Market-Based Environmental Management: Issues in Implementation (CRS Report for Congress)
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| Release Date |
March 7, 1994 |
| Report Number |
94-213 |
| Report Type |
Report |
| Authors |
Environment and Natural Resources Policy Division |
| Source Agency |
Congressional Research Service |
Summary:
The acid rain title of the 1990 Clean Air Act Amendments authorizes the first nationwide system
for
trading the regional location and method of pollution control. This market-type mechanism, if
successfully implemented, could reduce the cost of compliance of meeting new limits on sulfur
dioxide emissions, the main precursor of acid rain.
Successful passage of the sulfur dioxide trading mechanism has invigorated efforts to add
similar mechanisms to the regulatory regimes for other environmental management areas.
Limitations of current regulatory approaches, complexity of remaining and emerging environmental
problems, and the attack on the Federal budget deficit make greater use of incentive-type approaches
to environmental management an attractive option, in some cases.
While existing regulatory systems have made measurable reductions in common air and water
pollutants, most observers agree that they have been less successful against complex problems
caused by toxics and by transformed or transported pollutants. As supplements to established
regulatory systems, market-based options often offer cost saving potentials, enhanced flexibility, and
increased effectiveness. Options include trading of permitted discharges or other types of resource
constraints or over control credits among sources; pollution taxes, fees, and charges; deposits and
refunds; and liability assignment and information disclosure. Particularly in situations where total
pollution loadings or other resource management objectives rather than ambient health standards
are the issue, greater consideration of regulatory financial burdens may be warranted. More
importantly, many environmental problems are too intertwined with everyday economic activities
to be managed effectively through highly centralized regulatory systems.
Proposals by the Clinton Administration for market-based environmental protection build on the
earlier efforts of Congress and the Bush Administration. The 103rd Congress is considering
market-based approaches in reauthorization for the Clean Water Act. Some in Congress also
propose market-type mechanisms for dealing with the potential threats of global warming, for
encouraging the recycling of solid waste, and for improving management of some natural resources.
As attractive as these mechanisms may be in concept, their implementation occurs within a well
established regulatory context involving all three levels of government, international treaty
obligations, agency capabilities, and the private sector. It is the implementation concerns that will
largely shape the debate in Congress and help determine which innovations ultimately become public
policy. For example, the political consensus for taxing pollution rests more on raising revenue than
on any attempt to charge for the external costs of pollution. Similarly, emission reduction credit or
allowance trading systems may offer politically attractive ways to share the financial burdens of
policy changes while also reducing compliance costs.
