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The United States Experience with Economic Incentives to Control Environmental Pollution (1992)

Paper Number: EE-0216

Document Date: 07/01/1992

Author(s): Alan Carlin

Subject Area(s):

Economic Incentives

Keywords:  Incentives, Pollution Fees, Charges, Taxes, Trading and Marketable Permits, Deposit-Refund Systems, Liability, Information, Subsidies, Voluntary Programs


This report reviews and assesses the U.S. experience with using economic incentives to control pollution at all levels of government. 

This report examines that record, highlighting applications of emission and effluent fees, charges for solid waste disposal, marketable permit systems for air and water pollution, deposit-refund systems, and information and liability mechanisms. All satisfy the basic requirement that an incentive provide a continuous signal to pollution generators to be aware of and act on opportunities to reduce releases of pollution to the environment.

The report first reviews the available information on the economic efficiency and environmental effects of economic incentives in general. The literature uniformly finds that economic incentives should be much more economically efficient in controlling pollution than the traditional command-and-control approaches. Some studies, however, indicate that the cost savings actually realized have fallen short of those predicted by these studies. Economic incentives should be particularly efficient when diverse sources of pollution are involved which are most efficiently controlled using little-known technology. In addition, incentives provide a stimulus to innovation and technical change. The evidence on the environmental effects of economic incentives, while much less extensive than that on economic efficiency, suggests that incentives mechanisms are fully compatible with environmental objectives.

Report available from EPA's National Service Center for Environmental Publications.

An updated and expanded report was produced in August, 1997 (EE-0216A).  In January, 2001, a third and further expanded version was issued (EE-0216B).

This paper is part of the  Environmental Economics Research Inventory.

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