Command-and-Control Policy Economic Incentives Voluntary Programs Government Investment Command-and-Control Policy Since standards are the fundamental basis for most environmental policies, this section will begin with a discussion of the conventional policy options available for addressing the issue of NOx emissions. It is important to note that these standards may be technology-based, specifying a particular abatement technology that must be used by polluters; or performance-based, specifying a pollution limit that must be achieved by all regulated polluters.1 Technology-Based Standards The government may choose to implement technology-based standards to control NOx emissions. The government may require firms to use the best available technology for NOx pollution abatement. For instance, it may require industries to use a particular type of boiler in their production processes require car manufacturers to use a particular type of pollution control system in their automobiles. It may mandate that automobile manufacturers produce experimental, environmentally-friendlier cars. In addition, the government may also require oil companies to offer cleaner alternative fuels. The benefit of creating such technology-based standards is that the government can ensure that effective technology is being used by polluters. Furthermore, polluters can clearly determine what actions they are required to take in order to prevent pollution (More).2 Obviously, this results in improvements to the environment and human health. While there are advantages to this type of standard, such policies are not without their disadvantages. For instance, the government may impede a particular firm’s natural incentive to abate in a cost-effective manner if it imposes a technology-based standard. Unless the mandated technology is the least-cost abatement strategy for all firms, at least some firms will incur higher-than-necessary abatement costs.3 A technology-based standard may also impede research and development efforts. Firms may only use the technology mandated by the government and fail to search for less costly or cleaner technologies. Thus, this neglect of research not only occurs at the cost of the industry, but also at the expense of society as a whole. Performance-Based Standards The government may also choose to impose performance-based standards on polluters. To this end, the government may require polluting firms to decrease emissions of NOx by a particular amount each year or require that firms not exceed a particular level of emissions each year. The government may have different standards for different firms, based on the age of the firm. It may also impose stricter standards for new firms entering the market. The government must deal with mobile sources of pollution in a slightly different manner. As with stationary sources, the government may impose standards for emissions from mobile sources of pollution upon the manufacturers of such products. Furthermore, it may impose stricter standards on new automobiles. The government may also require the owners of automobiles to have their vehicles tested to ensure that certain emissions standards are met throughout the duration of the vehicle's existence. Overall, the performance-based standard is more cost-effective than the technology-based standard. It allows each polluter to follow its own self-interest by pursing the least costly abatement method. Through the performance-based standard, society can gain the benefits of a cleaner environment at a lower expenditure of resources. Although performance-based standards require fewer resources than technology-based standards, they are not always efficient. Under a strict command-and-control approach in which standards are uniformly imposed across different polluting sources, there is often a waste of resources because those firms with high abatement costs are forced to decrease their emissions as much as firms with lower abatement costs. Furthermore, the government must establish such standards with imperfect information about the costs and benefits of pollution abatement, so it is possible for the costs of a particular standard to exceed its benefits. Nor do uniform national laws allow for regional differences in the marginal benefits and costs of abatement.4 The use of performance standards is particularly problematic with mobile sources of pollution. It is difficult to set an annual per vehicle emissions budget, for example, as this would be difficult to enforce and would be politically unpopular. Even inspection and maintenance programs, which require only an annual trip to a smog check facility, have proven to be unpopular with the public. For this reason, more effective mobile source contols would focus on inputs, such as vehicle technology requirements or fuel properties, rather than outputs. Economic Incentives Although the majority of environmental policy is based upon standards, an increasing amount of evidence has proven that policy goals can be achieved in a more cost-effective manner through the market approach. These types of policy use price and other economic variables to provide incentives for polluters to decrease their emissions. The government can decrease NOx emissions by implementing emission fees, product charges, subsidies, or pollution permit trading systems. Emission Fees One way the government may seek to decrease NOx emissions is through emission fees, which effectively "assign" a price to pollution.5 This policy tool can easily be applied to the issue of NOx emissions if the government charges industry a particular amount for each unit of NOx emitted. There are numerous advantages to this type of policy. For firms, it allows those with low abatement costs to make pollution control investments and avoid the tax. At the same time, those firms with high abatement costs may choose to pay the tax.6 This policy also motivates firms to advance their abatement technology in order to decrease the costs of abatement.7 As the tax leads to higher production costs for firms and subsequently higher prices for consumers, citizens may alter their consumption patterns to account for this price change. (More).8 Nevertheless, there are also some disadvantages to this type of policy as well. The government may find it difficult to determine the tax rate at which all polluters’ selected abatement levels will meet the socially desirable level of pollution. As a result, the government may have to adjust the tax until the desired level of environmental quality is achieved. Furthermore, because of the uncertainty associated with this process, polluters may choose to pay the tax rather than to make the investments in pollution abatement technologies. Emission fees can also have serious impacts on individuals in society. As polluters make adjustments to deal with the tax burden or changes in production techniques, some workers may lose their jobs.9 Product Charges The government may also use product charges, a per unit tax on the pollution generating product, to decrease NOx emissions. Such a tax could be placed on gasoline to decrease emissions from mobile sources of pollution. Currently, the U.S. gasoline tax is only 28% of the total gas price. In Europe, the gasoline tax is between 69% and 77% of the total gasoline price so that the price of gasoline more accurately reflects environmental costs incurred because of its use. If the United States would increase the tax on gasoline so that the U.S. price of gasoline better reflects the true costs of its use, it would likely decrease energy use and simultaneously decrease NOx emissions. Although an increase in the price of gas is likely to achieve the desired policy objective, it is likely that such a policy would be opposed by consumers.10 Subsidies Another policy tool that could be used to reduce NOx emissions is government subsidy, which would entail government provision of financial incentives to polluters who engage in pollution control measures. If the government chose to implement such a policy, it would most likely involve tax exemptions or tax reductions for polluters who use NOx pollution control technology. There are numerous disadvantages to this type of policy, which more than counteract the advantages. Subsidies definitely decrease the financial burden of companies engaging in pollution control, but they do not provide incentives for them to invest in additional pollution control measures.11 Furthermore, subsidies must be financed with taxes or government bonds.12 As a result, subsidies result in benefits to polluters at the expense of consumers and taxpayers. Pollution Permit Trading Systems Alternatively, the government can establish a pollution permit trading system in order to control NOx emissions. Such a system can involve credits, which are tradeable permits issued to a firm for emitting less than the standard; or allowances, tradeable permits that specify the maximum level of emissions the polluter may release based on the existing environmental standard.13 If the government establishes a credit-based trading system in order to control NOx emissions, it may give firms tradeable permits if they use particular technologies that are known to decrease emissions, such as the use of oxygenated fuels or the production of low emissions vehicles. The government may also issue credits for other actions taken to decrease NOx emissions, such as the purchase of older automobiles that are known to substantially contribute to NOx emissions.14 The government can also establish an allowance-based trading system by determining the maximum level of pollution and letting the market establish the price charged for that pollution. This type of trading system could be used to prevent pollution from NOx emissions by establishing a maximum level of NOx emissions thought to be socially desirable, issuing permits, and allowing firms to trade. There are numerous economic advantages totrading systems. It can produce environmental effects equivalent to that under a command-and-control policy since it "begins" with a determined level of pollution.15 Furthermore, the government does not have to search for the price that will bring about the desired amount of abatement; instead, firms negotiate until they determine the appropriate price for pollution rights. If trading systems are designed so that the government sells or auctions off permits, trading systems may also generate revenue for government. Trading systems are also flexible. If the regulation is too stringent, more permits can be issued. If it is too lenient, interested parties can buy up permits in order to decrease pollution. Other analysts point to the inherent cost savings associated with trading systems. Under trading systems, pollution sources that can abate efficiently do so, and they sell their unused permits to less efficient abaters. Thus, those firms that can abate pollution at the lowest cost engage in higher levels of abatement.16 Voluntary Programs The issue of NOx can also be addressed through voluntary programs, such as changes in individual consumption patterns and production processes. Because of the diverse sources of NOx pollution, individuals are more likely than regulators to choose the most effective pollution control techniques for their particular situation.17 As a result, any voluntary efforts to decrease NOx emissions provide substantial benefits to the conditions of our physical environment. To this end, individuals can choose to engage in environmentally-friendly activities, such as trading in their old cars, buying more fuel-efficient vehicles, using "push" lawnmowers, and reducing their consumption of electricity. Furthermore, the government and nonprofit organizations can contribute to changes in consumption patterns by providing environmental educational programs.18 Not only can the government provide information to the public through education programs, but it can also provide information on NOx control technologies to industries. To encourage individual firms to use NOx control technologies, the government can sponsor meetings or conferences, through which it can share information to industry.19 Although the government cannot force firms to use particular technologies through this mechanism, it can provide relevant information to companies so they can voluntarily use environmentally-sound technologies. Government Investment The government can also address the issue of NOx control through investment programs, such as research and development. Research and development is crucial to the control of NOx emissions because NOx emissions are controlled primarily through improvements to the combustion process.20 Therefore, any improvements in the efficiency of polluting sources can lead to reductions in NOx emissions.