choice, “grandfathering” may increase the feasibility of implementation (Svendsen, 1999).

Over time the two systems may act quite differently as well if the government decides not to intervene in the market. In a tradable permits system, inflation will merely result in higher permit prices; the limit will remain intact. With taxes the amount of environmental protection will decline over time (as the real value of the tax declines) in the absence of some kind of indexing scheme. Conversely, technical progress that lowers compliance cost will result in more environmental protection under taxes than tradable permits. Finally, the presence of uncertainty about the benefits and costs can lead to a preference of one instrument or the other depending on the nature of the uncertainty (Weitzman, 1974).

DESIGN CONSIDERATIONS

Governance Structures

The academic community has emphasized the importance of co-management of environmental resources, with users having a substantial role. This is presumed to increase compliance.16

Although tradable permit systems in principle allow a variety of governance systems, the current predominant form in all three applications seems to be a system of shared management, with users playing a smaller role than envisioned by most co-management proposals. For those resource regimes in the United States, it is common for the goals to be set by the government (either at the national or state level) and considerable “top-down” management to be in evidence.

In the case of air pollution, specific quantitative ambient standards are set at the national level, and all programs must live within those limits. In the sulfur allowance program, a national program, the emissions cap also is set at the national level. In the RECLAIM system, the emissions cap was established by the local air quality management district, but the district is subject to the oversight of the national Environmental Protection Agency (EPA) and must show how its choice will enable it to meet the nationally set ambient standards.

Fisheries have a somewhat similar governance arrangement. The Secretary of Commerce and his implementing agency, the National Marine Fisheries Service, use their oversight and approval powers to attempt to assure that locally created approaches meet the various requirements of the Magnuson-Stevens Act, as amended.17 Unlike the ambient standards, which are quantitatively precise, these objectives are more vaguely specified. That allows the Secretary more discretion, which can be used either to exercise stronger control or to allow more community discretion.18 Subject to this oversight, regional fisheries councils de-



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