The Environment Goes to Market: The Implementation of Economic Incentives for Pollution Control.

• Author: Bornstein, Irwin B.

Government regulators are using economic incentives more and more in the area of environmental management, as one of the ways by which governments are "reinventing" themselves. In The Environment Goes To Market, the NAPA presents an analysis of the use of economic incentives for environmental regulation in four case studies: the air pollution trading program in the Los Angeles metropolitan area operated by the South Coast Air Quality Management District (SCAQMD); the national pollution charge system of Russia; the recycling initiative of King County, Washington; and the deposit-refund system of the State of Michigan. The authors have selected four excellent examples; but unfortunately, the book includes too much technical information that blurs its essential message: economic incentives can be effective if implemented properly.

In Chapter 1, the authors lay out well the basic concept underlying economic incentive programs: with the proper monetary incentives, the private decision maker, who has more complete information about their operations than do the government regulators, will make the appropriate decisions to effect societal goals. Such programs offer several advantages over traditional command-and-control regulation, including greater administrative simplicity. The authors are convincing in indicating that such programs are not panaceas; rather, they should coexist alongside more traditional regulation.

Each of the four case studies in Chapters 2 and 3 provides an educational view of how economic incentive programs can be designed. The appropriate highlights can be gleaned by careful reading. The SCAQMD air pollution trading program is an example of government limiting the allowable supply of air pollutants, which creates incentives for companies to reduce their pollution by the means they determine and the opportunity to sell valuable credits to others who either cannot or choose not to reduce their emissions. The authors effectively describe the challenges SCAQMD faced in bringing the public into the process and changing the organizational structure to make it more customer-oriented.

The Russian pollution charge program, begun in 1991, is an example of increasing the price of a pollutant via a tax rather...