International Experiences with Economic Incentives for Protecting the Environment

managing the environment, including air and water quality, water quantity, solid and hazardous wastes. It represents an update and extension of one chapter in the 1997 report by Anderson and Lohof to the US Environmental Protection Agency. That report found widespread use of economic instruments for managing the environment, including some applications not observed in the United States. Seven years later, this report identifies new instruments, more widespread application of older instruments, and greater acceptance of incentive-based mechanisms in environmental management. This report can also be regarded as an addition of international experience to a 2001 EPA report on the US experience with using economic incentives and follows the same basic organization. Market Based Instruments (MBIs), and Economic Incentives (EIs) more broadly, have a number of advantages over traditional command and control (CAC) methods for controlling pollution. One, these tools give those responsible for sources of pollution (hereafter referred to as “sources” or “polluters”) an incentive to reduce pollution below permitted amounts when it is relatively inexpensive to do so. That feature, in turn, provides a motivation for sources to become smarter regarding pollution control options and costs. Technological improvement and innovation will b