Bren School OF ENVIRONMENTAL SCIENCE & MANAGEMENT
University of California, Santa Barbara
Santa Barbara, CA 93106-5131
August 24, 2003
Have Market-Based Incentives in Environmental Regulation Worked?
Over the weekend of
August 23 and 24Twenty-one of the nation’s leading researchers in
environmental regulation assembled this weekend to examine how well the
regulatory innovations of the 1990s have actually worked. The workshop was entitled “Twenty Years of
Market-based Instruments for Environmental Protection: Has the Promise Been
Held at the Bren School of Environmental Science & Management at the University of California, Santa Barbara, the workshop featured an unusual combination of lawyers and economists, who presented prepared papers and then fielded questions and defended their research with discussants.
this workshop together expecting
confirmation that economic incentives for environmental
protection had been overhyped, and that we would find that the promise was
not delivered,” said Charles Kolstad,
Professor of Environmental
Economics & Policy at the Bren School and one of the organizers. “In fact, a number of authors found the opposite.
Economic incentives are viewed as helping lower the cost of environmental
regulations. And many argued that
environmental protection was actually higher with economic incentives than
with more conventional technology-based incentives.”
The background for the workshop is this. Efforts to comply with new federal
environmental requirements during the 1980s yielded experimentation with
market-based instruments (MBI) for pollution control, particularly in the United
. The Clean Air
Act Amendments of 1990 introduced a major program for trading sulfur dioxide
emissions. Additional trading programs
for better managing natural resources followed, including those for fisheries
and wetlands. Overall, the 1990s saw a
tremendous expansion of MBI programs.
2002, the European Union decided to introduce the biggest trading program in
the world: trading greenhouse gas reduction obligations. Th
is and other
programs have generated a great deal of optimism and widespread acceptance of
the superiority of MBI over “command-and-control” regulations—in which specific
behaviors are mandated regardless of individual context—for managing natural
environments. The time was right to
look at the results of these programs and determine their effectiveness.
workshop papers and discussions were particularly relevant: both President
n Skies and Healthy Forests initiatives,
which appear environmentally proactive but many argue will result in greater
environmental degradation in the long run, have been front and center in the
news this past month. Against
this political background, workshop topics included a comparison of national
and international programs, the effectiveness of tradeable permits, specific
markets such as solid waste, agriculture, and wetlands, and the effectiveness
of specific initiatives and programs.
evaluated successful and unsuccessful models of economic incentives.
The sulfur dioxide emissions trading program, which occurs inter-state,
is widely considered to be successful, principally because it allows individual
entities to craft the solutions that work best for them.
The Los Angeles RECLAIM, by contrast, has been far less successful,
because it is less
flexible with regard to both participants and program requirements.
Market incentives for each pollutant or project must be assessed uniquely. One participant, for example, presented on why incentives in agriculture—such as subsidies for not farming depleted soil—won’t work as well as incentives like trading credits do for polluters. “Trading” wetlands areas, for another example, must be carefully monitored to avoid patchworking that results in nonviable habitats.
The edited papers will ultimately be published in a book.
Market Incentives Workshop was organized by Professor
Jody Freeman, Professor of Law, School
of Law at UCLA and Associate Dean for Law and Policy at the Bren School, and
Professor Charles Kolstad Donald Bren Professor of Environmental
Economics & Policy at the Bren School.
Robert Stavins from Harvard University,
Nathaniel Keohane from Yale University, Winston Harrington from Resources For The Future, Maureen Cropper from the
World Bank, Jim Salzman of American University, Juan Pable Montero
from the Universidad of Chile, Catherine Kling
Robert N. Stavins, Harvard University. Discussant: Daniel Farber, University of Minnesota.
“Market-Based Environmental Policies: What Can We Learn from U.S. Experience and Related Research?”
Winston Harrington, Resources for the Future. Disussant: David Driesen, Syracuse University School of Law.
“International Experience with Competing Approaches to Environmental Policy: Results From Six Paired Cases”
Thomas Tietenberg, Colby College. Discussant: Jim Salzman, American University.
“The Tradable Permits Approach to Protecting the Commons: What Have We Learned?”
Nathaniel Keohane, Yale University. Discussant: Maureen Cropper, World Bank, University of Maryland.
“Environmental Impacts of Policy-Directed Technique Choice: The 1990 Clean Air Act and the Distribution of Sulfur Dioxide Emissions”
Richard G. Newell, Resources for the Future. Discussant: Denny Ellerman, MIT.
“The U.S. Experience with the Market-Based Phasedown of Lead in Gasoline”
Jim Salzman, American University. Discussant: Jason Johnston, University of PA Law School.
“Net Loss: Instrument Choice in Wetlands Protection”
Juan Pable Montero, Universidad of Chile. Discussant: J.R. DeShazo, UCLA.
“Tradeable Permits with Incomplete Monitoring: Theory and Evidence"
David M. Driesen, Syracuse University College of Law. Discussant: Magali Delmas, UCSB.
“Design, Trading, and Innovation”
Catherine Kling, Iowa State. Discussant: Kathleen Segerson, University of Connecticut.
“Command and Control vs. Market-Based Instruments in Agriculture”
Denny Ellerman, MIT. Discussant: Nathaniel Keohane, Yale University.
“Are Tradeable Permits More Environmentally Effective than Command-and-Control?"
Peter Menell, UC Berkeley School of Law. Discussant: Michael Gerrard, Arnold & Porter.
“The Municipal Solid Waste 'Crisis' in Retrospect: A Success Story for Market-Based Mechanisms”
Kathleen Segerson, University of Connecticut. Discussant: Winston Harrington, Resources for the Future.
“An Assessment of Voluntary Approaches to Environmental Protection: Evidence from the Clean Charles 2005 Project”
Jason Johnston, University of PA Law School. Discussant: Richard Newell, Resources for the Future.
“Marketable Environmental Use Rights and the Location of Economic Activity: Trading, Tipping, and the New Economic Geography”
Daniel Farber, University of Minnesota. Discussant: Peter Menell, UC Berkeley School of Law.
“Legal Constraints on Environmental Trading Systems”
Michael Gerrard, Arnold & Porter. Discussant: Tom Tietenberg, Colby College.
“The Pervasive and Sometimes Perverse Effects of Implicit Economic Incentives: A Practitioner's Perspective”