Choosing Environmental Policy:
Comparing Instruments and Outcomes in the United States and Europe                

Thursday, June 17, 2004
RFF Forum

RFF hosts a special event surrounding the release of Choosing Environmental Policy, a new RFF Press book that focuses on six different environmental problems that were managed differently on opposite shores of the Atlantic, mostly during the 1990s.

Video of this RFF Forum and commentary by RFF Journalist-in-Residence John Anderson on the speakers' and panelists' remarks follow below.

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Introduction: Paul Portney | President and Senior Fellow Resources for the Future
Speaker I: Dick Morgenstern | Senior Fellow Resources for the Future Bio
Speaker II: Winston Harrington |   Senior Fellow Resources for the Future Bio
Introduction of Panel: Paul Portney | President and Senior Fellow Resources for the Future Bio
Panelist I: John Graham |   Administrator, OMB Office of Information & Regulatory Affairs Bio
Panelist II: Josephine Cooper |   Group Vice President of Government and Industry Affairs Toyota Motor Sales USA Bio
Panelist III: Joseph Goffman |   Senior Attorney Environmental Defense Bio
Panelist IV: Miranda Schreurs |   Associate Professor of Government University of Maryland Bio
Panelist V: Albert McGartland |   Director National Center for Environmental Economics U.S. EPA Bio
Question & Answer Session |

Incentives Versus Regulation: What Does the Record Show?

by RFF Journalist-in-Residence
John Anderson

Environmental policy will need to continue using both market-based economic incentives and direct regulation, a panel of administrators and scholars agreed June 17 at Resources for the Future.

The panel discussed a forthcoming RFF Press book, "Choosing Environmental Policy: Comparing Instruments and Outcomes in the United States and Europe," edited by RFF fellows Winston Harrington, Richard D. Morgenstern and Thomas Sterner.

Policy makers in the United States frequently argue that economic incentives are more effective, while Europeans usually prefer direct regulation by the government. But the book's case studies of actual performance, Miranda Schreurs of the University of Maryland concluded, show that neither alternative is clearly superior across the board.

John Graham, of the federal Office of Management and Budget, said that actual practice reflects a lot of hybrids and mixes between the two alternatives. He warned against the assumption that economic incentives are widely accepted in American politics, citing Congress's recent refusal even to give serious consideration to trading in the program that imposes fuel economy standards on the automobile industry.

The main finding of the book, commented Josephine Cooper of Toyota, is that governments have made real progress with both instruments. Practice differs from one country to another, she said, because "the cultures are different."

The book's purpose is to focus on "real world results" in an area of policy that has been left largely to theoretical modeling, explained Morgenstern.

He observed that, in general, economic incentives have resulted in greater reductions of emissions than they were originally designed to produce, while direct regulation has resulted in less. One reason, Harrington noted, is that under a system of tradeable permits a violator's competitors have a direct incentive to insist on compliance.

Panelists raised several questions for further research.

Albert McGartland of the Environmental Protection Agency said that it would be worth knowing the relative effectiveness of the various kinds of incentives and regulations in encouraging technological development to combat pollution.

Joseph Goffman of Environmental Defense suggested a broader look at the shift in American policy to economic incentives. It was partly a reaction, he said, to a crisis on confidence in the late 1980s regarding air quality and the difficulties of achieving further progress. There was also a demand, he said, for programs that left more decisions to the private sector.

Schreurs asked how the American and European experience, reflected in the book, might apply to developing countries. And, she continued, does it matter what kind of pollution is the target --- air pollution, for example, or water pollution? Further research, she said, might also look at voluntary agreements between government and industry, a type of instrument that has sometimes proved useful.