Emissions Trading, An Exercise in Reforming Pollution Policy

By T. H. Tietenberg | Go to book overview

3 / The Potential for Cost Savings

The theory in the preceding chapter provides a convincing basis for believing that the traditional command-and-control approach is not and cannot become cost effective. The amount of information required by the regulatory authority if it is to establish a set of cost-effective emission standards is so high as to preclude a cost-effective outcome. In contrast, because the information requirements for initiating a transferable permit system are lower, cost-effective permit systems are, in theory at least, a distinct possibility.

As interesting as these theoretical results are, they provide an incomplete guide to regulatory reform. Because any change in policy has its own set of costs, it is difficult to overcome the inertia of the status quo. New grounds for legal challenge are exposed. Bureaucratic staffs trained in one set of procedures must learn new ones. The comfort of familiarity is lost to both regulators and sources.

In order to overcome this inertia, successful reforms usually involve only a small departure from the traditional approach in order to hold down the costs of change as perceived by the participants. The EPA emissions trading program satisfied this condition because it built upon the traditional approach. Emission reduction credits are a complement to, not a replacement for, the traditional approach.

Successful reforms must also promise benefits substantial enough to outweigh any frictional costs of moving away from a traditional approach. The theoretical models explicated in chapter 2 have made it clear that the benefits to be realized from this reform (in the form of reduced compliance costs) are positive, but these models are incapable

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Emissions Trading, An Exercise in Reforming Pollution Policy
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Preface xi
  • Abbreviations xiv
  • 1 / Introduction 1
  • References 13
  • 2 - /The Conceptual Framework 14
  • References 35
  • 3 - The Potential For Cost Savings 38
  • Summary 56
  • 4 - The Spatial Dimension 60
  • Summary 89
  • 5 - Distributing The Financial Burden 93
  • Summary 120
  • References 123
  • 6 - Market Power 125
  • Summary 145
  • 7 - The Temporal Dimension 149
  • Summary 165
  • 8 - Enforcement 168
  • Summary 184
  • 9 - Evaluation and Proposals For Further Reform 188
  • Concluding Comments 213
  • References 214
  • Index 217
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