Trade in pollution permits augments the traditional approach to environmental regulation by using market principles to control pollution. Since its inception, the program has been criticized as unfair and unfeasible. Yet the concept of trading pollution permits continues to spread.

Most environmental laws limit the amount of waste or pollution each regulated facility can emit to air, water, or land. These limits are then written into permits. Regulators monitor the facility to make sure the permits are followed. Any facility exceeding the permitted level of emissions may be fined or otherwise penalized. This method of controlling pollution is known as command and control.

In 1990, Title IV of the Clean Air Act Amendments became the first federal law to codify a market-based approach to pollution control. The title regulated sulfur dioxide emissions in an effort to reduce acid rain. It set a goal...