Measuring the costs of improving the quality of the environment in the United States

The analysis in this paper is directed at comparing the relative effectiveness of meeting the objectives outlined in the recently passed Clean Air Act Amendments of 1990 through taxation and through regulation. The analytical vehicle used in the analysis consists of a computable general equilibrium model composed of 12 producing sectors, 13 consuming sectors, 6 household categories classified by income, a foreign sector and a government. We find first that, irrespective of what type of strategy is followed, both output and consumption decline. Hence, there is an identifiable and quantifiable tradeoff between economic activity (economic growth) and the quality of the environment. Beyond this, the aggregate loss in production and economic welfare (measured by consumption expenditures and utility) is less under a policy which stresses reliance on alternative fuels than through one that requires the installation of pollution abatement devices.