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1.1. Scope and Relation to Earlier EPA reports

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Savings from Economic Incentives

Economic instruments increasingly are being used as an element of environmental policy in the United States and elsewhere. Worldwide, several hundred merket-based instruments such as pollution taxes, tradable pollution permits, reporting requirements, liability, and deposit-refund mechanisms are in use. When implemented, the 1997 Kyoto protocol to limit greenhouse gas emissions will constitute by far the most important application of these tools to date.

If the time has indeed come for economic incentives, it is important to understand the implementation options for and potential economic savings from economic incentives for pollution control at the local, state, Federal and international levels. This report is intended to provide that overview. Although the emphasis is not on the implementation options for additional incentives at the state and local level, this will be discussed where necessary to clarify the options at the Federal level. Since many incentives can really only be instituted at the state and local level, it is important that this possibility be recognized and discussed in the report.

This report is intended as a supplement to at least three earlier EPA reports on related topics. Economic Incentives: Options for Environmental Protection presents a number of detailed options for using a wide variety of economic incentives to solve specific environmental pollution control problems. The second report, The United States Experience with Economic Incentives to Control Environmental Pollution by Alan Carlin details the U.S. experience with economic incentive-based approaches. A 1997 report, The United States Experience with Economic Incentives in Environmental Pollution Control Policy, by Anderson and Lohof, extends and updates Carlin's analysis to cover many new instruments in the U.S. and in foreign nations. Another Environmental Law Institute report to EPA, Implementation Opportunities for Economic Incentives for Environmental Pollution Control, provides a comprehensive overview of the implementation opportunities in the United States for economic incentives for environmental pollution control at the Federal level. The current report is similar to the first of these reports in that it deals with incentive options, but differs in that it explores the more general implementation options and possible economic savings from extending existing instruments and introducing additional economic incentives rather than looking at the details of specific incentives to solve particular pollution problems. This paper also may be recognized as an extension and amplification of the 1997 paper Cost Savings from the Use of Market Incentives for Pollution Control by Anderson, Carlin, McGartland and Weinberger.

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