Market Failure in Environmental Pollution and the Attempts to Extend the Market

Topics: Economics, Externality, Environmentalism Pages: 4 (1288 words) Published: May 1, 2013
Market Failure In Environmental Pollution and the Attempts to Extend the Market.

The idea of giving the environment a price has been a controversial issue as to whether introducing economics will inevitably save it, but with that idea considered, the environment has been increasingly difficult to place a value on. By using environmental valuation methods such as, contingent valuation (willingness to pay), opportunity costs and hedonic pricing, the measurement of environmental gains and losses can be represented in economic terms and by summing up these gains and losses an estimate pricing of the environment can be placed (Beder 1997).

The environment is constantly subjected to market failure, where a market is incomplete or is failing to do what it aims to (failure to protect the environment) (Kolstad 2000), and appropriate measures are continuously being devised to extend the market and prevent the further degradation of environmental and natural resource problems. An environmental market failure well represented in attempts to be fixed is the emissions of pollution into the atmosphere contributing to the enhanced green house effect (Tietenberg & Lewis 2009). This is due to the demand of pollution by the environment being negative, because clean air is much preferred than heavily polluted air, yet there is a huge supply of pollution into the market from industry, thus causing market failure (Brehmer et al. 2007). In the aim to reduce current levels of pollution, there has been the introduction of efforts such as command-and-control (CAC) procedures and market based instruments (MBI’s) effect (Tietenberg & Lewis 2009). The benefits and fall downs of each and how they intervene in a failed market for pollution will be discussed and to determine if they can completely extend the market and solve the issue.

Command and control
‘CAC’ methods are based and prioritized on developing emissions standards (Tietenberg & Lewis 2009). These methods are...

References: Beder, S 1997, ‘The Environment Goes to Market’, Democracy and Nature, vol. 3, pp. 90-106.
Biscoe, JP 2008, Emissions Trading Law, Land and Environment Court of New South Whales, Commentary at seminar on Emissions Trading Law Organised by NSW Bar Association, Government of Australia. Available from: <$file/Paper_4Dec08_Biscoe_Emissions_trading_Law.pdf>. [29 April 2012].
Brehmer, E, Hyland, D, Fritschner, C, Wertz, M 2007, Environmental Economics- volume 1: The essentials, Environmental Literacy Council. Available from: <>. [28 April 2012].
Kolstad, CD, 2000, Environmental Economics. Oxford University Press, New York
Market Based Instruments for NRM Change 2011, Market Based Instruments-FAQ, Government of Australia. Available from: <>. [18 April 2012]
Storfer, S 2004, Can Market Forces Solve Environmental Problems? Neoclassical VS. Australian Analytics, University of Central England, Birmingham, U.K.
Tietenberg, T & Lewis, L, 2009, Environnemental & Resource Economics, Pearson Education, Boston.
White, B 2012, Markets for Pollution – taxes, lecture notes distributed in Environmental Economics 1120 at the University of Western Australia, Crawly on 5 April 2012.
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