This is according to a new report issued by the European Environment Agency which aims to demystify MBIs and explain their often-arcane mechanisms to the layman.

The report, Using the market for cost-effective environment policy – market-based instruments in Europe, was released at a meeting of high-level economists at the EEA’s headquarters in Copenhagen.

The report is based on the premise that much environmental pollution and depletion of finite natural resource comes from incorrect pricing of the goods

and services we produce and consume.

It argues that MBIs such as taxes, subsidies and tradable permits are increasingly being used to provide a vital economic incentive to helping the environment.

Real economic costs can be tied to environmental damage and it is often those who are not benefiting from the use of the products causing the impact who are footing the bill, says the report, giving the example of unborn generations, the Arctic people on the receiving end of Europe’s pollution, the poor who are obliged to live in industrial areas where accommodation is cheap and city pensioners who do not own cars.

The report looks at the political obstacles that can derail MBIs and also provides a check list of what makes an effective MBI.

Among the suggestions in the report are :

  • Any good MBI needs a champion who will put their neck on the line to make it work, such as London Mayor Ken Livingstone’s introduction of the city’s congestion charge.
  • They need to be kept simple and understandable and targets need to be realistic.
  • Legislators need to pick winners by focusing on areas where there is general agreement and pressure to have them addressed, such as litter or congestion.
  • Make sure people have the option to make the right choice. High fuel duty in the UK and Germany, for example, might discourage car use but unless some of the revenue raised is spent on better public transport it just causes resentment.

    The full report can be found on the EEA’s website.

    By Sam Bond

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