Pollution can be controlled with less government regulation

It is worth emphasizing that this least-cost system of pollution reduction does not require any information on the part of the Environmental Protection Agency. The EPA does not need to know the least expensive strategy for each and every polluter. Faced with a positive price for these rights, each polluter has every reason to discover the cheapest method to reduce and utilize pollution. Neither does the EPA need to know anything about the differences in abatement costs among polluters. Each will be motivated to curb pollution as long as the cost of reducing one more unit is less than the price of rights. With all facing the same market price, this results in the cost of abating one more unit being the same for everyone. The information and incentives generated by private ownership and market exchange automatically lead to the desirable pattern of pollution reduction.

The rights approach also will create an impetus for polluters to come up with improved abatement technologies. American economic history is full of examples of technological development that have allowed more output to be produced with less land and labor. Conspicuously absent have been processes designed to conserve on the use of the environment as a waste-sink. Market prices on land and labor always have provided a strong incentive to conserve these resources. The absence of prices for the use of our atmosphere and waterways, however, made it privately unprofitable to worry about conserving their use. Marketable pollution rights would remedy this neglect.

Involving outside groups

There is another possible advantage to this approach that is worth discussing, but which is not as significant an advantage as it may seem at first. So far, the presumption is that the only reason for purchasing rights is to support a polluting activity. However, they also could be bought to keep them out of the hands of polluters, thereby reducing pollution. For instance, groups interested in protecting the natural environment--such as the Sierra Club, Friends of the Earth, National Rifle Association, and Audubon Society--would have the opportunity to put some of their funds to direct use in reducing pollution by purchasing and hoarding rights. If everyone who valued clean air could be depended upon to contribute toward such purchases, the price of these rights would reflect their value in providing a cleaner environment. In this case, if more rights were issued than was consistent with the efficient level of pollution, the excess would be bought and hoarded. This approach would result in an efficient level of pollution as well as the least-cost pattern of reduction.

Unfortunately for such a scheme, there is little reason to expect people, regardless of the concern they may express about the environment, to buy rights to prevent pollution. Doing so to curb air pollution, for example, reduces it for everyone in the area, not just for whoever makes the purchase. So, the total value of the reduced pollution is much greater than that realized by the individual who pays for it. Consequently, the value of keeping rights out of the hands of polluters easily could be greater than their market price, and no one individual likely would be willing to buy one for that purpose.