Instrument Choice in Environmental Policy

The choice of pollution control instrument is a crucial environmental policy decision. We examine the extent to which various environmental policy instruments meet major evaluation criteria, including cost-effectiveness, distributional equity, the ability to address uncertainties, and political feasibility. Instruments considered include emissions taxes, tradable emissions allowances, subsidies for emissions reductions, performance standards, mandates for the adoption of specific technologies, and subsidies for research toward new, “clean” technologies. We consider policies that address pollution externalities and policies that deal with market failures associated with efforts to invent or deploy new…