Market-based incentives to reduce air pollution have gained considerable interest and support over the past ten years. The concept encompasses the ideology of using the behaviors inherent to the free market as a tool to promote pollution abatement and control. This system implies a type of entrepreneurial flexibility to achieve desired results. For example, a company required to reduce emissions can choose a number of ways to achieve the limitation, including operational changes, installing pollution control equipment, utilizing efficient technologies and buying and trading pollution credits. The theory behind market-based incentives is supported by the concept that industrial source managers are more knowledgeable of their operations and are, therefore, the best entity to make cost-effective decisions. Ideally, the result should be increased regulatory flexibility and accelerated progress toward environmental goals.
According to the EPA, this approach has been successful for the Acid Rain program, resulting in significant reductions in sulfur dioxide (SO2) emissions. In 1995, the first year of compliance under the program, SO2 emissions dropped by 3-million tons. Since then, emissions have dropped a total of 6-million tons below 1980 (baseline year) levels. The results include SO2 emissions currently running more than 30% below allowable emission levels. Even more intriguing, the costs to achieve these reductions were 75% below initial industry estimates.