Both approaches are equally likelihood to encourage innovation as both impose external costs on polluting activities making cleaner technologies more competitive.

Command-and-control measures may drive rapid innovation as firms seek new technologies that allow them meet stricter regulatory standards quickly.

Tradable permits could incentivize innovation through added value potential while strict regulations often lack flexibility inducing minimum compliance behavior only.

Tradable permits can stifle innovation by providing a cost-effective alternative to investing in new technology.