Instrument Choice in Environmental Policy

Ian Parry () and Lawrence H. Goulder

Discussion Papers from Resources For the Future

Abstract: We examine the extent to which various environmental policy instruments meet major evaluation criteria, including cost-effectiveness, distributional equity, minimization of risk in the presence of uncertainty, and political feasibility. Instruments considered include emissions taxes, tradable emissions allowances, subsidies for emissions reductions, performance standards, technology mandates, and research and development subsidies. Several themes emerge. First, no single instrument is clearly superior along all the criteria. Second, significant trade-offs arise in the choice of instrument; for example, assuring a reasonable degree of distributional equity often will require a sacrifice of cost-effectiveness. Third, it is possible and sometimes desirable to design hybrid instruments that combine features of various instruments in their “pure” form. Fourth, for many pollution problems, more than one market failure may be involved, which may justify (on efficiency grounds, at least) employing more than one instrument. Finally, potential overlaps and undesirable interactions among environmental policy instruments are sometimes a matter of concern.

Keywords: emissions control instruments; cost-effectiveness; distributional burden; induced innovation (search for similar items in EconPapers)
JEL-codes: Q58 H23 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
Date: 2008-04-01
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Journal Article: Instrument Choice in Environmental Policy (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:rff:dpaper:dp-08-07

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