Basically, command and control instruments directly regulate the quantity of pollution emitted by different sources. Various forms of command and control instruments are quota schemes i.e. by permitting emission license to each source, restrictions on inputs of production processes, restrictions on output, imposition of specific technology requirements, for example the installation of catalytic converters in vehicle exhaust systems etc. These instruments are easy and cheap to administer and can be very effective in the sense of achieving huge reductions in pollution levels compared with what would be expected in their absence.

Economic instruments are in the form of taxes, subsidies that are imposed on the emissions and transfer permits. A market-based tax approach determines a maximum cost for control measures. This gives polluters an incentive to reduce pollution at a lower cost than the tax rate. A market-based transferable permit sets a maximum level of pollution (a 'cap'), but is likely to achieve that level at a lower cost than other means. These instruments are also known as market based instruments since they complement the market processes to achieve Pareto efficiency (making one better off without making someone else worse off) even in the presence of environmental externalities like air and water pollution. These instruments seek to “internalize” the externalities by making the pollution costs a part of their cost function.

To properly implement the quota schemes, there is a need for effective pollution monitoring systems and harsh penalties for non-compliance. If the polluter thinks that their actions are not being watched, the success of the programme is unlikely. Therefore, the success rate highly depends on the magnitude of penalties which reduces the effectiveness and dependability of the control programme. Command and control approaches have been criticised for restricting and dictating technology, as there is no incentive for firms to innovate and invest in more efficient pollution control technologies. Industry bemoans the financial costs that the regulations impose and the regulators bear the burden of keeping abreast of technological developments in many industries.

A major problem under the command and control instruments is regarding the information requirements. To effectively implement the quota scheme, the regulator needs to know the marginal abatement costs of each and every polluter. This is very unlikely to be achieved in practice. Even if they tried to acquire the information, the costs of collecting the information would be so high that they outweigh the gains from the control. Also, information asymmetries might occur since the firms know their own costs but the regulator doesn’t, so the firm might not disclose full information or worse, they might give misleading information.

Economic instruments can achieve an efficient pollution target by using the least cost method. They can create a system for pollution reduction that achieves the same level of environmental protection for a lower overall cost (or achieves more for the same cost). Market-based instruments allow for a more hands-off regulation and decentralized decision making, giving greater flexibility and freedom in their approaches to pollution management. When an emission tax is levied, it provides for a financial incentive to the firms in the form of avoidance of the tax. Firms will find it privately profitable to abate pollution as long as their marginal abatement unit costs are less than the absolute value of the tax rate per unit of pollution.