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The book Environmental Economic Instruments in Mexico was written by Tania Garcia Lopez during her year as a Visiting Researcher in the Center for Latin American Studies and the Program in Science, Technology and International Affairs at the School of Foreign Service, Georgetown University, USA.


This book presents the cardinal elements for the use of economic instruments in public policy surrounding the environment in Mexico. It takes a multidisciplinary approach to analyze the legal basis for the design and implementation of such instruments.
The book is divided into 6 chapters. 


The first is entitled "Ecological economics: origins and basis for the use of economic instruments in order to protect  the environment." In this chapter, the author takes us through the history of ecological economics and its main doctrinal streams and addresses the most important economic concepts for the planning of an environmentally focused economic instrument. The chapter also explains the economic, social and environmental justification for the use of such instruments.


Chapter 2 is entitled "The internalization of environmental externalities: techniques and options" and explains the differences between the polluter pays principle approach and the use of subsidies for the internalization of environmental externalities. It also explores the advantages and disadvantages of each approach and their presence in environmental economic instruments.


Chapter 3 is entitled “Economic instruments for environmental protection: categories and functioning” and focuses on the growing importance and use of these instruments, especially in OECD countries. This chapter also discusses the advantages and disadvantages of these instruments over traditional command and control approaches. The chapter continues by distinguishing between mandatory and voluntary instruments, and proposes methods for classifying and understanding their content. Finally, it proposes a categorization within the Mexican law, through the General Law of Ecological Balance and Environmental Protection, distinguishing between market instruments, financial instruments and fiscal instruments.


Chapter 4 is titled "The law of supply and demand of natural resources: market instruments". Most authors refer to market instruments as a synonym for economic instruments. However, this is not the approach of Mexico’s General Law of Ecological Balance and Environment Protection, which, as already noted above, considers them in fiscal and financial categories. The chapter highlights that market instruments can provide Mexico with new ways to change the behavior of potential polluters and encourage positive behavior towards the environment. In this light, the book discusses:

1. Tradable emission certificates;
2. Deposit-refund systems;
3. Payment for ecological services, when they are not financed by the public sector.

Chapter 5 is entitled "Tax law and its role in designing economic instruments: fiscal instruments". Both assessments and subsidies (or tax benefits) are among the fiscal instruments for environmental protection. The latter is normally used to encourage companies to invest in technology that does not pollute. Taxes are increasingly used as environmental instruments, either through new taxes or royalties or through adaptation of existing tax structures to environmental objectives (what some authors have called greening of taxes). The chapter reviews some of the most important tax approaches in use. Even though most authors consider the use of such measures as having positive impacts, the chapter identified a number of disadvantages, including uncertainty regarding environmental performance, uncertainty regarding the economic and budgetary consequences, concerns about international competitiveness, concerns about distributional effects, lack of cooperation between fiscal and environmental authorities and strong opposition from interest groups.

Much has been said about the need for a "double dividend" when it comes to environmental taxes, i.e., the need to both meet an environmental goal and another purpose such as increasing employment. Another important issue is the allocation of revenues for environmental protection, a point highlighted by environmental groups in their discussions of environmental levies. Further, although environmental matters are governed by the concurrence principle, according to which there will be roles at the federal, state and municipality levels, the role of concurrence in tax distribution is not clear. How such systems will work is also governed by the skills sets of the relevant sectoral administrators of environmental regulations in Mexico. Finally, the chapter references the problem posed by tax benefits, which work as public aid and may be in opposition to the polluter pays principle.


Chapter 6 is entitled "Financing of actions for the protection of natural resources: financial instruments". Environmental financial instruments are those that seek to provide financial resources for the protection and/or restoration of the environment. The goal of these instruments is the protection or restoration of the environment. Within these financial instruments are, firstly, environmental insurances. The legal basis for these insurances are established in the Insurance Contract Act, which is detailed in this chapter.  Insurances against environmental disasters are not common in Mexico, since they are not legally required, although, as noted, there is the legal basis for its establishment. Another instrument, bonds, are required in certain cases to carry out potential harmful activity and considered as "good end deposits," economic deposits that the potential polluter provides as a guarantee of good environmental compliance. Also covered in the chapter are environmental funds, financial mechanisms that facilitate the implementation of policies and actions of environmental protection and usually handled through pubic or private trusts.


In conclusion, this book makes a journey through the different economic instruments applied in environmental issues in Mexico, discussing their advantages and disadvantages and, above all, the legal basis for their establishment and I fully recommend to read it.
 

Mark Giordano

Director of Program in Science, Technology and International Affairs Cinco Hermanos Chair of Environment and International Affairs Georgetown University School of Foreign Service

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