Project Abstract

Moving to markets in environmental regulation involves a shift from traditional command-and-control approaches to market-based mechanisms for achieving environmental protection and conservation goals. This transition is driven by the recognition that market instruments can potentially offer more cost-effective and efficient solutions to environmental challenges compared to traditional regulatory methods. By creating economic incentives for polluters to reduce their emissions or adopt environmentally friendly practices, market-based instruments seek to internalize environmental costs and promote sustainable behavior. Various market-based mechanisms have been implemented in environmental regulation, including emissions trading systems (ETS), pollution taxes, subsidies, and green certificate schemes. Emissions trading systems, such as the European Union Emissions Trading System (EU ETS), establish a cap on total emissions and allow companies to trade emission allowances, incentivizing emission reductions where they are most cost-effective. Pollution taxes impose a price on pollution, providing a direct economic incentive for polluters to reduce their emissions. Subsidies offer financial support for adopting clean technologies or practices, promoting innovation and sustainable development. Green certificate schemes, like renewable energy certificates, create a market for renewable energy generation, encouraging investment in clean energy sources. The effectiveness of market-based environmental regulation depends on various factors, including the design of the instruments, regulatory oversight, market transparency, and stakeholder engagement. Properly designed market mechanisms should set clear environmental goals, establish credible monitoring and enforcement mechanisms, and ensure equitable distribution of costs and benefits. Regulatory oversight is crucial to prevent market manipulation, fraud, and other undesirable outcomes. Transparent markets facilitate price discovery and promote efficient allocation of resources. Stakeholder engagement is essential to garner support for market-based approaches and ensure that diverse perspectives are considered in the regulatory process. Despite the potential benefits of market-based environmental regulation, challenges and limitations exist. Market instruments may not always align with social or equity considerations, leading to distributional impacts or environmental justice concerns. Market failures, such as information asymmetry, externalities, and monopolistic behavior, can undermine the efficiency and effectiveness of market mechanisms. Political resistance, industry opposition, and regulatory complexity may also hinder the adoption and implementation of market-based approaches. In conclusion, moving to markets in environmental regulation represents a significant paradigm shift towards more flexible, cost-effective, and innovative approaches to address environmental challenges. By harnessing the power of markets to internalize environmental externalities and promote sustainable practices, market-based mechanisms have the potential to drive environmental progress and achieve long-term conservation goals.

Project Overview

INTRODUCTION

Over the last decade, market-based incentives have become the regulatory tool of choice when trying to solve difficult environmental problems. They are widely viewed as more efficient than traditional command and control regulation. This collection of essays takes a critical look at this question, evaluates whether the promises of market-based regulation have been fulfilled, and recommends future research that no longer pits one kind of approach against the other, but instead examines their interaction and compatibility.

This book had its genesis in conversations that took place over a period of months in 2002, conversations that were helped along by fine Santa Barbara County wine. Our topic was environmental regulation—in particular the long-standing debate over command and control versus market-based environmental regulation—and our discussions made us wonder: How could two scholars—one of us an economist, the other a lawyer—be so concerned about the same problem yet have such different perspectives? The literatures we drew on seemed to have little in common, and our normative frameworks seemed like ships passing in the night. Were we typical? In what ways did economists think about these regulatory design issues differently than legal scholars? Beyond the differences in approach, what did each field actually know? Now that we had some experience with market-based regulations, what did the experience tell us? In particular, if we could draw on the most interesting and recent work in both fields, what would it tell us about how well market instruments had performed, relative to prescriptive regulation, to date? To answer these questions, we invited some of the brightest minds concerned with environmental regulation, from both economics and law, to prepare papers and convene for a focused one-day workshop in Santa Barbara in August 2003. Our hope was that the whole emerging from such a dialogue would be much more than the sum of the two disciplinary parts.

The result was quite remarkable. Over the course of the very long day, the intensity never waned. The conversation was relentlessly interesting and truly cross-disciplinary. There were fascinating moments of translation and synergy, agreement and disagreement. The interchange frequently surprised the group and led to questions and issues we had not . . .