orders. Fourth, distributional issues on both the benefit and cost sides of the
regulatory equation have gained heightened attention, often under the rubric
of "environmental justice." Fifth, concerns about global climate change have
emerged as an important focal point of many policy debates. Sixth and
finally, there has been an upsurge of recycling activity and a related new focus
of federal waste management policy.

The most striking change that has taken place since the first edition of this
book is with regard to the employment of economic-incentive or market-based
environmental policy instruments, approaches that encourage behavior
through market signals rather than through explicit directives regarding pollu-
tion control levels or methods. These policy instruments, such as tradable per-
mits, pollution charges, and deposit--refund systems, are often characterized as
"harnessing market forces" because, if they are well designed and imple-
mented, they encourage firms (and/or individuals) to undertake pollution con-
trol efforts that are in their own interests and that collectively meet policy
goals. In political terms, market-based instruments have by now moved center
stage, and policy debates look very different from when these ideas were char-
acterized as "licenses to pollute" or dismissed as impractical. Indeed, market-
based instruments often seem to have become the new conventional wisdom
among policymakers in the environmental realm, at least in the United States.

In 1989, the federal government set up a tradable permit system and lev-
ied an excise tax on specific chlorofluorocarbons to meet international obli-
gations established under the Montreal Protocol that limit the release of
chemicals that deplete stratospheric ozone. One year later, the U.S. Environ-
mental Protection Agency (EPA) began to allow averaging, banking, and
trading of credits for nitrogen oxide and particulate emissions reductions
among eleven heavy-duty truck and bus engine manufacturers. Also enacted
in 1990 was the most important application ever made of a market-based
instrument for environmental protection: the tradable permit system
intended to reduce sulfur dioxide emissions by 10 million tons below 1980
levels. A robust market of bilateral sulfur dioxide permit trading gradually
emerged, resulting in cost savings on the order of $1 billion annually ( Carlson
and others 2000). Subsequently, twelve northeastern states and the Dis-
trict of Columbia, under EPA guidance, implemented a regional nitrogen
oxide cap-and-trade system. Potential compliance cost savings of 40-47%
have been estimated for the period 1999-2003 ( Farrell and others 1999).

In addition, considerable action with market-based instruments has
taken place at the state and local level. The South Coast Air Quality Manage-

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