Ever since national programs to control pollution were first considered, policy makers and scholars have argued about whether the force of law, through regulation, or the force of the market, through economic incentives, would be the more effective and efficient approach.¹ The arguments for regulation are that it is a more direct and certain means of attaining environmental quality goals because it works through clear, measurable standards which specify exactly how much each polluter may emit, and that it demonstrates clearly the national moral commitment to eradicating pollution. The counter argument is that economic tools, such as a fee or tax on each pound of pollution, can be equally effective (people are as likely to respond to economic pressures as they are to obey the law) and can achieve any given level of pollution control at a lower cost.² It is also argued that economic systems are more efficient over the long run because while regulation encourages the search for cheaper ways of meeting a given standard, economic charges encourage a constant search for less expensive ways of reducing pollution to the lowest level possible. The proponents of regulation have largely prevailed in this debate. The Clean Air Act Amendments of 1970 and the Federal Water Pollution Control Act Amendments of 1972 rely almost exclusively on regulation to achieve their goals. Economic considerations are taken into account in developing many of the pollution control standards required by these acts, but in most cases only to avoid large-scale economic disruption such as numerous plant closings.³ This regulatory approach, unlike the economic approach, does not endeavor to identify the least-cost strategy for achieving air or water quality goals. In fact, the regulatory approach is considered by some to be inherently incapable of achieving the least cost result because it would assign regulators the impossible task of judging the optimal method and level of pollution control for each individual source.⁴

By the late 1970s, the conviction had spread that the regulatory approach to pollution control was simply too expensive. With hundreds of billions of dollars already invested in pollution controls, hundreds of billions more estimated to be required, and the economy in a sustained slowdown, pressure developed to cut the cost of environmental protection. The available options include relaxing basic environmental quality goals and the pollution control standards designed to implement them, selectively relaxing those pollution control standards which make a disproportionately small contribution to attainment of environmental goals, and finding more cost-effective ways of meeting the control standards. The last of the three remedies has appeal for environmentalists because it can cut costs while leaving the basic environmental goals and implementing standards intact. It has appeal for industry because it can cut costs, whatever set of environmental quality and pollution control standards are in force.