On This PageMay 1992, No. 57

This Chicago Fed Letter describes the market based approach to pollution control and assesses the new acid rain legislation as a prototype.

A Market Based Approach to Cleaner Air
Last Updated: 04/15/92
Several new programs aimed at protecting the environment and human health have been initiated under the 1990 Amendments to the Clean Air Act (CAA). According to official estimates, the annual direct costs of these regulatory programs will be around $20 billion but other estimates are much higher. In addition to the direct costs of abatement, the economy will undergo difficult adjustments to changes in prices and wages. Some of these costs of pollution control will be mitigated by the recent adoption of a different approach to environmental regulation. The new Title IV of the 1990 CAAAmendments has introduced the market based approach for controlling sulfur dioxide (SOJ emissions instead of continuing to rely on the so-called "command and control" approach which had been proposed in the 1980s for acid rain control. Title IV can potentially serve as a model for future market based pollution control programs, but this Title has unique features.