Abstract
The analysis in this article is directed at comparing the relative effectiveness of two different methods of meeting the Bush Administration’s goals outlined in the Clean Air Plan. 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 the type of strategy directed at improving environmental quality that is followed, both output and consumption decline, as does household utility. Hence, there is a quantifiable trade-off 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 that stresses reliance on alternative fuels (brought about by taxation) than through one that requires the installation of pollution abatement devices (i.e., regulation).