Incentive-Based Environmental Regulation: A New Era from an Old Idea

During the twenty years since Earth Day in 1970, a host of environmental laws and regulations have been enacted, and substantial gains have been made in environmental protection. The United States and the world at large, however, continue to face major environmental threats both ongoing problems, such as urban smog, groundwater pollution, and acid rain, and newly recognized problems, including the threat of global climate change. As the decade of the 1990's begins, political leaders are giving increased attention to a promising set of new policies that recognize the potential role of market forces in achieving sustained environmental progress. Over the past several years, the nature and tone of the political debate has evolved rapidly, culminating with President Bush's proposal in June 1989 which called for a major overhaul of the Clean Air Act (CAA) l and Congress' subsequent passage of amendments to the Act. 2 A central feature of the administration's proposal was the introduction of a market-oriented approach for controlling acid rain and motor vehicle