The search for alternatives to legislation and enforcement of environmental policy led a 1988 bipartisan Congressional study group (Project 88) to call for the use of market forces, including taxes, to protect the environment. Project 88's advocacy of these "green" taxes and other economic incentives for reducing pollution is actually an old idea. Charles Schultze, chairman of the Council of Economic Advisers under President Jimmy Carter, maintained in the 1976 Godkin Lectures delivered at Harvard University (later published as a book titled The Public Use of the Private Interest) that detailed laws and bureaucratic requirements were a costly and ineffective way to control pollution. Instead, reliance should be placed on taxes and subsidies that would make private interests more congruent with public goals.

The economists' argument, posed by Project 88, Schultze, and others, is that the harm pollution causes to health, property, and aesthetics is not paid for by business...