1st Quarter 2005
Resources and the Environment
Markets for the Environment
Richard T. Woodward, Guest Editor
Richard T. Woodward
Markets are increasingly being used and proposed as a way to address environmental problems and manage natural resources. From water quantity to air pollution, economists and policy makers are developing ways to use markets as an avenue to allocate resources in a way that achieves environmental goals and economic efficiency. This series of articles provides an overview of these policies and looks at the state of the market-based policies for a variety of environmental problems and natural resources. Although market-based instruments certainly appear to be here to stay, they are not the right tool for all problems. Over time, market-based approaches may take a less prominent place in the policy mix, to be seen once again as one tool among many for improved management of our environment and natural resources.
Robert N. Stavins
In 1990, amendments to the Clean Air Act authorized the most ambitious application of a market-based instrument for environmental protection that has ever been undertaken. The program was part of a policy that sought to cut sulfur dioxide emissions to 50% of their 1980 levels. In his article, Robert Stavins identifies lessons that can be learned from this grand experiment in environmental policy and highlights the successes of the program.
Richard Howitt and Kristiana Hansen
Expanding population and environmental protection the world over are placing additional demands on existing water supplies. As meeting these demands by traditional means becomes more difficult, policy makers are increasingly turning to water trading as a way to make best use of this finite resource. Richard Howitt and Kristiana Hansen look at the emerging markets for water in the West and find that despite the fact that there seems to be great potential for gains from trade, markets remain quite limited.
Leonard Shabman and Paul Scodari
Concern over historic wetlands loss led to a national goal of no net loss (NNL) of wetlands acres and their environmental services. In support of this goal, new approaches — generally called "wetlands mitigation banking" — have been introduced as a way for securing ecologically viable credits. Often presented as an example of how market-based policies can work for the environment, Leonard Shabman and Paul Scodari find in their review that regulatory restrictions are so restricted that it cannot legitimately be called a market-based program. They conclude that market-like environmental policies are rare, and what appears to be a market-like policy may not be that at all.
Dennis M. King
As has been true for other programs, economists have been promoting water quality (WQ) trading for decades. However, Dennis King argues that WQ trading programs to date have had very limited success. This is in large part because there simply has not been sufficient demand for credits in these markets. Experience is proving once again that in regulation-driven markets the "invisible hand" will not work without the "visible foot" of a regulator with the authority and political support to use it.

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