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Market-Based Policies for Pollution Control in Latin America

  • Sarah West
  • Ann Wolverton

Rapid urbanization and increased industrialization have led to high pollution levels throughout Latin America. Economists tout policies based on market-based economic incentives as the most cost-effective methods for addressing a wide variety of environmental problems. This chapter examines market-based incentives and their applicability to Latin America. We first review the market-based incentives traditionally used to address pollution – emissions taxes, environmental subsidies, tax and subsidy combinations, tradable pollution permits, and hybrid instruments – and compare these instruments to command-and-control policies. We then discuss two sets of factors that affect how feasible and efficient pollution control policy will be in Latin America. We focus on practical considerations such as monitoring and enforcement, distributional issues, political feasibility, institutional considerations, administrative costs, and compliance costs. We also examine what the violation of standard modeling assumptions implies for the success of pollution control policy. In particular, we focus on non-competitive market structures, imperfect information or uncertainty, the effects of regulation on global competitiveness, and the compatibility of environmental goals with the goals of growth and development. Finally, we compare Latin American experiences with market-based incentives with those in the U.S. and Europe, and conclude with several policy recommendations.

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File URL: http://yosemite.epa.gov/ee/epa/eed.nsf/WPNumber/2003-01/$File/2003-01.PDF
File Function: First version, 2003
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Paper provided by National Center for Environmental Economics, U.S. Environmental Protection Agency in its series NCEE Working Paper Series with number 200301.

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Length: 41 pages
Date of creation: Mar 2003
Date of revision: Mar 2003
Handle: RePEc:nev:wpaper:wp200301
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