Agricultural Policies

Magazine

Environmental Credit Trading: Can Farming Benefit?

Article from Amber Waves, February (2006)

Environmental regulations often require firms that emit pollutants to limit emissions to a set level or to install specific emission-reducing technologies. While fairly straightforward, this command-and-control approach can be costly both to the firms and to society. Firms with high costs of pollution reduction and those with low costs are required to meet the same requirements, which may waste resources. Environmental credit trading, an alternative to command-and-control regulations, is a market-based approach to comply with regulations that could achieve pollution abatement goals at lower costs to society. Environmental credit trading allows regulated firms to meet their obligations by purchasing pollution abatement services (credits) from lower-cost providers. Even though agriculture per se is not subject to most environmental regulations, farmers can participate in these credit trading programs by generating pollution-reduction credits and selling them to regulated firms.

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