Two approaches to pricing pollution

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In comparison is the commonly used Cap and Trade method with an alternative and novel method for pricing pollution: The aim was to conduct a practical approach to clarify advantages and challenges of the respective mechanisms. Shortly, the report promotes:1) Levying a Fee which is sufficiently high and adjusted sufficiently often for a Fee 2) Letting the Futures Market and other hedging and insurance instruments indicate the price (the average abatement cost) which can be levied without harming the economy. 3) Securing a repayment of a sufficiently large fraction of the revenue from the Fee. These three parts or components are all essential to the mechanism. Still, key questions remain unanswered in this report. This project was launched by the Working Group for SCP (HKP) in collaboration with the Working Group on Environment and Economy (MEG) under the Nordic Council of Ministers.




In an economic system where finite resources (in the long run) are being depleted – rather than recycled – and harmful substances are discharged/ emitted beyond sustainable levels through economic activities and thereby in the long term undermining the system, it becomes increasingly evident that this development calls for the application of mechanisms to support sustainable ways of production and consumption. Such mechanisms to be applied should be environmentally and economically effective as well as socially and politically acceptable. In our view, the overall background for the present project “… aimed at developing a better basis for policy on sustainable production and consumption through developing practical pricing approaches to pollution.” Policy action must be seen from the perspective of both consumers and industries as both are part of causes, solutions and will bear the positive and negative consequences of environmental regulation.


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