Confronting Environmental Issues
Edited by Richard P.F. Holt, Steven Pressman and Clive L. Spash
Chapter 8: Price-based versus Standards-based Approaches to Reducing Car Addiction and Other Environmentally Destructive Activities
8. Price-based versus standardsbased approaches to reducing car addiction and other environmentally destructive activities Peter E. Earl and Tim Wakeley INTRODUCTION Concerns about the impact of production and consumption on the environment have led to two different kinds of mitigating policies in recent years. One approach focuses on using taxes and markets for tradable pollution permits or credit offsets to bring relative prices more into line with social opportunity costs. The other is more redolent of the kinds of quantity rationing approach to resource allocation used in wartime planning. It involves imposing standards for maximum acceptable emissions (for example, grams of carbon dioxide – CO2 – per kilometre travelled by a motor vehicle, or a sales-weighted average standard across a car manufacturer’s entire product range) or for rates of resource usage (for example, litres of water per head per day in a household). This latter ‘standardsbased approach’ goes against the grain of mainstream economic thinking: it seems to involve the arbitrary application of rules by bureaucrats and it limits opportunities for those who wish to pollute more to do deals with those who are willing to pollute less. However, from the standpoint of heterodox approaches to economics, it may be argued that standards-based policies are much more likely than price-based policies to be effective means towards meeting environmental challenges. This chapter attempts to mount precisely such an argument by using inputs mostly from Post Keynesian macroeconomics and economic psychology. The rest of the chapter is structured as follows. In the next section,...
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