Describe the various alternatives to direct regulation and state the problems with each of them
What will be an ideal response?
Under a subsidy system, the government pays polluters to reduce their emissions. Some subsidies that could be used are tax breaks, low-interest loans, and grants for the purchase and installation of pollution-control devices. The primary problem with this approach is that when a subsidy is for less than 100 percent of the cost, the firm that limits its pollutants must still pay the difference between the actual cost and the subsidy, a cost not borne by its competitors.
Another approach is simply to charge the polluter a flat fee on every unit of pollutant discharged. Each rational polluter would theoretically reduce pollution to the point at which the cost of reducing one more unit of pollutant is greater than the emission fee. The larger the fee for each unit, the greater the motivation of firms to reduce their emissions. Difficulties in monitoring every discharge of the pollutant and in calculating the amount that should be assessed for each unit of the various pollutants are major problems with this approach. A final problem with this approach is that it may amount to licensing a continuing wrong. Some firms might simply pay the charges and continue to emit pollutants that would be difficult to clean up even with the fees collected.
Discharge permits provide a similar approach to pollution control. The government would sell permits for the discharge of various pollutants. These pollutants could be discharged only if the polluter had the appropriate permit. Polluters would be encouraged to reduce their emissions because this reduction would enable them to sell their permits. From the perspective of people wishing to reduce the total amount of pollution emitted into the environment, the primary advantage that this system offers over a system of charges is that the government actually limits the total amount of pollution through the permits; no permits will be issued once a certain amount of emissions has been authorized. To reduce pollution, the government can simply reduce the number of permits that it issues. Again, however, there is the problem of monitoring the pollution sources.
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