Taxes and Tradable Permits as Instruments for Controlling Pollution Theory and Practice

This paper examines the relative merits of two dominant economic instruments for reducing pollution-'green' taxes and tradable permits. Theoretically, the two instruments share many similarities, and on balance, neither seems preferable to the other. In practice, however, most countries have relied more on taxes than on permits to control pollution. The analysis suggests a number of lessons to be learned from country experiences regarding the design and implementation of both instruments. While many, particularly European countries, currently have long-term programs involving environmental taxes, a willingness to experiment with tradable permits seems to be growing, especially given the Kyoto protocol emission targets.

[1]  Till Requate,et al.  Pollution control in a Cournot duopoly via taxes or permits , 1993 .

[2]  David C. L. Nellor,et al.  Tax Policy and the Environment: Theory and Practice , 1994, SSRN Electronic Journal.

[3]  J. M. Buchanan,et al.  External Diseconomies, Corrective Taxes, and Market Structure , 1969 .

[4]  W. Oates.  Pollution Charges as a Source of Public Revenues , 1993 .

[5]  Tom Tietenberg,et al.  Emissions Trading: An Exercise in Reforming Pollution Policy , 1985 .

[6]  R. Mooij,et al.  Environmental Levies and Distortionary Taxation. , 1994 .

[7]  C. Russell,et al.  Comparative analysis of alternative policy instruments , 1985 .

[8]  R. O'Ryan,et al.  Cost-effective policies to improve urban air quality in Santiago, Chile , 1996 .

[9]  D. O’Connor,et al.  Applying economic instruments in developing countries: from theory to implementation , 1999, Environment and Development Economics.

[10]  Ian W. H. Parry,et al.  Pollution Taxes and Revenue Recycling , 1995 .

[11]  D. Appels.  Forest rotation lengths under carbon sequestration payments , 2001 .

[12]  Robert W. Hahn,et al.  Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders , 1989 .

[13]  Theodore Panayotou.  Instruments of Change: Motivating and Financing Sustainable Development , 1998 .

[14]  Economic policy and climate change : tradable permits for reducing carbon emissions , 1997 .

[15]  Stephen Smith,et al.  Evaluating Economic Instruments for Environmental Policy , 1997 .

[16]  A. Denny Ellerman,et al.  1996 update on compliance and emissions trading under the U.S. acid rain program , 1998 .

[17]  Agnar Sandmo,et al.  Optimal Taxation in the Presence of Externalities , 1975 .

[18]  W. Oates.  Green Taxes: Can We Protect the Environment and Improve the Tax System at the Same Time?* , 1995 .

[19]  Anastasios Xepapadeas,et al.  Advanced Principles in Environmental Policy , 1997 .

[20]  M. Weitzman.  Prices vs. Quantities , 1974 .

[21]  R. Brännlund.  Green Tax Reforms: Some Experiences from Sweden , 1999 .

[22]  C. Howe.  Taxesversus tradable discharge permits: A review in the light of the U.S. and European experience , 1994 .

[23]  R. Hahn,et al.  Where Did All the Markets Go? An Analysis of EPA's Emissions Trading Program , 1989 .

[24]  G. Klaassen,et al.  Sulfur Trading Under the 1990 CAAA in the US: An Assessment of First Experiences , 1997 .

[25]  P. Burrows.  Controlling the monopolistic polluter: Nihilism or eclecticism? , 1981 .

[26]  David A. Malueg.  Welfare consequences of emission credit trading programs , 1990 .

[27]  W. Baumol,et al.  The theory of environmental policy: On the theory of externalities , 1988 .

[28]  L. Goulder.  Environmental taxation and the double dividend: A reader's guide , 1994 .

[29]  Robert N. Stavins,et al.  Incentive-Based Environmental Regulation: A New Era from an Old Idea , 1990 .

[30]  Robert N. Stavins,et al.  Transaction Costs and Tradeable Permits , 1995 .

[31]  Anthony Zom.  Report on the Concrete Steps of Green Budget/ Tax Reform in the Netherlands -Retrospective and Outlook , 1999 .

[32]  R. Lyon,et al.  Auctions and Alternative Procedures for Allocating Pollution Rights , 1982 .

[33]  T. Moe,et al.  Policies for a Better Environment and High Employment , 1999 .

[34]  Robert N. Stavins,et al.  What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading , 1998 .

[35]  Donald Wittman,et al.  A Comparison of Taxes, Regulation, and Liability Rules under Imperfect Information , 1983, The Journal of Legal Studies.

[36]  Paul L. Joskow,et al.  The Political Economy of Market‐Based Environmental Policy: the U.S. Acid Rain Program1 , 1998, The Journal of Law and Economics.

[37]  H. Elder,et al.  Exclusionary manipulation of markets for pollution rights , 1989 .

[38]  William J. Baumol,et al.  The theory of environmental policy: Contents , 1988 .

[39]  中華人民共和国国家環境保護局.  Applying market-based instruments to environmental policies in China and OECD countries , 1997 .