Comparative Analysis of Pollution Control Strategies: Taxes, Tradable Permits, and Maximum Pollution Limits

by Electra Radioti

Environmental pollution is a pressing global concern that poses significant threats to ecosystems, human health, and the prosperity of future generations. As societies continue to struggle with the consequences of uncontrolled pollution, it becomes increasingly crucial to explore and implement effective strategies by governments to control and mitigate pollution. This essay examines the most common methods of pollution management: taxes on emitted pollutants, tradable pollution permits, and the imposition of maximum pollution limits.

The tax on emissions of liquid pollutants is a type of “Pigouvian tax” (Britannica, 2023). It is a tax imposed on a market activity when it creates negative externalities, the cost of which burdens individuals not directly involved in the activity (Pigou, 2017). Under this system, companies or individuals are required to pay a tax imposed on each unit of pollution or damage caused by certain activities, in this case, the release of liquid pollutants. The decision on the application of these taxes, including the specific tax rates and the industries or activities subject to these taxes, is usually taken by the government of each country. Governments evaluate the social and environmental cost caused and then design and implement taxes on emissions of liquid pollutants as a policy tool to control and mitigate these externalities (Salib, n.d.). By increasing the cost of pollution to reflect its impact on society, taxes on the release of liquid pollutants ensure that those who pollute pay for the damage they cause, both for themselves and for society as a whole, thus creating an incentive for its reduction (Nellor & McMorran, 1994).

Another commonly used method for controlling pollution is tradable pollution permits. According to this system, a government sets a limit on the total allowable pollution, after relevant studies and measurements (Αϊβαζίδης & Μελίδης, 2012). Then, it allocates or auctions permits to polluters, allowing them to emit pollutants up to a certain amount or in a specific area (Norregaard & Reppelin-Hill, 2000). Companies can buy, sell, or exchange these permits with each other, thereby creating a market for pollution rights (European Environment Agency, 1998). This creates an economic incentive for companies, which, in order to profit economically from the sale of unused permits, tend to reduce their pollution rate below the allowed level (Farber, 2004).

On the contrary, the imposition of maximum or permissible pollution limits is a regulatory approach used by governments to control and limit the amount of pollution emitted by industries, businesses, and individuals into the environment. Regulatory authorities, often governmental agencies or committees, set upper limits on the amount of pollutants that can be emitted into the air, water, or soil (OECD, 2022). These limits are usually based on scientific estimates of the potential harm caused by these pollutants to human health, ecosystems, or the environment (European Union, n.d.). Non-compliance by those causing the negative externality can lead to fines or legal actions against them (Writer & Gazette, 2023) (U.S. Environmental Protection Agency, 2013).

Taxes on emissions of liquid pollutants, as well as tradable pollution permits, can be supported as a better method of controlling pollution compared to the imposition of maximum pollution limits, for various reasons. Firstly, they offer economic efficiency, giving businesses the opportunity to make decisions based on cost-benefit calculations and utilizing market dynamics for the effective allocation of pollution rights (Stavins, 2001). Consequently, within this regulatory framework, companies are encouraged to invest in research and development for the discovery and application of cleaner technologies (Stavins, 2001). This creates a new kind of competitiveness in sectors concerned with environmental solutions. Unlike rigid state regulations that prescribe specific pollution control technologies, their flexibility and adaptability allow those involved to adapt to changing conditions and respond to new environmental policy priorities, choosing the most efficient ways and technologies by sector or industry to limit pollution. Additionally, taxes on emissions of liquid pollutants and tradable pollution permits, being market-based, require less administrative oversight and generate revenue for the state, which can be used to fund environmental initiatives, research, or other public goods. In some cases, taxes and tradable permits provide a potential alternative for companies in terms of compliance costs compared to maximum pollution limits, which may require costly and unpredictable retrofitting of facilities to comply with strict regulations (Stavins, 2001).

However, it is important to note that although market-based environmental policy methods have proven their effectiveness in reducing pollution at a relatively lower economic cost compared to traditional imposition of maximum pollution limits, their effectiveness varies depending on the circumstances. Some situations may still justify maximum pollution limits or a combination of regulatory approaches to achieve the desired environmental goals.


Bibliographical References

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Britannica, T. Editors of Encyclopaedia (2023, March 3). Arthur Cecil Pigou. Encyclopedia Britannica. Retrieved September 30, 2023, from

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Ευρωπαϊκή Ένωση. (n.d.). Environment.; European Commission. Retrieved September 16, 2023, from

Farber, S. (2004). Market-Based Instruments, Overview. Encyclopedia of Energy, 759–768.

Nellor, D. C., & McMorran, R. T. (1994). Tax Policy and the Environment – Theory and Practice. International Monetary Fund.

Norregaard, J., & Reppelin-Hill, V. (2000). Taxes and Tradable Permits As Instruments for Controlling Pollution: Theory and Practice. IMF Working Papers, 00(13), 1.

OECD. (2022). Government Risk Management Approaches Used for Chemicals Management Series on Risk Management No. 74. In OECD Series on Risk Management, No. 74, Environment, Health and Safety, Environment Directorate. Retrieved September 30, 2023, from

Pigou C. A.. (2017). The Economics of Welfare (Classic Reprint). Forgotten Books.

Salib, P. N. (n.d.). The Pigouvian Constitution [Review of The Pigouvian Constitution]. The University of Chicago Law Review. Retrieved September 16, 2023, from

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U.S. Environmental Protection Agency (EPA). (2013, May 3). Criminal Provisions of Water Pollution. Retrieved September 30, 2023, from

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