04 March 2005

04.03.05. Exhausting the Options (in Italy)

Editor's note: We like this one because the author challenges received wisdom in some sustainability circles which all too often jerk to "public transit" solutions to challenges that require a lot more. But when it comes to long run solutions to urgent problems of public health, which we believe to be the situation here, it is helpful to keep in mind Maynard Keynes cogent reminder that "in the long run we all are dead".

Exhausting the Options (in Italy)

By Carlo Stagnaro (See below for brief vitae)

When you face a problem, you can either confront it head on or just deal with the symptoms and hope it goes away. European countries usually favor the latter method.

For example, in recent months several Italian cities have restricted or prohibited private traffic because of excessive concentrations of air pollutants. High levels of particulates can create health problems; they also make breathing uncomfortable. European regulations set limits on air pollution levels, and they can be exceeded only a few days a year -- otherwise sanctions will be imposed. Then there is the Kyoto Protocol, which took effect on 16 February; it has little to do with the problem of air pollution, but is significant on emotional grounds. (Most people don't bother with such trivia as the difference between small particles and greenhouse gases, so if you're an environmental propagandist it's a good strategy to lump them together and let people believe industry is killing them.)

Now, while air pollution may be a real problem, there is an encouraging trend. Concentrations of small particles on average are declining in Western countries. "On average" means that concentrations are above the average roughly half of the time and below average half the time. "Declining" means that the number of days when concentrations are high is going down.

So the situation is good. Our cities are like sick patients who are gradually recovering. Their fevers may go up and down, but they're moving towards normal temperatures. The single most important contribution to the declining trend is the natural turnover of vehicles: as people get wealthier, they tend to change their cars more often. Newer models consume and pollute less - with greater benefit both for one's personal budget and the environment. Across the last decade, Milan's SO2 emissions dropped by 86 percent, NOx by 45 percent, CO by 65 percent, and C6H6 by 90 percent.

Moreover, the real cause of air pollution is traffic. Infrastructures are mostly inefficient in Italy and, more generally, in Europe. As the number of circulating cars grows, narrow streets become more and more inadequate, and more and more cars are caught in traffic jams. They burn fuel and move slowly - and waste peoples' time.

As Italian businessman Adriano Teso, a member of the Istituto Bruno Leoni's board of trustees, wrote, the problem is that mobility is governed by a socialist system of incentives, not a market-oriented one. Since most roads are free of charge regardless of when they are being used, people have an incentive to take their cars whenever they want. However, roads can be partly or totally privatized, so that the toll fluctuates according to demand. People would consider more wisely the use of their cars.

These measures could become a long-term solution to the problem of traffic - and thus air pollution. However, you need to be open-minded to consider it. If you are not, you tend to look for a short-term remedy. Emergency measures, such as closing cities to traffic, may or may not make sense in a given situation. But by no means do they guarantee the same problem won't return next year.

As a matter of fact, these solutions don't solve anything. Private vehicles emit less than 10 percent of global particles, the remainder comes from commercial vehicles and public transportation. According to some estimates, a 70 percent decrease in private traffic would result in a mere 1percent reduction in small particles.

Having realized this the Italian government has found a new priority in the war on air pollution: replacing old, polluting buses with newer, cleaner ones. So far, so good. But how do they pay for this initiative? By cutting public expenses? By increasing taxes? Well, yes and no. A government whose credibility depends upon cutting taxes, as it did a few months ago, just can't do that. But Prime Minister Silvio Berlusconi never promised that energy would be cheaper. In fact, Italian government decided to raise taxes on diesel fuel and gasoline respectively by 0.5 and 1 eurocent per liter. The expected revenue is of more than €350 million. As the chart below, shows, Italy is already among the European countries where the price of fuels is highest.

"We're almost certain that this tax will be absorbed without extra costs for the consumer," said Environment Minister Altero Matteoli. Such a statement is naive. All else being equal, an increase in the fiscal component may result in (1) an increase in the price to consumers, or (2) a decrease in industry's profits. Either way, the burden of government gets heavier in Italy, and industry is more likely to invest abroad, where returns are safer and higher. Italian competitiveness and ability to innovate is accordingly reduced.


Carlo Stagnaro is Free Market Environmentalism Director at Istituto Bruno Leoni, a Turin-based free market think tank. He is fellow of International Council for Capital Formation (Brussels). He has written extensively about environmental issues, including global warming, energy, and water, both in Italian and English. His articles have been published in a wide variety of newspapers, including Libero (Milan), Il Giornale (Rome), Finanza & Mercati (Milan), Ideazione (Rome), Liberal (Rome), National Review Online (Washington, DC), TechCentralStation (Washington, DC), Schweizer Monatshefte (Zurich), Economic Affairs (London). His last book is "Più energia per tutti" (edited together with Dr. Margo Thorning, to be published).


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