Many of the problems associated with direct regulation also apply to economic instruments. The dilemma posed by uncertainties remains: whether or not particular chemicals are harmful and at what levels. Also, the need for monitoring and enforcement remains&emdash;the regulator still needs to know what volumes and concentrations of wastes are being discharged, and needs to ensure that the firm is paying the correct amount or deserves emission credits, even when that firm is being charged for its wastes. Table 12.1 shows the advantages and disadvantages of regulation and economic instruments, as put forward by the House of Representatives Standing Committee on Environment and Conservation in 1987 :

The main arguments for economic instruments over legislation are that they are more flexible and cost effective, and provide more incentive for innovation. However, the differences do not seem to be as great in practice as they are in theory. Regulation in Australia has been far more flexible than, for example, in the USA; generally, it does not prescribe how firms should meet standards but leaves that choice to them. Neither regulations nor economic instruments have been particularly successful at promoting innovation and cleaner technologies. There is no reason why, in the future, economic instruments would be better at doing this than regulatory mechanisms (see part 5) .

Neither form of policy has been successful in protecting the environment. The power of government institutions, the will of the politicians, and the scope for public participation and scrutiny are far more important variables in successful environmental policy implementation than the actual policy instruments. J. Rees says of various policy instruments:

They inevitably have to operate within an institutional setting where policy goals are confused, shifting and frequently conflicting, where the implementation process does not, and cannot, operate along clear, consistent ends-means lines, and where they are prey to manipulation by interest groups within both the regulated community and the regulating authorities themselves.(1988, p. 175)

The tendency has been to compare regulatory mechanisms in practice with economic mechanisms in theory. Rees says that advocates of economic mechanisms tend to assume that 'the pollution control system is populated by economically rational entrepreneurs and regulators, operating without technical, perceptual, organisational and capital availability constraints' (p. 172). This is not the case. For example, a firm may not be able to afford the initial capital cost of changing production processes or putting in pre-treatment equipment, even if this would be cheaper than paying the charges in the long term.

Rees (p. 184) claims that a number of studies have shown that 25 to 30 per cent of dischargers who are subject to effluent charges do not understand the pricing system and that 'significantly different levels of payment could arise if they altered the strength/volume composition of the effluent'. Many of them do not have sufficient knowledge of alternative methods and costs to make optimal decisions in their own interest. He concludes that:

Rarely, then, is it valid to consider pricing as the least costly and self-administering form of control. In fact it will require all the monitoring and information services provided under discretionary standards and will incur the additional costs of billing. (p. 184)

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