Figure 1: Institutional determinants of feasibility of a particular economic instrument

Text description of figure

The figure shows a decision-making framework based on the regulatory environment to identify which economic instrument may be suitable in a given situation. For example, where environmental standards are in place and there is a cap on individual emissions then tradeable permits and offsets may be possible.

Do standards or regulations exist limiting actions with adverse environmental impact?

• If yes, do standards define a cap on individually permissible quantity of discharge or input use?
  If yes, trabeable permits & offsets possible
  If no, offsets possible.

• If no, neither tradeable permits nor offsets possible.

Are those who create adverse environmental impact charged or is there willingness to charge them?

• If yes, environmental charges possible
• If no, are taxpayers charged for provision of environmental goods or is there willingness to charge them?
  If yes, incentive payments & tendering possible
  If no, price-based instrument not possible.