Environmental policy instruments are tools used by governments to implement their environmental policies. Governments may use a number of different types of instruments. For example, economic incentives and market-based instruments such as taxes and tax exemptions, tradable permits, and fees can be very effective to encourage compliance with environmental policy. Corporate companies who engage in efficient environmental management and are transparent about their environmental data and reporting benefit from improved business performance.
Bilateral agreements between the government and private firms and commitments made by firms independent of government requirement are examples of voluntary environmental measures. Another instrument is the implementation of greener public purchasing programs.
Several instruments are sometimes combined in a policy mix to address a certain environmental problem. Since environmental issues have many aspects, several policy instruments may be needed to adequately address each one. Furthermore, a combination of different policies may give firms greater flexibility in policy compliance and reduce uncertainty as to the cost of such compliance.
Government policies must be carefully formulated so that the individual measures do not undermine one another, or create a rigid and cost-ineffective framework. Overlapping policies result in unnecessary administrative costs, increasing the cost of implementation. To help governments realize their policy goals, the OECD Environment Directorate collects data on the efficiency and consequences of environmental policies implemented by the national governments. The website, www.economicinstruments.com, provides database detailing countries' experiences with their environmental policies. The United Nations Economic Commission for Europe, through UNECE Environmental Performance Reviews, evaluates progress made by its member countries in improving their environmental policies.
The current reliance on a market-based framework is controversial, however, and many environmentalists contend that a more radical, overarching approach is needed than a set of specific initiatives, to deal with the climate change. For example, energy efficiency measures may actually increase energy consumption in the absence of a cap on fossil fuel use, as people might drive more fuel-efficient cars. Thus, Aubrey Meyer calls for a 'framework-based market' of contraction and convergence. The Cap and Share and the Sky Trust are proposals based on the idea.
Environmental impact assessments (EIA) are conducted to compare impacts of various policy alternatives. Moreover, it is assumed that policymakers make rational decisions based on the merits of the project. Eccleston and March argue that although policymakers normally have access to reasonably accurate information, political and economic factors often lead to environmentally destructive decisions in the long run.
The decision-making theory casts doubt on this premise. Irrational decisions are reached based on unconscious biases, illogical assumptions, and the desire to avoid ambiguity and uncertainty.
Eccleston identifies and describes four of the most critical environmental policy issues facing humanity: water scarcity, food scarcity, climate change, and the population paradox.