Economic Instruments for Environmental Regulation

Our knowledge about economic incentive approaches to pollution control has grown rapidly in the two decades in which they have received serious analytical attention. Not only have the theoretical models become more focused and the empirical work more detailed, but we have now had over a decade of experience with emissions trading in the U.S. and emission charges in Europe. As the world community becomes increasingly conscious of both the need to tighten environmental controls and the local economic perils associated with tighter controls in a highly competitive global marketplace, it seems a propitious time to stand back and to organize what we have learned about this practical and promising approach to pollution control that may be especially relevant to current circumstances. This paper draws upon economic theory, empirical studies, and actual experience with implementation to provide a brief overview of some of the major lessons we have learned about two economic incentive approaches--emissions tradi Copyright 1990 by Oxford University Press.