Question

3. Economists have often proposed that market incentives (e.g., emission taxes and marketable permits) be used to replace the command-and-control (regulations or mandated technologies) approach typically employed by the EPA and state environmental agencies to reduce pollution. Discuss the benefits of using a market incentive approach instead of a command-and-control approach in terms of (1) economic efficiency and (2) the provision of incentives for the adoption of new technologies.

Answer 1

Answer. A change in the phsical, chemical or biological characteristics of the air, water or soil that can affect the health of all living things in a harmful manner. In economics, pollution is termed as any loss of human well - being arising from physical environmental changes.

Both Consumption and Production are importnant to develop an economy.

Types of instruments for changing Consumption and Production can be classified into two:

1: Command and Control Approaches

2. Economic Incentive or Market Based Bases Policies

Command and Control Approaches includes both technology and performance standards. These standards are imposed on producers / consumers in the form of maximum allowable discharges of known pollutants in to the air or water. It is very expensive and less flexible.

Whereas Economic Incentive approach provides business opportunities to the market in various ways and forces business to be efficient, competitive, result oriented with protecting the environment. In terms of economic efficiency this approach helps us in the following ways:

1. It minimises the cost by maximising the flexibility of producers responses. If the cost of production reduces that will help the producer to produce more goods and the commodities will be availabe in the market at an economic rate.

2. Innovative Environmental Strategies

3. Environmental taxation, Quantity rationing, performance bonds, deposit refund scheme, etc. The incentive based regulatory approach helps preventing environmental problems by providing inducements to encourage polluting entities to reduce pollution.

4. CFC trading : To protect the Ozone layer . The market formulates restirction on the production and consumption processes of CFC.

5. Helps in the supply of scarce resources through market barrier reductions. Distribution of water in a market based exchange facilitates use of water resources among competing users.

6. Tax Subsidy Combinations : For Eg: a beverage container recycling programme. Here, it helps to reduce the cost and subsidies to the consumer who are bringing the items for recycling.

7. Combining Standards and Pricing Approaches: Emission taxes restricts costs by allowing polluting sources to pay a tax on the amount they emit.

8. This approach will helps to the growth of sales

9. It will attract your customers and build up a good relationship as it benefits both the parties. Giving rewards always attract more customers. So consumption will increase. Also it will change consumer behaviour.

10. It is benefitable to the consumers apart from price. Consumers can save their money by giving back the used bottles, packets, covers to the shops.

Thus Market incentive based approach gives polluters an incentive to reduce pollution at a lower cost than the tax rate which will helps the production by reducing harmful effects on the environment.