Should the government set pollution rates or allow the market to do it?

Question

How about transferable (saleable) pollution licenses?

Answer 1

This is an idea that is past due. Allow an overall rate of pollution and then let companies bid on the price to pollute. The licenses would be transferrable and would therefore end up in the hands of the business that can least efficiently stop pollution. It will still cause an overall reduction in pollution. Good idea.

Answer 2

Actually, transferable pollution liscences already exist and are actively traded between companies.

They have been around for quite some time. There are liscences that dictate how much air pollution a specific company can emit. For example - 1 liscence is good for 100 cubic tons of pollution. if a company has 3 liscences but only uses two, they can sell the third.

While this does not do much to cut pollution it is an effective way of preventing growth of pollutants.

Answer 3

This is a classical dilemma in economics: How to deal with and minimize social or external costs! In my opinion, this matter shouldn't be subjected to strict government intervention. It should be left for the free operation of the market or price mechanism. When the government sets pollution standards and uses them as a means of holding businesses accountable for the external costs they create, the standards are either set too low (too easy) or too high (too harsh), and in both extreme cases the most damaged businesses will be the small ones. Remember Adam Smith's quote: "Government is too strong to intervene in markets."

And about transferable pollution licenses, they are a good innovative idea and a clever method of reducing or eliminating external business costs. But the problem with that new idea lie in:
- The complexity of its practical implementation.
- The tendency of some firms to hitch-hike or to free-ride at the expense of others.
- The fact that this idea doesn't aim at preventing pollution at the first place (i.e.: it can be considered a reactive method, not a proactive one.)

Answer 4

The market won't set limits by itself. With profit as an ultimate motive, there's little room for concerns about the bigger picture. We must always assume that businesses will always do the most profitable thing & attempt to socialize risk while privatizing profits. Therefore, environmental issues will always fall into the lap of government.

As to whether there are marketplace solutions to reducing pollution, that would involve the government creating such a marketplace & designing it so that the goal of pollution reduction interferes as little as possible with profits (if it's going to be successful.) Pollution licenses might work, but only if the goal of reducing pollution is strictly monitored and enforced by the government, which means a highly regulated marketplace for those licenses (not the most conducive construct for profits, but it could still work.) Targeted tax incentives might be somewhat effective as well.

It's also important to keep in mind that our economy is competing for jobs with other countries that have little/no environmental protection laws. While I truly believe in the enforcement of strict environmental laws, we also have to keep this in mind. Ideally, we would try to balance the playing field with other countries by raising their standards rather than lowering ours, but that's a difficult diplomatic task to accomplish.