Final answer:
A policy that sets emission standards for automobiles represents a command-and-control approach to environmental regulation, like the one requiring auto companies to meet certain emissions standards by 2020. In contrast, market incentive approaches might involve taxes on carbon emissions or pollution charges, such as gasoline taxes.
Step-by-step explanation:
A policy that sets emission standards for automobiles is an example of a command-and-control approach to environmental regulation. This type of policy is characterized by specific regulations that directly control how much pollution is permissible. For instance, the federal government requiring domestic auto companies to improve car emissions by 2020 is a directive that specifies a target outcome without providing flexibility on how to achieve it. In contrast, policies that use economic incentives to influence the behavior of firms and individuals are known as market incentive strategies. An example would be a state emissions tax on the quantity of carbon emitted by each firm, which aims to encourage reductions in pollution by making it more costly to pollute.
Another example of a command-and-control policy is when the Environmental Protection Agency (EPA) sets national standards for water quality, requiring states to implement plans to achieve these federal standards. These are part of an unfunded mandate as defined by the Clean Air Act. However, pollution charges, such as taxes on gasoline imposed by the federal and state governments, serve as both a charge on air pollution and a source of funding for infrastructure, representing a blend of regulatory and market incentive approaches.