Market-based instruments – including cap-and-trade programs, pollution taxes, and tradable credit programs – have emerged as common instruments for federal, state, and local policymakers in addressing environmental challenges. This chapter describes the key characteristics that define these instruments and illustrates their environmental and economic impacts through a series of brief case studies on lead phase-down, sulfur dioxide and nitrogen oxides cap-and-trade programs, waste charges and bag fees, and the renewable fuel standard. These experiences provide a foundation for drawing out key lessons in the design and implementation of market-based instruments. The chapter concludes with a discussion of their potential application to climate change and highlights opportunities for future research on pricing pollution through market-based instruments.
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