An externality (a type of market failure) exists where a market price omits environmental costs and/or benefits. In such a situation, rational (self-interested) economic decisions can lead to environmental harm, as well as to economic distortions and inefficiencies.
Environmental pricing reform can be economy-wide, or more focused (e.g. specific to a sector (such as electric power generation or mining) or a particular environmental issue (such as climate change). A "market based instruments" or "economic instrument for environmental protection" is an individual instance of Environmental Pricing Reform. Examples include green tax-shifting (ecotaxation), tradeable pollution permits, or the creation of markets for ecological services.
A similar term, "ecological fiscal reform" differs in more narrowly dealing with fiscal (i.e. tax) policies as opposed to using non-fiscal regulations to achieve the government's environmental goals.
- ↑ Thompson, David (May 2010). "The Power of Prices and the Failure of Markets" (PDF). The Edmonton Sustainability Papers. City of Edmonton. Retrieved 3 January 2015.
- ↑ Mankiw, Gregory N. (2012). Principles of Economics (6th ed.). Mason: South-Western Cengage Learning. p. 196.
- ↑ Beauregard-Tellier, Frédéric (17 March 2006). "Ecological Fiscal Reform". Parliament of Canada. Retrieved 3 January 2015.
- Redefining Progress - http://www.rprogress.org/
- Sustainable Prosperity - http://sustainableprosperity.ca/
- Green Budget Germany - http://www.foes.de/en/
- OECD/EEA database on instruments used for environmental policy and natural resources management - http://www2.oecd.org/ecoinst/queries/index.htm
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