ABSTRACT
This chapter first extends chapter 5 by providing the theoretical foundation of a relatively new market-based pollution-control policy instrument known as transferable emission credits (TECs). The ingenuity of this policy instrument is the creation of ‘artificial’ markets for pollution rights that are traded as commodities. The chapter examines the theoretical strengths and limitations of this policy instrument before presenting a case study of its applications in the US Acid Rain Program, controlling regional SO2 emissions from electric power plants. The chapter then presents a systematic discussion of the macroeconomic effects of environmental regulations, an often controversial subject matter. The preponderance of the empirical evidence indicates that the impact of environmental regulation has been neutral at the aggregate level, even without considerations of the social benefits of environmental regulations (in terms of improved environmental quality). This result is in sharp contrast to the conventional wisdom that expenditures to protect the environment cause a loss of jobs. The chapter thus challenges the seemingly unshakeable public sentiment of the negative effect of environmental regulations on employment at the aggregate level.
