chapter  11.2
6 Pages

Economic Instruments

WithJanis Birkeland

Economic instruments to reduce pollution may overcome some of the problems with government regulation but they also have their own problems. There are numerous kinds of economic instruments for internalising the costs of environmental damage, so that industry will prevent, mitigate or clean up pollution in order to increase profits. This chapter discusses that there are two basic types of economic instruments: price-based and rights-based measures. Subsidies can reduce the price of goods or services that are environmentally friendly, in order to encourage their sale over other products. Monetary or price-based measures include charges, taxes and levies which impose a kind of tax on the public costs of production, so that it becomes cheaper to modernise or convert to cleaner processes. Taxes can be removed from labour and investment to make these less expensive, or added to environmentally harmful products or processes to make these more expensive.