Chapter 8: The EU’s use of market-based instruments to plug a regulatory gap
Over twenty years ago, the EU approved MBIs as mechanisms that would promote the responsible use of natural resources. This chapter considers the use of MBIs that operate within clear regulatory frameworks applying environmental principles, most particularly the polluter-pays principle, which is discussed in conjunction with the user-pays principle. The user-pays principle has been deployed in the EU’s WFD and the polluter-pays principle in the Environmental Liability Directive. These instruments demonstrate the potential of MBIs to deliver policy goals in situations of market failure, transferring the costs of the adverse effects of resource use from the general public to users of environmental resources. So successful is the device that the Commission proposed extending the existing financial security provisions of the Civil Liability Convention for Oil Pollution Damage in a new EU scheme. These provisions were intended to persuade operators towards the prudent conduct of their affairs with a view to protecting the environment. The efficacy of such MBIs will depend on operators providing financial security against the risk of damage being caused by their activities.
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