National Environmental Policy Act ( Nepa )

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In the United States, National Environmental Policy Act (NEPA) was enacted on January 1, 1970 and Environmental Protection Agency began operation December 2, 1970. In many developed countries, since 1960s growing awareness about the side-effects of unrestricted development and industrialisation had pressured policy makers to establish environmental policies and agencies. During that period, the policies were designed to focus on prompt and remedial action plans rather than prevention tools. As a result, “Command and Control” (CAC) approach became the dominant tool which is comprised of setting environmental standards (command) and penalising non-complied actions (control).

The experience with CAC during 70s and 80s suggests that the regulatory policies in practice cost far greater than expected. Since CAC has been introduced by many countries, economists focused on the economic evaluation of the approach in terms of its efficiency and cost-effectiveness. Some studies suggest that the environmental standards mandated by governments are hard to be set at an efficient level because of legislative constraints, imperfect information, regional differences and non-uniformity of pollutants. Another issue with CAC is associated with enforcement problems such as costs of monitoring and administration.

For the reasons mentioned above, new approach has been recommended by many economists. The new policy is called Economic Instrument (EI) which provides incentives to companies or

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