There is general agreement that we must control pollution of our air, water, and land, but there is considerable dispute over how controls should be designed and how much control is enough. The pollution control mechanisms adopted in the United States have tended toward detailed regulation of technology, leaving polluters little choice in how to achieve the environmental goals. This “command-and-control” strategy needlessly increases the cost of pollution controls and may even slow our progress toward a cleaner environment.

In 1970, popular concern about environmental degradation coalesced into a major political force, resulting in President Richard Nixon’s creation of the federal Environmental Protection Agency (EPA) and the first of the major federal attempts to regulate pollution directly—the Clean Air Act Amendments of 1970. Since then, the federal role in regulating pollution has grown immensely, unleashing many regulatory responsibilities on the EPA and a cascade of regulations on local governments and the business community. But that has begun to change somewhat as environmentalists have increasingly realized that markets can work to allocate pollution reduction responsibilities efficiently among firms and across industries. Although the command-and-control approach is still the norm, environmental lobbyists and legislators have, on occasion, considered market-based approaches to pollution control. Most of the proposals for limiting global warming, for example, explicitly include market-based approaches for controlling carbon dioxide emissions.