ABSTRACT
This chapter focuses on two broad kinds of economic disincentive against excessive pollutant emissions or resource extractions— those that are price-based and those that are quantity-based. Price-based instruments allocate a fixed value to environmental impacts which is levied via taxes, tariffs or other charges on each unit of pollution emitted or of resource extracted. Quantity-based instruments allocate rights to extract resources or to emit pollutants up to pre-determined levels. Price-based measures that impose charges on resource extraction and pollution can be located in the upper left quadrant of the Benefit Flows and Property Rights Matrix. Eco-taxes and other price-based instruments are simpler than tradable rights schemes since all they require is that resource users pay a fixed charge for pollution emissions or resource extractions. The environmental impacts of tradeable rights have been far less positive. The importance to fixed price mechanisms of an elastic relationship between price and demand is widely recognized.
