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Market-Based Approaches to Environmental Protection
fees, it is relatively straightforward, more immediate, and less costly compared to
enforcing rules and regulations under the command-and-control approach.
In addition, program efficiency in both time and cost is gained, as opposed to a
command-and-control approach, because firms have flexibility in deciding how to
implement emission reductions. Specifically, those who are able to reduce pollution the cheapest will likely do so first and without specific and timely enforcement
program monitoring and prosecution.
From the industry perspective, firms subject to pollution taxes or fees have an
incentive to develop cleaner technologies, thus reducing their “cost of pollution”
over time. Firms that pay the tax or fee and pass their costs on to customers may
ultimately be confronted with a falling demand for their products provided there are
cheaper, less-polluting, substitutes available. This in turn will provide firms with
an incentive to alter their products and production processes to meet the altering
demand (Groosman 1999).
From the industry perspective, firms mostly view market-based approaches,
such as pollution taxes, to impose much greater costs on them than command-andcontrol policies (i.e., standards and voluntary agreements). In addition, although
this holds true for any type of nationally implemented environmental regulation,
from the industry perspective, implementing an environmental tax may damage
the competitive position of domestic industries in comparison with international
competitors. This is viewed as a temporary comparative disadvantage, however,
as the imposed tax may form an incentive for companies to improve, for example,
quality and the use of new technologies. In addition, a country that introduces
national policies to protect the environment will be more competitive when
international environmental regulation is implemented (Groosman 1999). The
economic impact on the affected companies or individuals is reduced if the fee
program is revenue neutral, with the fees collected returned to the users in rebates
to reward reductions in emissions or grants or loans to be used to invest in equipment designed to reduce the pollution. One proposed use of a carbon tax would
be a rebate to individual families, not to buy the fuel but to be invested in more
fuel-efficient vehicles.
New Jersey enacted a fee system with money collected going to a Pollution
Prevention Fund and not to the general treasury. Funding for pollution prevention is
dedicated for that function and cannot be used for other purposes.
BIBLIOGRAPHY
Carson, R. 1962. Silent Spring. Boston: Houghton Mifflin.
Groosman, B. 1999. 2500 Pollution Tax. Ghent, Belgium: Center for Environmental Economics
and Management Faculty of Economics and Applied Economics, University of Ghent.
Humboldt State University. 1997. Environmental Economics: Pollution. http://sorrel.
humboldt.edu/~economic/econ104/pollute/ (accessed January 21, 2010).
Swift, B. 2000. How Environmental Laws Can Discourage Pollution Prevention. http://
www.ppionline.org/ppi_ci.cfm?knlgAreaID=116&subsecID=150&contentID=1159
(accessed January 21, 2010).
Market-Based Approaches to Environmental Protection
fees, it is relatively straightforward, more immediate, and less costly compared to
enforcing rules and regulations under the command-and-control approach.
In addition, program efficiency in both time and cost is gained, as opposed to a
command-and-control approach, because firms have flexibility in deciding how to
implement emission reductions. Specifically, those who are able to reduce pollution the cheapest will likely do so first and without specific and timely enforcement
program monitoring and prosecution.
From the industry perspective, firms subject to pollution taxes or fees have an
incentive to develop cleaner technologies, thus reducing their “cost of pollution”
over time. Firms that pay the tax or fee and pass their costs on to customers may
ultimately be confronted with a falling demand for their products provided there are
cheaper, less-polluting, substitutes available. This in turn will provide firms with
an incentive to alter their products and production processes to meet the altering
demand (Groosman 1999).
From the industry perspective, firms mostly view market-based approaches,
such as pollution taxes, to impose much greater costs on them than command-andcontrol policies (i.e., standards and voluntary agreements). In addition, although
this holds true for any type of nationally implemented environmental regulation,
from the industry perspective, implementing an environmental tax may damage
the competitive position of domestic industries in comparison with international
competitors. This is viewed as a temporary comparative disadvantage, however,
as the imposed tax may form an incentive for companies to improve, for example,
quality and the use of new technologies. In addition, a country that introduces
national policies to protect the environment will be more competitive when
international environmental regulation is implemented (Groosman 1999). The
economic impact on the affected companies or individuals is reduced if the fee
program is revenue neutral, with the fees collected returned to the users in rebates
to reward reductions in emissions or grants or loans to be used to invest in equipment designed to reduce the pollution. One proposed use of a carbon tax would
be a rebate to individual families, not to buy the fuel but to be invested in more
fuel-efficient vehicles.
New Jersey enacted a fee system with money collected going to a Pollution
Prevention Fund and not to the general treasury. Funding for pollution prevention is
dedicated for that function and cannot be used for other purposes.
BIBLIOGRAPHY
Carson, R. 1962. Silent Spring. Boston: Houghton Mifflin.
Groosman, B. 1999. 2500 Pollution Tax. Ghent, Belgium: Center for Environmental Economics
and Management Faculty of Economics and Applied Economics, University of Ghent.
Humboldt State University. 1997. Environmental Economics: Pollution. http://sorrel.
humboldt.edu/~economic/econ104/pollute/ (accessed January 21, 2010).
Swift, B. 2000. How Environmental Laws Can Discourage Pollution Prevention. http://
www.ppionline.org/ppi_ci.cfm?knlgAreaID=116&subsecID=150&contentID=1159
(accessed January 21, 2010).