The Price-Standard Approach to Environmental Policy

Abstract

Similarly to the command-and-control policy, the price-standard approach focuses on attaining certain environmental standards. In contrast to the command-and-control policy, which refers with its integrated approaches directly to a (partial) solution of the allocation problems, the price-standard approach is more oriented towards internalizing the environmental effects through completing the market system. As is known from Part II, this can be achieved by means of a Pigou Tax, which can be interpreted as the ``equilibrium price{''} on an artificial market, or by establishing a market for tradeable certificates. As is the case with the integrated approaches, these instruments prove helpful in making decentralized information available for individual decisions. Besides some theoretical investigations, this chapter analyzes various practical approaches, including ecological tax reforms, the EU Emission Trading System, and the attempt to introducing a cap and trade policy in the US.