Environmental pricing reform

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Environmental pricing reform (EPR) is the process of adjusting market prices to include environmental costs and benefits.

An externality (a type of market failure) exists where a market price omits environmental costs and/or benefits. In such a situation, rational (self-interested) economic decisions can lead to environmental harm, as well as to economic distortions and inefficiencies.

Environmental pricing reform can be economy-wide, or more focussed (e.g. specific to a sector or environmental issue such as climate change. A "market based instrument" or "economic instrument for environmental protection" is an individual instances of Environmental Pricing Reform. Examples include green tax-shifting (ecotaxation), tradeable pollution permits, or the creation of markets for ecological services.

A similar term, "ecological fiscal reform" differs in more narrowerly dealing with fiscal (i.e. tax) policies, and arguably in its focus on ecology instead of environment.

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