The most commonly employed method of governmental regulation is the direct control of pollution.
A direct pollution control sets absolute levels of allowable pollution. These levels may be applied to an automobile, or for example to a factory.
United States, direct pollution controls are applied to the automobile industry. The government requires that all cars sold within the country must comply with the regulations concerning maximum allowable emissions of chemicals per mile.
A more severe measure than imposing pollution limits is for the government to ban pollution of a certain particle. This is a common practice, but it has mixed effects.
Perhaps the biggest problem with direct pollution controls is that they are
economically inefficient. They do not attempt to equate marginal social costs and marginal social benefits.
Polluters will face varying costs in trying to reduce pollution to certain levels. Unfortunately, the simplification of standard pollution levels creates problems.
Imagine that Company A can reduce pollution much more easily than Company B. Rather than mandating that Company A and Company B reduce pollution to a medium level, it would be more efficient to have
Company A reduce pollution greatly, and B only slightly. As a compensation, Company B could make a payment to A.
In the above example, money would be saved overall by not using direct pollution controls. This example is basically an illustration of the use of what are known as tradable pollution permits. As an alternative,