Market-Based Instruments: An Environmental Policy Option Supportive of Free Trade

Abstract

Environmental policy and international trade are generally perceived as inharmonious, however research indicates that strong environmental policy need not detract from trade-induced economic gains. Certain market-based instruments, such as tradable permits for the rights to pollute, are currently being explored through the Kyoto Protocol as an environmental policy option on a global scale. The advantages of market-based instruments include increased efficiency, which translates to decreased costs for both producers and consumers compared to the traditional "command-and-control" instruments. The creation and implementation of more efficient environmental policy will make the simultaneous pursuit of environmental preservation and free trade not only possible, but also mutually supportive.