15
Market-Based
Approaches to
Environmental Protection
INTRODUCTION
Initially, environmental protection programs were based on a “command-andcontrol” strategy. An analysis was first performed to determine how much pollution
the environment could absorb without causing excessive harm. This level of pollutants was then allocated to dischargers through a permit process. Discharges up
to the permitted level were accepted, whereas discharges exceeding the permitted
level were permit violations subject to an administrative or criminal penalty. This
approach requires considerable resources, first to determine what the acceptable
level of pollution is for each local area and second for allocation by a bureaucracy
of the acceptable level of pollution equitably among the various dischargers. It also
takes a considerable effort to police each of these dischargers.
In addition, this approach may not lead to the most efficient attainment of the
goal as it assumes that each discharger can achieve its permit limit with an efficient utilization of its resources. More important, once the individual permit limit
is achieved, there is no incentive to achieve a lower discharge. There is no penalty,
but likewise there is no reward for lowering the discharge below the permitted level.
Perversely, there may not be an additional penalty for massive failure to achieve a
limit as compared to barely missing a permit limit.
If any discharge of a pollutant is considered unacceptable, regulations have been
enacted that banned the use of a given chemical. This approach was taken with DDT
(dichlorodiphenyltrichloroethane), which was found to bioaccumulate and threaten
reproduction of raptors, as publicized in Rachel Carson’s 1962 book Silent Spring,
and the banning of ozone-depleting chemicals such as chlorofluorocarbons.
In recent years, alternative market-based approaches for achieving environmental
protection have evolved. This chapter reviews these approaches and how they might
apply to a program aimed at reducing or eliminating the use of toxic chemicals.
COMMAND WITHOUT CONTROL
In command-and-control environmental protection, the overall limit on pollution
is determined and allocated to each discharger through individual permits. Some
dischargers may require little effort or money to achieve this limit, whereas others
229
Market-Based
Approaches to
Environmental Protection
INTRODUCTION
Initially, environmental protection programs were based on a “command-andcontrol” strategy. An analysis was first performed to determine how much pollution
the environment could absorb without causing excessive harm. This level of pollutants was then allocated to dischargers through a permit process. Discharges up
to the permitted level were accepted, whereas discharges exceeding the permitted
level were permit violations subject to an administrative or criminal penalty. This
approach requires considerable resources, first to determine what the acceptable
level of pollution is for each local area and second for allocation by a bureaucracy
of the acceptable level of pollution equitably among the various dischargers. It also
takes a considerable effort to police each of these dischargers.
In addition, this approach may not lead to the most efficient attainment of the
goal as it assumes that each discharger can achieve its permit limit with an efficient utilization of its resources. More important, once the individual permit limit
is achieved, there is no incentive to achieve a lower discharge. There is no penalty,
but likewise there is no reward for lowering the discharge below the permitted level.
Perversely, there may not be an additional penalty for massive failure to achieve a
limit as compared to barely missing a permit limit.
If any discharge of a pollutant is considered unacceptable, regulations have been
enacted that banned the use of a given chemical. This approach was taken with DDT
(dichlorodiphenyltrichloroethane), which was found to bioaccumulate and threaten
reproduction of raptors, as publicized in Rachel Carson’s 1962 book Silent Spring,
and the banning of ozone-depleting chemicals such as chlorofluorocarbons.
In recent years, alternative market-based approaches for achieving environmental
protection have evolved. This chapter reviews these approaches and how they might
apply to a program aimed at reducing or eliminating the use of toxic chemicals.
COMMAND WITHOUT CONTROL
In command-and-control environmental protection, the overall limit on pollution
is determined and allocated to each discharger through individual permits. Some
dischargers may require little effort or money to achieve this limit, whereas others
229