Economics

Study Notes

Interventions to address environmental market failure

Level:: AS, A-Level, IB

Board:: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 2 Mar 2019

There are many ways in which interventions might be used to address one or more causes of environmental market failure.

Environmental pollution is a cause of market failure

Some government interventions focus on changing market prices to alter the private costs and benefits of decisions taken by producers and consumers. For example, the introduction of a carbon tax or wider implementation of carbon emissions trading. The UK farming industry may face further environmental interventions in the years to come as evidence grows of the scale of emissions from the meat industry in particular.

Subsidies to encourage investment in and adoption of clean energy or direct payments to incentivise environmental protection also come into this category.

Other interventions take a command and control approach - for example the toughening up of regulations on C02 and N02 emissions from the transport industry along with the potential for laws to ban certain activities.

Strong evaluation involves assessing the benefits and costs of such interventions on a case-by-case basis (drawing on evidence from specific examples) and also considering which combinations of intervention is likely to be most effective in addressing environmental market failures in the longer-term.

The risk of one or more forms of government failure which can lead to a deeper market failure must also be considered.

To what extent can the market mechanism itself find durable and scaleable solutions to some of the deepest environmental issues of the age? What steps are some of the leading corporations around the world taking to reduce their emissions and promote sustainable and ethical business models?