Getting the prices right and providing appropriate market signals can play a substantial role in driving consumer behaviour and supporting policy decisions aiming at more sustainable consumption and production. Finding workable ways of applying the user-pays and polluter-pays principles reduces the costs of negative externalities borne by society at large, and contributes to a more efficient use of resources, now a major goal of EU policy.

Aware of the increasing importance of market based instruments in policy making, alongside traditional command-and–control mechanisms, IEEP has engaged in a large number of projects investigating the use of such tools to strengthen environmental policy. These include studies on environmental taxes and charges, environmental tax (or fiscal) reform, environmentally harmful subsidies (EHS), emission trading, green public procurement (GPP) and other economic instruments.

Our key work includes the following:

In 2003-04 IEEP led the study Market Based Instruments for Environmental Policy in Europe. This was a major report for the European Environment Agency, looking at developments in the use of economic instruments in Europe. It covered taxes and charges, fines and penalties, emissions trading, deposit refund schemes, subsidies, environmental tax reform and ecological fiscal reform, liability and compensation issues.

The application of Market Based Instruments for conserving biodiversity was investigated in the context of our work on The Economics of Ecosystems and Biodiversity (TEEB) report for Policy Makers, led by Patrick ten Brink. In particular, Chapter 5 focused on rewarding benefits through payments and markets, Chapter 6 on reforming subsidies and Chapter 7 on addressing losses through regulation and pricing.

Tax reform to discourage the over-use of non-renewable resources and reduce environmental impacts has advanced in several European countries. Our most recent work on this, with a group of partners in 2008-09 was a study on tax reform in Europe over the next decades: implications for the environment, for eco-innovation and for household distribution, undertaken for the EEA. IEEP’s particular role was to study the feasibility and acceptability of a radical Environmental Tax Reform (ETR).

In a related field, IEEP led the study entitled ‘Collection of evidence on the costs and benefits of various types of mandatory measures and targets in the field of Green Public Procurement’ with a group of partners in 2007-08. This project for DG Environment explored potential options to make a form of GPP mandatory in Member States, including assessment of the potential for setting minimum technical specifications, a whole life costing approach, award criteria, requests for environmental management systems and the introduction of GPP into Structural Funds procedures.

There has also been work at the national level. For example in 2005-07 IEEP contributed to a project for the Malta Environment and Planning Authority (MEPA) on Building capacity to introduce the Polluter Pays principle through Economic Instruments to implement the EU Environmental Acquis. We focussed on the identification and assessment of suitable environmental instruments for Malta.