To What Extents Are Market-based Environmental Policy Instruments Replacing Command-and-control Regulations?

In traditional environmental governance, command and control (C&C) regulations were viewed as the popularist method of environmental regulation, and up to the 1970s, the idea of apportioning tradable privilege to emit pollutants was very contentious (Schmalensee and Stavins, 2015). High levels of C&C allows for fast, predictable outcomes. However, inefficiency in regulations, and reduced public belief in the ability of their government to solve environmental issues led to the emergence of more market-based policy instruments (MBIs) (Jordan, 2005). Rather than direct rule and regulations set by state bodies, MBIs act to exploit the market mechanisms with the aim of altering the incentive structure of businesses or individuals. They comprise of interventions targeting environmental issues, through institutions and political actors that can shape governance (Lemos and Agrawal, 2006). Gómez-Baggethun and Muradian (2015) argues policymaking to be in a period of evolution towards market-based instruments. However, others suggest that there is a lack of empirical evidence to definitively make that suggestion (Jordan, 2005).

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It has been claimed that command and control is fundamentally inept in its ability to enforce environmental development; suggesting its social costs outweighs ecological benefits (Segerson and Tietenberg, 1986). In addition, Gómez-Baggethun and Muradian (2015) argue a shift in the market away from C&C can be viewed as in accordance with supposed failures to correctly value ecosystem services. Some even compare it with some formula of ‘Soviet style’ directive; debating whether the regulation is intrinsically undemocratic (Stewart, 1993). However, this view is short-sighted, as environmental issues are often discrete to communities and thus, so should the regulation (Blackman, Li and Liu, 2018). Command and control can often be the most efficient strategy, a frequently referenced case being the Montreal Protocol, which successfully reduced the global levels of chlorofluorocarbons, through a system of International monitoring and national regulation.  (Falkner, 2005). Furthermore, in the case of Greene (1990), Corporate Average Fuel Economy (CAFE) regulation was shown to be twice more important than gasoline prices in incentivising the production of more fuel efficient vehicles. This serves as a clear example where the success of C&C overshadows MBIs in its effectiveness to bring about developmental change.

Case studies regarding the implementation of ‘green taxes’ in Denmark and the Netherlands, in the 70s and 80s respectively, have demonstrated the substantial benefits of MBIs. From creating a price incentive against environmentally harmful goods and services, ‘green taxes’ accounted for 4% of both nations GDP by 2011 (Rademaekers et al 2011). However, a lack of regulation causes shortcomings within MBIs, as industries are not enforced to reduce pollutants. The EPAs emissions trading programme faced criticism under these grounds, as their allocation of control was not sustainable (Atkinson & Tietenberg, 1991). Furthermore, MBIs have been criticised as a result of perpetuating pre-existing environmental issues through slow implementation and limited ‘windows of opportunity’ (Seroa da Motta, 2006 and Lamperti, Napoletano, and Roventini, 2015). For example, State support for price incentivised timber mining was promoted in Brazil, leading to overexploitation of forestland and extreme losses in biodiversity (Seroa da Motta, 2006). A similar case is seen in the distribution of fishing permits outweighing available stocks, and subsequently reducing global fish populations (Morthorst, 2001 and Acheson, Apollonio and Wilson, 2015). These cases providing evidence that points to the externalities surrounding MBI, and it is argued they can be regulated using C&C mechanisms. 

Research by Harrington and Morgenstern (2004) identified the substantial benefits that a combination of policy mechanisms can have on environmental development, stating how MBIs usually begin with C&C. Thus phasing out C&C mechanisms in favour of MBIs would lead to inefficiencies, due to a lack of regulation and slow implementation of policy.  Shapiro and Walker (2015) identified US regulations were responsible for 75% of the 60% fall in manufacturing pollutants in the US from 1980-2008, indicating the temporal effectiveness of C&C regulation and its significance in governance. Tietenberg (1990) provides evidence from 10 studies implying significant cost differentials between command and control, and economically incentivised development programmes. He claims that a MBI approach is generally far more cost effective than C&C regulations, adding ambient quality permits to be the most effective mechanism (MBI) and emission reduction policy (C&C) to be the least efficient. However, Morgan and Palmer (1997) point out the absence of implementation or monitoring costs, and where these directorial costs have been included in results, we observe more varied findings. They continue to highlight the efficiency of MBIs in their study, but refusing to state they are more applicable to environmental governance than C&C, exclaiming the importance of institutional contexts in decision-making. This is implied by Kete (1994) and Rijke et al, (2012) who reason how political climate, and nature of the specific environmental issue should affect methods of governance. They claim MBIs are often more efficient than C&C, but on the circumstance of a favourable political, and economic climate. Hahn and Stavin (1992) enforce this point, stating there should be no common standard to favour one mechanism over another, and how the spatially and temporally appropriate regulation should be considered against their economic costs.

Although work exists across the literature exclaiming C&C to be inferior to MBIs and at the extreme, ‘communistical’ and ‘undemocratic’, they can often be the most effective form of environmental governance. MBIs are a useful tool where regulation is less enforced, however they can be inefficient in their implementation and are argued to perpetuate the very issues they aim to address. In most cases, MBIs still operate within C&C framework and an element of C&C is required in efficient regulation of policy mechanisms. Thus, it is shortsighted to assume MBIs are replacing C&C as the predominant form of environmental governance. Across the literature, author’s points towards the fact that for MBIs to truly be successful there must be an element of control, so rather than replacing C&C, MBIs are simply increasing in prevalence, often with regulatory assistance from C&C.  

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