting prices so they take into account “external” costs.  External costs are uncompensated side effects of human actions.  For example, if a stream is polluted by runoff from agricultural land, the people downstream suffer a negative external cost or externality.

The assumption in environmental economics is that the environment provides resources (renewable and non-renewable), assimilates waste, and provides aesthetic pleasure to humans.  These are economic functions because they have positive economic value and could be bought and sold in the market place.  However, traditionally, their value was not recognized because there is no market for these services (to establish a price), which is why economists talk about “market failure”.   Market failure is defined as the inability of markets to reflect the full social costs or benefits of a good, service, or state of the world.  Therefore, when markets fail, the result will be inefficient or unfavorable allocation of resources.   Since economic theory wants to achieve efficiency, environmental economics is used as a tool to find a balance in the world’s system of resource use. 

Another basic term in environmental economics is the idea of “scarcity.”  Historically,  goods and services provided by the environment were seen to be limitless, having no cost, thus not considered scarce.  Scarcity is a misallocation of these services (which are not limitless) due to a pricing problem.  If resources were properly priced to include all costs, then the resource could not be over-exploited because the actual cost would be too high.  This is a powerful tool in environmental problems…proper pricing.  

Environmental economics is not the same as ecological economics.  Ecological economics is a new model with the basic premise being that market-based activities are not sustainable, so a “grand new theory” is needed to describe the world and determine how to conduct activities in a sustainable manner.  It uses an entirely different framework.  This paper will discuss only environmental economics.

The key to the environmental economics approach is that there is value from the environment and value from the economic activity…the goal is to balance the economic activity with environmental degradation by taking all costs and benefits into account.

What is environmental valuation?

In order to help correct economic decisions that often treat environmental functions as free, it is important to define and measure their value. Valuation measures human preferences for or against changes in the state of environments.  It does not value the environment on its own.   If there is no human attachment to it, then the service has no economic value.  Although other types of value are often important, economic values are useful to consider when making economic choices – choices that involve tradeoffs in allocating resources.  

“Measures of economic value are based on what people want – their preferences.  

Economists generally assume that individuals, not the government, are the best judges 

of what they want.  Thus, the theory of economic valuation is based on individual 

preferences and choices.  People express their preferences through the choices and 

tradeoffs that they make, given certain constraints, such as those on income or available 

time. In a market economy, dollars (or some other currency) are a universally accepted 

measure of economic value, because the number of dollars that a person is willing to pay 

for something tells how much of all other goods and services they are willing to give up to 

get that item. This is often referred to as ‘willingness to pay.’”   

Many economists have been criticized for putting a ‘price tag’ on nature.  However, decisions are being made every minute regarding resource allocation.  These decisions are economic decisions and therefore are based on society’s values.  In essence, the environment itself is not being valued, instead individual preferences for the environment are what are being measured and compared.   Environmental valuation can be a useful, yet also difficult and controversial tool.

There are two types of values: use and non-use. ‘Use value’ is defined as the value derived from the actual use of a good or service, such as hunting, fishing, bird-watching, or hiking.  Use values may also include ‘indirect uses,’ such as the value of a bug that a fish may eat, which then a fisherperson may catch.  Though that bug is not directly used by the fisherperson, it has an indirect value because of its place in the food chain.  A large part of environmental economics has been devoted to valuing ‘use’ services.

‘Non-use values,’ also referred to as ‘passive use’ values, are values that are not associated with actual use, or even the option to use a good or service.  Existence value is a type of non-use value and is the value that people place on simply knowing that something exists, even if they will never see it or use it.   Many people value the Amazon rainforest, even though they may never go there.  Non-use value is the most difficult type of value to estimate.

Total economic value is the sum of all the relevant use and non-use values for a good or service.

How is valuation used? – Cost/Benefit Analysis

The main method used for valuation is cost-benefit analysis (CBA).  This analysis is basically compiling the costs of a project as well as the benefits, then translating them into monetary terms and discounting them over time.  (Discounting is the process of determining the present value of future benefits and costs.)  Ideally, only projects with benefits greater than costs would be acceptable.

Cost - benefit comparisons have some problems.  First, environmental benefits often lack market value, yet their costs are known.  Second, benefits are often collected over time, while costs are up front.  This creates a dilemma, since the question to be answered is in present time. Third, it is often difficult to understand what is being measured or to determine values for what is being measured. And fourth, results are often controversial and in some cases, could be used against you.  However, it is good to remember that you are empowered just by describing each benefit, even if you can’t value it.   

The first step is always to compare what would happen with and without the proposed project.  Economic analysis is not possible without a clear understanding of how the project would affect the area.  When this exercise is complete, the analyst should have a list of project impacts, classified according to the type of value they are likely to affect (use or non-use) and the group or groups that would benefit from the project.  

There are several different methodologies used to determine the value of a benefit.  Which methodology is used is often determined by the time and expense of the analysis.  

The following methods are used:

 1.) Market Price Method

Estimates economic values for ecosystem products or services that are bought and sold in commercial markets.  For example, a cultural site could be valued based on the entrance fees collected.

2.) Productivity Method

Estimates economic values for ecosystem products or services that contribute to the production of commercially marketed goods.  For example, the benefits of different levels of water quality improvement would be compared to the costs of reductions in polluting runoff.

3.) Hedonic Pricing Method

Estimates economic values for ecosystem or environmental services that directly affect market prices of some other good. Most commonly applied to variations in housing prices that reflect the value of local environmental attributes.

4.) Travel Cost Method

Estimates economic values associated with ecosystems or sites that are used for recreation. Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site.  For example, adding up the costs people would expend to travel and recreate at a particular area.

5.) Damage Cost Avoided, Replacement Cost, and Substitute Cost Methods

Estimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services. For example, the costs avoided by providing flood protection.

6.) Contingent Valuation Method

Estimates economic values for virtually any ecosystem or environmental service. The most widely used method for estimating non-use, or “passive use” values. It asks people to directly state their willingness to pay for specific environmental services, based on a hypothetical scenario.  For example, people would state how much they would pay to protect a particular area.

7.) Contingent Choice Method

Estimates economic values for virtually any ecosystem or environmental service. Based on asking people to make tradeoffs among sets of ecosystem or environmental services or characteristics. It does not directly ask for willingness to pay—this is inferred from tradeoffs that include cost as an attribute.  For example, a person would state their preference between various locations for siting a landfill.

8.) Benefit Transfer Method

Estimates economic values by transferring existing benefit estimates from studies already completed for another location or issue.  For example, an estimate of the benefit obtained by tourists viewing wildlife in one park might be used to estimate the benefit obtained from viewing wildlife in a different park. 

The researcher should first narrow the types of benefits by their importance and then balance accuracy and costs in choosing methods.  Sometimes the easiest analysis often provides substantial benefits that show large values.  Usually, a benefit measured from market-based techniques or various kinds of extractive use values are the easiest to measure.  If one method alone provides an answer, then the analysis can stop.  The data requirements and limitations of the methods should be taken into account when deciding which to use. Discounting, which is the process of reducing future benefits and costs to their present value, is the last step.  Choosing an acceptable discount rate is often a challenging task.  It is highly controversial since the rate chosen will have a big effect on the results of the analysis.  Sometimes the discount rate is chosen by federal regulation.

Once more it should be noted that:

“Because it focuses only on economic benefits and costs, benefit-cost analysis 

determines the economically efficient option.  This may or may not be the same as 

the most socially acceptable option, or the most environmentally beneficial option.  

Remember, economic values are based on peoples’ preferences, which may not 

coincide with what is best, ecologically, for a particular ecosystem.  However, public 

decisions must consider public preferences, and benefit-cost analysis based on 

ecosystem valuation is one way to do so.”  

Environmental Auditing and Valuation

[see also carbon trading]

Environmental audit is a general term that can reflect various types or evaluations intended to identify environmental compliance and management system implementation gaps, along with related corrective actions. In this way they perform an analogous (similar) function to financial audits. 

There are generally two different types of environmental audits: 

• compliance audits and 

• management systems audits. 

Environmental compliance audits

As the name implies, these audits are intended to review the site's/company's legal compliance status in an operational context. Compliance audits generally begin with determining the applicable compliance requirements against which the operations will be assessed. This tends to include country's regulations, permits and local ordinances/codes. In some cases, it may also include requirements within legal settlements.

Compliance audits may be multimedia or programmatic. Multimedia audits involve identifying and auditing all environmental media (air, water, waste, etc.) that apply to the operation/company. Programmatic audits (which may also be called thematic or media-specific) are limited in scope to pre-identified regulatory areas, such as air.

Audits are also focused on operational aspects of a company/site, rather than the contamination status of the real property. Assessments, studies, etc. that involve property contamination/remediation are typically not considered an environmental audit.

Management System Audit

ISO 14001 is a voluntary international standard for environmental management systems ("EMS"). ISO 14001:2004 provides the requirements for an EMS and ISO 14004 gives general EMS guidelines.

An EMS meeting the requirements of ISO 14001:2004 is a management tool enabling an organization of any size or type to identify and control the environmental impact of its activities, products or services; Improve its environmental performance continually, and implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved.

Environmental Auditing in India 

The Supreme Audit Institution (SAI) in India is headed by the Comptroller and Auditor General (CAG) of India who is a constitutional authority. The CAG of India derives his mandate from Articles 148 to 151 of the Indian Constitution. The CAG's (Duties, Powers and Conditions of Service) Act, 1971 prescribes functions, duties and powers of the CAG. While fulfilling his constitutional obligations, the CAG examines various aspects of government expenditure and revenues. The audit conducted by CAG is broadly classified into Financial, Compliance and Performance Audit. Environmental audit by SAI India is conducted within the broad framework of Compliance and Performance Audit. 

Environment protection in India 

The Ministry of Environment & Forests is the nodal agency in the administrative structure of the Central Government of India, for the planning, promotion, coordination and overseeing the implementation of environmental and forestry programmes. The Ministry is also the Nodal agency in the country for the United Nations Environment Programme (UNEP). In the states, the Department of Environment and Forest is the main agency for implementation of environment programmes.