Market-based environmental policy instruments

Market-based environmental policy instruments are ways that governments can encourage individuals and companies to help protect the environment. Let's say there's a lot of pollution in the air, and the government wants to reduce it. They could make a new law that says companies can't pollute as much, but this could be very expensive to enforce and could also hurt the economy. Instead, the government could create a "market" where companies can trade pollution permits, which would allow them to emit a certain amount of pollution. So, the government would set a limit on the total amount of pollution that could be emitted, and then give out permits to companies that add up to that total. If a company wants to emit more pollution than their permit allows, they'll have to buy permits from other companies, and the price of the permits will go up if there are fewer permits available. This will make companies want to reduce their pollution because they'll save money by not having to buy as many permits. It's like a game where everyone wants to use as little pollution as possible so they can save money. The government can also offer incentives for companies that come up with clean technologies, like giving them tax breaks, to encourage them to keep working on solutions. Overall, market-based environmental policy instruments use a market-based approach to encourage companies to have incentives to protect the environment.