Academic journal article Duke Environmental Law & Policy Forum

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

Academic journal article Duke Environmental Law & Policy Forum

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

Article excerpt

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.(1) Recent successful experiments with tradable permitting, most notably in the acid rain program of the 1990 Clean Air Act Amendments,(2) 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.(3) This success, along with various other studies suggesting that "market-based" approaches have general efficiency advantages over command-and-control regulation,(4) have led policy analysts and legal scholars to advocate market-based approaches for all manner of environmental protection and resource conservation activities.(5) 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.(6)

In response, other scholars have cautioned against the wholesale reformulation of environmental policy.(7) Steinzor has warned that "without dramatically expanding the resources available to federal and state regulators, and without placing challenging, new demands on pollution sources to track emissions and research their toxicological effects, the shift to the `next generation' of regulatory policy is likely to result in severe degradation of environmental quality."(8) Cole and Grossman have shown that command-and-control regulation can be efficient, and in some circumstances, more efficient than tradable permits or other market-based approaches.(9) And Driesen has argued that the presumed dichotomy between command-and-control and "market-based" approaches is overblown and prejudicial to policy making; he recommends replacing the dichotomy with "a more nuanced analytical approach to both traditional regulation and economic incentive programs."(10)

Now, Professor Richards, in Framing Environmental Policy Instrument Choice,(11) provides a framework for understanding the wide variety of circumstances in which alternative instruments for environmental protection might be preferred. His work emphasizes two important points: the range of policy choices is far broader than analysts often assume; and policy choices depend on a number of variables beyond cost-of-compliance, which has been the almost exclusive focus of economic literature on environmental instrument choice. Consequently, a "one-size-fits-all approach to instrument choice" cannot possibly succeed.(12) In the real, second-best world, first-best solutions may not be possible, let alone preferable.

Richards' general thesis seems beyond legitimate dispute. His taxonomy appears to provide a clear improvement over the more simplistic comparative environmental-policy analyses that he abjures. In his view, the economic literature on environmental protection has focused on too few policy options and has over-emphasized the differences among those options. Indeed, the distinction between command-and-control regulations and economic instruments, such as tradable permits, is "not as stark as it appears," because "most of the market approaches that have been used in the United States operate within the standard command-and-control framework."(13) As Cole and Grossman have observed, tradable permit programs are basically commands-without-control.(14)

More generally, it is a misnomer to refer to certain regulatory approaches as "market-based" or "incentive-based," implying that others are not. All regulatory approaches are designed to affect market behavior by creating incentives (of one kind or another) to reduce pollution levels. …

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