Environmental Economics - Essay Example

This paper compares Command-and-Control and Economic Incentive approaches. "Command and control" regulations focus on preventing environmental problems by specifying how a company will manage a pollution-generating process” (Stuart) In this type of approach to regulation of pollution, the companies which are responsible for pollution should take necessary precautions to prevent the environment pollution due to their activities. For example, industrial units mostly produce lot of toxic gases and solid wastes which generally they disposed to the land or sea improperly.

Waste treatment plants are made compulsory with every industrial unit by implementing "Command and control" regulations. Command and control approaches were effective up to certain extent to reduce the industrial pollution. Periodical inspections from the governmental agencies forced the industrial units to keep tight control over the polluted materials it generated. Economic incentive approach is the way of controlling environmental pollution by offering economic incentives. In this approach, those who take effective measures to control environmental pollution will be rewarded and strict penalties will be enforced for those who destroy the environment.

Pigovian Taxes, emission fees, abatement subsidies and tradable permit system are some of the common methods taken in the Economic incentive approach. Pigovian Taxes is a kind of special tax that is often levied on companies that pollute the environment or create excess social costs, called negative externalities, through business practices. In a true market economy, a Pigovian tax is the most efficient and effective way to correct negative externalities (Pigovian Tax) The main objective of this tax is to incorporate the social cost of the environment problems caused by the polluter.

Thus the polluters will be forced to control their polluting activities because of the fear of the heavy Pigovian