A broader notion of “cost” includes the costs of administering a pollution control program,
particularly the costs of monitoring and enforcement
In some instances, monitoring emissions is very costly or virtually infeasible. For
example, it is extremely difficult, if not impossible, to keep track of “nonpoint” sources of
water pollution caused by agricultural production. In circumstances where monitoring emissions
is exceptionally costly, emissions pricing may lose its status as the most cost-effective
option. Mandates for certain farm practices (like grassedwater strips to limit chemical runoff,
or lagoons and storage tanks to treat waste from large confined animal feeding operations)
may be themost practical approach, as these can bemonitored via satellite imagery or on-site
inspections. And although an automobile’s tailpipe emissions could be taxed using information
from periodic odometer readings and emissions per mile data from vehicle inspection
programs, it is administratively much easier to impose emission per-mile standards on automobile
manufacturers. This alternative also avoids privacy concerns about government
collection of data on household driving habits.
In some cases, high monitoring costs associated with emissions pricing can be avoided by
employing a “two-part” regulatory instrument to approximate (and in some cases duplicate)
the impact of emissions pricing. Eskeland and Devarajan (1995) show that a tax on automobile
emissions can be closely approximated by combining a mandated emissions-control
technology with a tax on gasoline. Intuitively, the technology mandate assures efficient substitution
of the “inputs” (engine characteristics) used to produce transport, while the tax
on gasoline helps employ the output-scale channel by raising the variable cost of transport
(the car’s output) to an efficient level. Similarly, if pay-by-the bag for household garbage is
difficult to enforce in rural areas where it might encourage illegal dumping, an alternative
might be to comb