Economic instruments are market-based incentives such as taxes and subsidies to encourage behaviour change. Examples include:
Proponents of economic instruments claim that they have the following advantages over regulations:
Whichever approach a government uses – and most governments will use a combination of regulations and economic instruments – methods similar to those mentioned in this subsection can be used to determine a justifiable level of tax or subsidy, or establish an optimum emission limit for a given pollutant.
Allow 15 minutes to complete this activity
In 1993 a study for the UK government estimated that the external costs of the atmospheric and water pollution resulting from the landfilling of waste were in the range –£0.80 to £9.02 per tonne – a negative value represents a benefit to the environment. When a landfill tax was introduced in 1996 it was set at £7.00 per tonne; by 2015 it had reached £82.60 per tonne. Why is the tax so much higher than the external costs?
The tax is intended to encourage business and local authorities to change their behaviour. It provides an incentive to reduce waste generation and to use more sustainable waste management methods such as recycling, composting and energy recovery. If the landfill tax was set at £9 per tonne, landfill would still be far cheaper than these environmentally better management processes.
Also, the estimated external costs didn’t include the material resources that would be ‘lost’ from the economy through landfilling.
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