Market-Based Environmental Policies: What Can We Learn from U.S. Experience (and Related Research)?

This paper reviews lessons that can be learned from U.S. experiences with market-based environmental policies and from related research. Highlights of U.S. experience are summarized with four categories of policy instruments: pollution charges; tradable permits; market friction reductions; and government subsidy reductions. Normative lessons are considered in three areas: design and implementation; analysis of prospective and adopted systems; and identification of new applications. Positive political economy lessons are also reviewed.