Market Instruments for the Sustainability Transition
38 Annual Review of Environment and Resources 415-40 (2013)
Posted: 12 Oct 2013 Last revised: 13 May 2016
Date Written: 2013
This review examines environmental market instruments — policies that pursue environmental or conservation goals by modifying conditions in existing markets or creating new ones, thereby providing flexibility and incentives for decentralized responses. We review these instruments’ theoretical basis, historical development, major current enactments and proposals, and empirical studies of their effects. We consider experience with these instruments in the context of the increased demands that may be imposed on any policies by the pursuit of a large-scale transition to sustainability. Under these conditions, challenges likely to be particularly prominent for market instruments will include managing distributive effects when policies are enacted, effectively adapting policies under advancing knowledge, managing the tension between cost-reducing expansion of the scope of market instruments and the maintenance of environmental effectiveness, and designing systems to build complementarity between market incentives and related normative systems. Each of these implies priorities for research and policy experimentation.
Keywords: policy instruments, market mechanisms, environmental policy
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