‘Environmental policy: instrument choice’ considers the policy instruments available to governments to regulate polluting emissions and environmental damage. Much environmental policy consists of legislation to prohibit environmentally damaging behaviour, or to compel actions which will improve the environment. Economists have argued that direct and inflexible regulation of this sort can be unduly costly, and that the same environmental improvement could be achieved at lower cost using more flexible, market-based forms of regulation. Incentive-based approaches using ‘market mechanisms’ — environmental taxes or emissions trading — have some significant advantages. The US Acid Rain Program, an example of an application of tradeable pollution permits, is discussed.