Charles W. Schmidt

Abstract

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Over the last 20 years a number of pollutants have become tradable commodities, all with their own regional, national, and even international markets. In the environmental economy, companies that emit less than their assigned limits (or caps) of a pollutant can sell residual allowances on the open market or "bank" them for future transactions. This gives other, higher polluting facilities a choice: either buy allowances and continue releasing the same pollutant or clean up their own emissions, whichever is cheaper. This right to pollute may seem strange conceptually, but that doesn't mean it doesn't exist or that companies aren't encouraged to seek it out by the government.

Attention is increasingly turning to the use of economic incentives in such programs, particularly in the wake of President George W. Bush's pledge to make them a foundation of his environmental policy. Most experts suggest it's too soon to gauge where and how incentive programs will grow under the Bush administration, but already business organizations are responding warmly to the administration's support for incentives.