Economic Incentives for Environmental Protection: Opportunities and Obstacles
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Description
The failings of state socialism in the former Soviet Union, Eastern Europe, and many developing countries have stimulated renewed appreciation of the economic and political virtues of competitive markets in harnessing the efforts of managers to the demands of consumers, promoting efficiency in resource allocation, stimulating innovation, and avoiding undue concentration of political economic power. Many nations have taken steps during the past twenty years to dismantle central planning, privatize state-owned enterprises, and reduce or transform government control of economic activity. Yet, during the same two decades governments have adopted and continually expanded far-reaching centrally planned command-and-control regulatory programs in order to limit air and water pollution, deal with toxic wastes, and solve other environmental problems. Seemingly oblivious to the inherent and well-documented failures of central planning, these programs aim to produce environmental quality by issuing detailed orders to thousands of individual facilities, prescribing their conduct in labyrinthine detail. This chapter seeks to help resolve this paradox by analyzing the advantages of economic incentive systems (EIS) for environmental protection including environmental taxes and tradable pollution quotas, identifying the types of environmental problems for which they are best suited, diagnosing structural factors that impede wider use of such instruments, and proposing regulatory reform strategies to promote such use. The traditional instrument of choice for all types of economic and social regulation has been command and control. During the past twenty years, however, governments have, in the context of economic regulatory programs, increasingly come to the conclusion that the failings of command and control are often more serious than the market failures that those programs were supposed to correct. Accordingly, governments have either substantially deregulated or shifted to more flexible structural strategies, such as reliance on competition policy rather than price and entry controls. Environmental and other forms of social regulation, however, have been viewed quite differently. Unregulated competitive markets can generate seriously excessive amounts of residuals, including pollution, hazardous waste, and other forms of environmental degradation. Such market failures are often much more serious than those addressed by economic regulation, justifying strong regulatory measures. This circumstance, however, cannot explain why governments have relied almost exclusively on command-and-control instruments to address environmental degradation, to the virtual exclusion of economic incentives systems (EIS) such as fees on pollution and tradable pollution quotas.
Source Publication
Environmental Law, the Economy and Sustainable Development: The United States, the European Union and the International Community
Source Editors/Authors
Richard L. Revesz, Philippe Sands, Richard B. Stewart
Publication Date
2000
Recommended Citation
Stewart, Richard B., "Economic Incentives for Environmental Protection: Opportunities and Obstacles" (2000). Faculty Chapters. 1699.
https://gretchen.law.nyu.edu/fac-chapt/1699
