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Market Instruments and the Protection of Natural Resources

Market Instruments and the Protection of Natural Resources

Critical Issues in Environmental Taxation series

Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

Only through a concerted global effort can we protect our natural resources, save our precious natural environment, and indeed our future. But pressures on natural resources come from many directions such as overuse, mismanagement and contamination. This much-needed book reviews and evaluates the use of market and fiscal instruments in protecting our natural resources, from rural to marine environments. Market instruments that are designed to protect the global atmosphere are evaluated, along with carbon instruments and environmental tax incentives. Meanwhile, consideration is given to shifting the tax burden to achieve environmentally responsible outcomes, balancing sustainable use and natural resource protection, and protecting water resources.

Chapter 4: Fighting for water: The role of federal market instruments in addressing water issues in the United States

Mona L. Hymel

Subjects: environment, environmental economics, environmental law, environmental politics and policy, law - academic, energy law, environmental law, tax law and fiscal policy, politics and public policy, environmental politics and policy


Water probably stands first as the resource requiring national attention and protection. Water has been and continues to be wasted as though the Earth’s supply is endless. Yet our usable supplies of water are diminishing and, in some cases, being exhausted. Based on recent climate change data, the United Nations World Meteorological Organization announced that 2015 is the warmest year on record, with the last 5 years being the hottest period. The worst impacts of global warming, such as intensified storms, rising sea levels and bizarre weather, are becoming a reality as the greenhouse gas level exceeds thresholds scientists believe will trigger these events. Policymakers must conquer many moving targets. This article focuses on one of the fastest moving targets—the US water crisis. Water scarcity, water allocation, and water degradation are discussed. The federal tax system can be part of a national program to address water problems. This article considers whether a federal water trading scheme is an option for the United States and how market instruments, such as tax incentives, can facilitate the creation of such a market. Because water issues tend to be local or regional, creating and implementing a federal water trading program will be a complex task. Determining how the US federal government can feasibly implement a nationwide water trading scheme may require innovative solutions, but tax incentives have successfully created national markets in the past. For example, the creation of a national water trading scheme through the use of federal market instruments can be analogized with the creation of the market for ethanol. None existed before the enactment of federal tax incentives. This article discusses existing mechanisms to deal with water issues and analyzes the potential to implement federal legislation to abate water problems. Ultimately, the solution to the water crisis in the United States will probably stem from many policy alternatives working in tandem. Evaluating a national water trading market and tax incentives designed to mitigate other water issues, however, stand as a critical aspect for addressing water issues in the United States.

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