Environmental Instrument Choice in a Second-Best World: A Comment on Professor Richards

Abstract

"Economists and legal scholars have long touted the efficiency advantages of market-based approaches to environmental protection -- particularly effluent taxes and tradeable permits -- over traditional command-and-control regulatory approaches such as technology-based standards. Recent successful experiments with tradable permitting, most notably in the acid rain program of the 1990 Clean Air Act Amendments, have buoyed their claims that market-based approaches can achieve society's environmental protection goals at far lower cost than command-and-control regulations. According to some estimates, the acid rain program's sulfur dioxide trading program has saved $97 million or 13 percent of compliance costs (in 1995), compared to a non-tradable quota system. This success, along with various other studies suggesting that 'market-based' approaches have general efficiency advantages over command-and-control regulation, have led policy analysts and legal scholars to advocate market-based approaches for all manner of environmental protection and resource conservation activities. Some go so far as to argue that the entire regulatory system should be overhauled; presumptively 'inefficient' command-and-control programs should be completely replaced with the 'next generation' of 'market-based' environmental policies."