• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2003
• Subjects: Canada; Iceland
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.76.2250; http://www.rff.org/~newell/est.pdf

Two decades ago, a “command-and-control approach” dominated environmental policy and regulations. Individual decision makers were told how to comply with an input or output standard, rather than being allowed to respond to market signals in the most economical way. Until well into the 1970s, few market-based instruments for environmental policy existed. Even then, examples were limited to an effluent charge program in Germany, some deposit-refund systems, and— depending on one’s definition of a market-based instrument—performance bonds, which require potential polluters to demonstrate that they can compensate those damaged by their activities. In addition, a few markets were created to protect natural resources, such as transferable quotas for fishing in Canada and Iceland, and transferable development rights for land in the New Jersey Pine Barrens and a few other locations in the United States. Created markets to protect the environment from pollution were conspicuously absent until 1975 when the U.S. EPA introduced “bubbles ” and other approaches to relaxing economic growth restrictions for areas violating air quality standards under the Clean Air Act (CAA). This “bubble policy ” allows a plan with multiple stacks to meet its emissions limits over all stacks at once rather than each stack separately. Everything changed in 1990 when Congress broke the logjam over legislation to limit acid rain by reducing sulfur dioxide (SO2) emissions from power plants. Industry opposed the estimated huge cost of a command-andcontrol program, while environmentalists adamantly fought to bring plant emissions under tight control. To end the controversy, Congress and the first Bush administration turned to tradable pollution permits. In the late 1960s, economists Crocker (1) and Dales (2) first introduced the idea of capping total emissions and allowing polluters to trade them. The idea had gained currency among economists because trading would be far less expensive than a command-and-control regulatory policy and could guarantee ...