Abstract:Environmental protection is a major concern of modern societies, and transport is a major source of environmental damage. So it should not be surprising that environmental protection has played a central role in transportation policy and decisions, and that considerable resources have been devoted to mitigating adverse environmental impacts.

Environmental protection can be analyzed from different points of view, including technical, legal, ecological, and political. Here we focus secondarily on engineering and primarily on economic perspectives, with acknowledgment of their shortcomings. The engineer seeks technical solutions and designs technical devices to abate environmrntal damage; the economist seeks the best use of societal resources and identifies actions that yield the highest return for investments and other initiatives.

In market economies, prices are the primary mechanism for allocating resources. The difficulty, however, is that environmental impacts are largely outside the marketplace. When I drive a car, I make noise; I disturb my neighbors, but I do not pay for that damage, and my neighbors are not compensated in any way. If I was obligated to pay compensation – what economists call the polluter-pays principle – I would make less noise. Unfortunately there is no market for that "good" – or, more accurately, "bad"; there is no natural mechanism to ensure a proper balance between the demand for silence and the supply of silence. The same applies to air and water pollution, climate change, esthetics, loss of wetlands, loss of biodiversity, and most other forms of environmental damage.

This absence of markets for environmental damage is a clear case for public action; public authorities must devise mechanisms to respond to this market failure. Economics is a powerful tool, but because environmental effects are outside the marketplace, public action must be manifested in the creation of secondary markets or as administrative actions by government. Economists argue that these actions should be guided by economic principles. But, contrary to natural market mechanisms, which are relatively non-manipulable, devices created by public authorities are subject to discretion and can be more easily influenced by the strategic action of the private interests at stake.

While economics provides a powerful framework for guiding and designing actions to reduce environmental damage, the shortcomings noted above have led to other approaches playing a more dominating role in recent decades.

Government first actively intervened on behalf of environmental protection in the 1960s. First, regulatory programs were adopted to reduce air pollution, followed by fuel use regulations in the U.S.A. and Japan in the 1970s. The regulatory system that evolved was a creation of lawyers and engineers whose disciplinary paradigm was one of right and wrong. It was founded on highly specific rules of conduct and design, resulting in an approach that has come to be known as "command and control." While the various regulatory activities affecting vehicles and fuels are not strictly command and control – they contain some flexibility – the overriding framework continues to be one of directives that restrict the behavior of vehicle and fuel suppliers.

Most rules were premised on technological solutions and followed engineering principles of "best available technology." Examples include rules specifying the amount of pollution a car is allowed to emit, attributes of fuels (use of oxygenates, lead, etc.), allowable types of engine technologies (e.g., bans on two-stroke engines), required inspections of vehicle emissions, and bans on car use in city centers.

As part of a larger debate over the role and effectiveness of government intervention, conventional wisdom in both the political and the professional arenas is gradually shifting from an embrace of command and control to greater use of market instruments and greater emphasis on flexibility. Examples include use of tradable credits (for vehicle emissions), fuel taxes, vehicle taxes, tolls for use of high-occupancy vehicle lanes, and voluntary agreements with industry to reduce CO₂.

The perception exists that command and control rules are appropriate and effective when externalities are large and little effort has been expended. But after decades of efforts to reduce emissions, the marginal costs for further reductions can be large and the marginal benefits relatively small. It is widely accepted that the most cost-effective approach is to grant more flexibility to industry, though much of the environmental community remains skeptical. They fear that flexibility will result in industry finding loopholes to avoid action, and that market instruments will create environmental "hot spots" (often where residents are poor and less politically influential) and will not be as effective at changing behavior as regulations and rules.

These general considerations will be developed and woven into the following sections. In Section 2, we categorize environmental damage; Section 3 provides a review of economic tools to cope with environmental damage and criteria for when and how to use them; in Section 4, we describe how these tools are applied to general transport policy, infrastructure design, and vehicle design and use; and in the concluding section, we provide a general assessment, stressing shortcomings, successes, and future prospects for environmental protection.

Note:In Handbook of Transport Systems and Traffic Control. Elsevier Science Ltd., chapter 15.