Traditional command and control policies required polluters to reduce emissions by installing specific technology in order to meet specific performance emission standards. However, opponents to the command and control mindset state that this form of regulation is inflexible and does not take into consideration that some industries are able to meet these targets at a much lower cost than others. Additionally, the command and control regulatory approach does not incentivize industries to innovate and reduce their environmental impacts by more than what is required by the standard.
Conversely, market-based approaches have been reported to provide greater flexibility for industry. However, it is necessary to address the type of pollutant being emitted, as there are some that need to be maintained at a very low level for health-related reasons. As such, it may be necessary to control these types of pollutants with command and control regulations in order to ensure that health-related thresholds are not breached. Greenhouse gases are not harmful on a localized basis. Their effects are only seen when they are globally mixed within the atmosphere and cause damage on a global scale. As such, many proponents claim that market-based regulatory approaches are particularly appropriate to reduce greenhouse gas emissions. Indeed, there is evidence to suggest that these policies provide greater compliance flexibility and can reach and improve environmental objectives at much lower overall costs.
One key aspect of these market-based policies is that they provide a financial incentive for industry to develop and deploy lower environmental pollution emitting technologies, whilst leaving the private market to decide which technologies can be expanded and utilized. Within this structure, each regulated industry is able to independently choose the most cost-effective method to achieve the required pollution abatement. As previously mentioned, some industries are able to reduce their pollution more easily and cheaply than others, due to the technology or equipment that they are using. This enables them to reduce their pollution more, therefore compensating for those industries who are unable to meet traditional command and control targets due to the costs involved. As such, the overall environmental target can still be achieved but at a much lower societal and industry cost. A good example of the success of market-based policies has been seen within the US. At the federal level, sulphur dioxide emissions have been reduced at a fraction of the original estimated cost. In addition, at state level, market-based approaches have been successfully incorporated into cap-and-trade and renewable energy programs to reduce nitrogen oxides and other greenhouse gases The following sections will consider two distinct examples of market-based policies that can control greenhouse gas emissions.
