Assessing the efficiency of integrated pollution control regulation

A common criticism by economists of the command-and-control approach to environmental policymaking is that costs of compliance may be considerably higher than under flexible mechanisms. Unless all polluters face the same control costs, uniform emissions standards will not minimize the costs of reducing pollution. Integrated pollution control (IPC) licensing is an improvement on uniform regulation as, in principle, it takes into account the individual characteristics of the plant being allocated the license. However, economists still tend to believe that the firm knows how to allocate resources best and that, because of the enormous information requirements, the regulator is unlikely to be able to achieve as low a cost of compliance as can a market corrected using using market-based instruments. This paper examines the efficiency of IPC regulation using the Irish system as a case study. In particular, it examines whether IPC regulation is likely to be cost minimizing. The results show that there appears to be the potential to reduce compliance costs if a flexible mechanism can be introduced which allows trading across sectors.