The Use of a Tradable Permit System for the Control of River Pollution in Wuhan, China

Abstract

"As a typical external problem, environmental pollution cannot be brought under efficient control in a lassie fair economy. Early in the 1920s, Pigou (1924) suggested a levy on pollution to remove the difference between private and social costs, or external cost associated with environmental pollution. In theory, such a levy is capable of producing an optimum level of pollution, but in practice it has been hardly implemented due to the lack of information on external costs and constant erosion of its effectiveness by inflation and expansion of the economy. A command and control approach is able to protect the environment from excessive pollution, but it intervenes in the operation of the market and causes of inefficiency in environmental management. Late in the 1960s, the concept of pollution permits was proposed, which were defined in accordance with environmental standard and tradable in the market (Dales, 1968). In the early 1970s, the cost-effective nature of a pollution permit system was discussed and demonstrated using an equilibrium analysis (see, Baumol and Oates, 1988). However, this approach as a policy alternative was employed as late as in the 1980s when it was adopted by the USEPA for the control of waste water discharge and emission of air pollutants. In 1988, a pollution permit registration system was put into operation in China but the trade of permits has hardly been institutionalized ever since."