A short (15min) presentation on examples of market based instruments for addressing environmental problems. Definitions, caveats and popularity are covered.

1. Glen Speering
Lecturer, Edith Cowan University
g.speering@ecu.edu.au
Glen.speering@hotmail.com

2. What do we mean by “Market-
based Instruments”?

3. MBIs as a policy instrument...
 Set a price
 Both directly and indirectly
 Can lead to more efficient market transactions
 Address negative environmental externalities
 By setting a dollar value for the activity of polluters

4. MBIs include
 Pricing structures (feed in tariffs, block pricing etc.)
 Effluent and user charges
 Taxes and tax differentiation (rebates and
compensation)
 Container deposit schemes
 Permits, rights and tradeable rights
 Public information
 Product certification and promotion
 And many many more

5. There are generally three types
 Price based
 Quantity based
 And market friction reduction schemes

6. Price based schemes
 Directly set a price
 Are fixed
 Are the simplest to develop in policy
 Require few polluters to be effective

7. Quantity based schemes
 Indirectly set a price
 Price is often flexible and changeable
 Are used in conjunction with trading schemes
 Difficult to administrate
 Require many diffuse polluters and parties to be
effective

8. Market friction based schemes
 May or may not result in a cost to a party
 Can be used as a selling point for products or
businesses
 Are popular with business and consumers
 Leverage other policies and enables better
choices, influencing behaviours

9. So what?
 MBIs can be less costly to business and governments
than additional regulation
 Work effectively with existing regulation to change
behaviour and improve outcomes
 Revenue generated is most often put back in to that
environmental goal

10. Why?
 MBIs have been seen as the lowest cost solution
 Flexibility in pollution reduction & offsetting
 Success in the SO2 trading scheme in the late 80s & 90s has
been seen as the ideal model
 Where lack of transactions are a problem (full take up of
water rights or face loss of rights for example)
 Regulation not being palatable

11. Why not?
 Markets seen as a panacea, and aren’t
 Environments are not homogenous and pollution hotspots
occur
 Regulation needs to be effective for MBIs to be effective
 Need to be highly specialised for particular problem e.g.
effective for water conservation, less effective for aquatic
pollution

12. Conclusion
 MBIs encompass a wide range of policy options
 Are favorable because of their contrast to regulation
 Provide businesses and consumers with choice as to
changing behaviour
 But require specialised solutions to specific
environmental problems