The Delicate Balance of Environmental Policy

Today, there seem to be an insurmountable number of environmental dilemmas creeping up, which begs the question of how they will ever all be dealt with. Environmental policy is often complicated and it often takes a very specific approach to come up with a solution for these problems. Often, the solution lies in either command-and-control policies, or market-based solutions. Command-and-control policies are cut-and-dried. A limit is set, and those who exceed the limit pay a hefty fine. Market-based solutions allow for more flexibility and creativity, and provide incentives to not only meet a specification, but to go above and beyond. Depending on the situation, one method is often more effective than the other. 

For example, the industrial park up the road is infamous for dumping waste into the river. For years, the command-and-control policy has allowed a certain amount of waste to be deposited into the river, but it can be hard to monitor exactly how much waste they are disposing of, as often, this information comes from the company itself. Regardless, the company and the government are both content with the agreement, and there seems to be no need to improve on the situation. The company is happy, the government is happy, and everyone knows what to expect. Aside from the marginal cost from each source, there is no fluctuation. 

With a command-and-control policy, there is also no need for innovation. These methods are costly, demanding, and aren't tailored to fit each specific source. 

That's where incentive-based solutions come in handy. The incentive, which could be a subsidy, a tax credit, a Pigouvian pollution tax, a deposit/refund program, or an emissions trading program, allows each individual or firm a different approach to their pollution. In the situation of the industrial park, an effective way to limit their pollution would be to apply a Pigouvian pollution tax. With this method, the company is taxed an amount that equals the cost of their pollution. With this solution, the full cost of the pollution is internalized, forcing them to reevaluate their disposal methods, and perhaps even come up with some innovative way to reduce or eliminate their pollution. 

Another effective solution would be marketable permits, which can be purchased to allow a certain amount of pollution. If a firm purchases ten permits, but only produces the pollution allowed for two, the remaining permits can be sold. If they produce the pollution allowed for twelve permits, they can purchase two. Although this method isn't quite as environmentally friendly, it still allows for economic flexibility and increased creativity. With either method, the firm is in control of their own pollution, and most of the time, control results in empowerment. 

It's not that command-and-control policies can't be used efficiently, but in order to be efficient, the benefits must exceed the costs. If the marginal cost of a source is the same across the boards, a command-and-control policy would be effective. Similarly, if a pollutant is highly toxic, the benefits of stopping the pollution would certainly outweigh the costs. 

In this day and age, innovation is what has kept us from completely destroying our planet. Ironically enough, it is also what is destroying our planet. It seems as if "going green" is almost as big of a revolution as the industrial revolution. Let's hope green thinking keeps on spreading.