The Costs of Environmental Regulation in Asia: Command and Control versus Market-based Instruments

Abstract

Environmental regulation has been widely applied in Asia, with many governments introducing command and control (CAC) policies to control the levels of industry emissions. This paper first examines the effectiveness of different environmental regulations in Asia. It then examines the cost effectiveness of CAC regulations compared to market-based instruments (MBIs) by evaluating the cost differences between regulation strategies currently employed and the least-cost solution for air and water pollution regulation in the People’s Republic of China, India, Pakistan, and Philippines. The paper concludes that MBIs have a clear cost advantage over CAC regulations and that there are considerable gains to be made from moving to a least-cost solution. Finally, the institutional reforms needed to facilitate the implementation of market-based instruments are discussed.