Environmental pricing reform (EPR) or Ecological fiscal reform (EFR) is a fiscal policy of adjusting market prices to account for environmental costs and benefits; this is accomplished by the utilization of any forms of taxation or subsidy to incentivize or disincentivize practices with environmental impacts.
An
externality
In economics, an externality is an Indirect costs, indirect cost (external cost) or indirect benefit (external benefit) to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be conside ...
(a type of
market failure
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value.Paul Krugman and Robin Wells Krugman, Robin Wells (2006 ...
) exists where a market price omits environmental costs and/or benefits. In such a situation, rational (self-interested) economic decisions can lead to environmental harm, as well as to economic distortions and inefficiencies.
Environmental pricing reform can be economy-wide, or more focused (e.g. specific to a sector (such as
electric power generation
Electricity generation is the process of generating electric power from sources of primary energy. For utilities in the electric power industry, it is the stage prior to its delivery ( transmission, distribution, etc.) to end users or its stor ...
or
mining
Mining is the Resource extraction, extraction of valuable geological materials and minerals from the surface of the Earth. Mining is required to obtain most materials that cannot be grown through agriculture, agricultural processes, or feasib ...
) or a particular
environmental issue
Environmental issues are disruptions in the usual function of ecosystems. Further, these issues can be caused by humans (human impact on the environment) or they can be natural. These issues are considered serious when the ecosystem cannot recov ...
(such as
climate change
Present-day climate change includes both global warming—the ongoing increase in Global surface temperature, global average temperature—and its wider effects on Earth's climate system. Climate variability and change, Climate change in ...
). A "
market-based instrument" or "economic instrument for environmental protection" is an individual instance of Environmental Pricing Reform. Examples include green tax-shifting (
ecotaxation), tradeable pollution permits, or the subsidization of markets for ecological services.
See also
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Ecotax
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Environmental accounting
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Environmental economics
Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical ...
*
Environmental enterprise
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Environmental finance
References
External links
Redefining ProgressSustainable ProsperityGreen Budget Germany
Economy and the environment
Market-based environmental policy instruments
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