As anyone who has tried it knows, regulatory reform is easier said than done. Reform concepts which appear so disarmingly simple in the abstract world of theory turn out to be distressingly complex when applied. Regulations which from a distance seem so inherently unsupportable, upon closer inspection are discovered to have significant bases of support among various special interest groups. Since the status quo has so much inertia, many promising ideas end up strewn along the wayside. Survivors are few and far between.
What is the price of survivorship? How much of the original idea has to be sacrificed as the cost of gaining a place in the sun? One way to begin to answer these questions is to examine closely those reform packages, such as the emissions trading program, that have survived.
From my perspective, the emissions trading program is a particularly interesting example of a survivor because it alters the way regulators control air pollution. Historically, the political process had not only been insensitive to the point of view that environmental policy could be improved by a greater reliance on economic incentives, but, on those few occasions when serious attempts were made to incorporate economic incentives, it was downright hostile. In light of this hostility, the enduring role forged for the emissions trading program, an approach that relies heavily on economic incentives, is all the more remarkable.
In this book I attempt to evaluate the emissions trading program using two different benchmarks: (1) Did its introduction improve upon the policy that preceded it? and (2) How closely did it fulfill the basic objectives which motivated the program? The former benchmark is