IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change Environmental effectiveness

The main goal of environmental policy instruments and international agreements is to reduce the negative impact of human action on the environment. Policies that achieve specific environmental quality goals better than alternative policies can be said to have a higher degree of environmental effectiveness. It should be noted that although climate protection is the ostensible environmental goal for any climate policy, there may be ancillary environmental benefits (for example, those demonstrated by Burtraw et al. (2001a) for air pollution benefits; see also Section 4.5.2. for air quality co-benefits).

The environmental effectiveness of any policy is contingent on its design, implementation, participation, stringency and compliance. For example, a policy that seeks to fully address the climate problem while dealing with only some of the GHGs or some of the sectors will be relatively less effective than one that aims at addressing all gases and all sectors.

The environmental effectiveness of an instrument can only be determined by estimating how well it is likely to perform. Harrington et al. (2004) distinguish between estimating how effective an environmental instrument will be ex ante and evaluating its performance ex post. These researchers were able to find or recreate ex ante estimates of expected emissions reductions in a series of U.S. and European case studies. Their comparison of the ex ante and ex post observations suggests a reasonable degree of accuracy in the estimates, with those cases in which emissions reductions were greater than expected involving incentive-based instruments, while the cases in which reductions fell short of expectations involved regulatory approaches.

There are situations in which standards are proven to be effective. Regulators may be unduly pessimistic about the environmental performance of incentive-based instruments or unduly optimistic about the performance of regulatory approaches, or perhaps both. Recent evidence suggests that market-based approaches can provide equal if not superior environmental quality improvements over regulatory approaches (see Ellerman, 2006). As we discuss below, however, institutional constraints may alter the relative efficacy of market- and standards-based instruments.