TABLE 1
SPECTRUM OF POLICY INSTRUMENTS WITH ECONOMIC INCENTIVES

CONTROL-ORIENTED

MARKET ORIENTED

LITIGATION-ORIENTED

Regulations
& Sanctions
General Examples

Charges,
Taxes & Fees

Market
Creation

Final Demand
Intervention

Liability
Legislation

Standards:

Government restricts nature and amount of pollution or resource use for individual polluters or resource users.

Compliance is monitored and sanctions levied (fines, closure, jail terms) for non-compliance.

Effluent or User Charges:

Government charges fee to individual polluters or resource users based on amount of pollution or resource use and nature of receiving medium.

Fee is high enough to create incentive to reduce impacts.

Tradable Permits:

Government establishes a system of tradable pollution or resource-use permits, auctions or distributes permits, and monitors compliance.

Polluters or resource users trade permits at unregulated market prices.

Performance Rating:

Government supports a labeling or performance rating program that requires disclosure of environmental information on the final end-use product.

Performance based on adoption of ISO 14000 voluntary guidelines.

Eco-labels attached to “environmentally friendly” products.

Strict Liability Legislation:

The polluter or resource user is required by law to pay any damages to those affected.

Damaged parties collect settlements through litigation and court system.

Specific Examples of Applications