While legislation is aimed at directly changing the behaviour of
polluters by outlawing or limiting certain practices, economic instruments
aim to make environmentally damaging behaviour cost more. Under
these market-based policies, polluters are not told what to do;
rather, they find it expensive to continue in their old ways and
they are presented with a choice about how they can change. Usually,
economic instruments are used in conjunction with legal measures.
When individuals or firms make decisions about production, consumption
and investment, they generally only consider their own costs and
benefits, and not environmental or social consequences (externalities).
The pollution they create does not usually influence their decisions.
Laws force the polluter to take notice of these external costs by
prescribing limits to what can be discharged or emitted. Economic
instruments are supposed to make these external costs part of the
polluter's decision, by adding a charge or by in some way providing
a monetary incentive for considering the environmental and social