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Making the market work for sustainable development

A plethora of instruments exists that can make the market work for sustainable development, including tradable permit schemes, removing market barriers and environmentally damaging government subsidies, subsidizing the start-up of environmentally sound businesses, creating markets for environmental services, encouraging disclosure policies and recycling tax revenues. In the right context, market instruments can often be more effective than command-and-control measures. Furthermore, their flexibility encourages private sector innovation in ways that binding policies do not. The market is not very effective, however, in dealing with the long time horizons and uncertainty that characterize some environmental problems.

Suggestions for Action
Making the market work for sustainable development
  • Promote tailored policies that combine market instruments with traditional command-and-control measures, such as internalizing environmental costs, introducing environmental taxes and removing perverse subsidies
  • Build partnerships between government, industry and others to shape the markets for environmental goods and services, using tools such as legislation, incentives, market mechanisms and other methods of influencing market and consumer behaviour
  • Analyse and reform market imbalances and imperfections, including decreasing the subsidies that allow prices to be held artificially below the costs of production and use for resources such as as fuel, pesticides, water and electricity
  • Develop more and better incentives to capitalize on win-win' situations, whereby both the economy and the environment benefit, such as:
    • increasing community benefits from environmental markets (e.g. fair trade)
    • introducing a public disclosure policy to reveal those most responsible for pollution - such as the publicly available pollutant release and transfer registries through which industries report emissions to air, water and land
  • Promote the growing catalytic, cooperative role of governments (rather than the regulatory one) and encourage better national coordination between international trade decisions and environmental policy
  • Bring 'green' goods and services to the market
  • Take active measures to stimulate sustainable consumption and production practices
  • Provide incentives for eco-efficient (cleaner) production and innovation