Anti Pollution Measures  

Pollution is seen as an example of market failure. In particular pollution is an example of a negative externality - a cost imposed on a third party. For example, when driving a car, other people suffer from the emissions e.g. global warming. Therefore, in a free market there tends to be overconsumption of goods which create negative externalities. Therfore governments implement anit pollution measures which can include

  1. Taxes. Higher taxes on fuel emissions will reduce demand and pollution. However, demand tends to be quite inelastic for these goods.
  2. Subsidies. Subsidising alternative sources of energy can provide an incentive to increase supply of different fuel sources
  3. Pollution Permits. Pollution permits are a tradeable permit scheme which give firms and countries an incentive to reduce pollution, otherwise they have to buy more permits.
  4. Regulation. Regulation can limit the amount of pollution; for example, banning cars on certain days.

The problem with anti pollution measures is that they require global cooperation and this is often difficult to achieve. For example, Kyoto agreement on global warming was never ratified by the US

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