ABSTRACT
This chapter discusses a new type of market-based regulation called an ‘action approach.’ Conventional market mechanisms typically address the problem they are designed to ameliorate by making it more expensive to engage in the activity causing the problem. In the case of global warming, conventional market mechanisms such as an emissions tax or emissions trading (cap-and-trade) make greenhouse gas (GHG) emissions more expensive, creating a financial incentive for emitters to reduce their emissions. But the revenue raised by the tax, or the auction in the case of an auctioned permit trading system, generally is not used to directly achieve additional reductions. Instead, it is redistributed back to the public or used
to finance other governmental activities.2 In contrast, an action approach dedicates all legally-mandated revenue transfers and expenditures directly to solving the problem at hand – in this case, global warming. It does this principally by using the revenue to achieve additional GHG reductions or acquire them through the carbon market.
