by David Malin Roodman

About the author: David Malin Roodman is a senior researcher at the World- watch Institute, an environmental research organization.

Taxes and regulations are often cast as polar opposites. Regulatory approaches, born out of environmentalists’ distrust of businesses, are the bad old policies, or so the fable runs. The best way to make sure firms cleaned up was to tell companies exactly how to do it. But now regulations have become burdensomely complex and perverse, wasting businesses’ money and often failing to protect the environment as well. Tax and permit systems are the coming fashion. They can sweep away the tangle of rules, freeing business from its regulatory shackles.

Like most fables, this one contains some truth. Most of the bricks in the environmental policy edifice built during the last 30 years have been fired...