E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Box 7-9.—continuedthe use of energy-efficient technologies. Lacking this information,consumers may simply purchase the product with the lowest upfrontcost, all else equal. However, information about the costs of operatinga product over its lifetime may illustrate to the consumer that thelife-cycle costs of the more energy-efficient product could be lowerthan those of the product with the cheaper price tag.The Energy Star Program at the Environmental Protection Agencyprovides consumers with information about the energy efficiency of awide variety of products through a readily identifiable label. Productsbearing the Energy Star label appeal to consumers interested in bothlong-term energy costs and the environmental effects of using energy.Thus, Energy Star office equipment like computers, which are, onaverage, 50 percent more energy efficient, would be especially attractiveto these consumers. In addition, the Administration’s electricityrestructuring bill includes a labeling provision that requires electricitygenerators to provide consumers with information about the environmentalcharacteristics of the electricity provided, such as the fuelsource. Under this bill, consumers who want to purchase “green”electricity will have the information they need to make such a decision.ConclusionEconomic activity has long contributed to environmental pollution in oneform or another, but the application of incentive-based approaches to repair thedamage of pollution has only really come into vogue in the United States overthe past 25 years. Experience with tradable emissions permits and emissionscharges illustrates the potential for substantial cost savings in achieving environmentalgoals, as well as some of the pitfalls in designing these policy tools.Taking the characteristics of environmental problems properly into accountmakes it easier to identify and apply an appropriate regime. Drawing on theU.S. experience with market-oriented regulatory policies, the Administrationhas advocated and secured the inclusion of international emissions trading, JointImplementation, and the Clean Development Mechanism in the KyotoProtocol as ways to achieve the world’s climate goals as cost-effectively aspossible. Future efforts in negotiations to design rules for greenhouse gasemissions permit trading and to expand the scope of trading will seek to ensureeven greater cost-effectiveness.Among the challenges that lie ahead include an improved application of thesetools internationally. Besides the United States, many other industrial countrieshave employed incentive-based approaches, especially emissions charges, to274 | Economic Report of the President