Market-Based Instruments and Sustainable Development
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Question
What is a carbon tax?
Answer
A fee imposed on the burning of carbon-based fuels, designed to reduce greenhouse gas emissions by making fossil fuels more expensive.
💡 Hint
Burn carbon → pay tax
Question
What is the Brundtland definition of sustainable development?
Answer
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs (1987).
💡 Hint
Brundtland 1987 — present without harming future
Question
What is a green economy?
Answer
An economy that reduces environmental risks and ecological scarcities while improving human wellbeing and social equity.
💡 Hint
Growth that helps, not harms
Question
Name four market-based instruments for environmental protection.
Answer
1) Carbon tax. 2) Cap-and-trade. 3) Subsidies for clean alternatives. 4) Payment for Ecosystem Services (PES).
💡 Hint
Tax, cap, subsidise, pay for services
Question
What is Payment for Ecosystem Services (PES)?
Answer
Schemes where beneficiaries of ecosystem services pay landowners or communities to maintain those services. E.g., a city paying upstream farmers to protect a watershed.
💡 Hint
Pay people to keep nature working
Question
Name three alternative measures to GDP.
Answer
1) Gross National Happiness (GNH) — Bhutan. 2) Human Development Index (HDI). 3) Ecological Footprint. Each captures dimensions GDP misses.
💡 Hint
GNH, HDI, Ecological Footprint
Question
What are the three pillars of sustainable development?
Answer
1) Economic growth — improving living standards. 2) Social equity — fair resource distribution. 3) Environmental protection — maintaining ecosystem health.
💡 Hint
Economy, society, environment
Question
What is a circular economy?
Answer
An economic model that eliminates waste by keeping materials in use through reuse, repair, recycling, and remanufacturing — as opposed to the linear "take-make-dispose" model.
💡 Hint
No waste — everything goes back around
Question
How do market-based instruments complement regulation?
Answer
Regulation sets minimum standards (floor). Market instruments incentivise going beyond minimums and find cost-effective solutions. Together they are more effective than either alone.
💡 Hint
Regulation = floor. Market = incentive to exceed.
Question
What tensions exist within sustainable development?
Answer
Economic growth often requires resource consumption. Short-term profit conflicts with sustainability. Developed nations consume disproportionately. Measuring progress is contested.
💡 Hint
Growth vs limits, now vs future, rich vs poor
Question
Name five principles of the circular economy.
Answer
1) Design out waste and pollution. 2) Keep products/materials in use. 3) Regenerate natural systems. 4) Shift from ownership to service models. 5) Use renewable energy/materials.
💡 Hint
Design, keep, regenerate, share, renew
Question
Compare carbon tax vs cap-and-trade: 2 advantages each.
Answer
Carbon tax: simple to implement + predictable price. Cap-and-trade: guarantees emission cap + flexible for companies to find cheapest reductions.
💡 Hint
Tax = simple + predictable. Cap = guaranteed + flexible.
Question
What is a subsidy in environmental policy?
Answer
A financial incentive paid by governments to encourage environmentally beneficial activities, such as installing solar panels or adopting organic farming methods.
💡 Hint
Government pays you to go green
Question
Why is GDP criticised as a measure of development?
Answer
GDP only measures economic output, ignoring environmental degradation, social inequality, health, and wellbeing. A country can have rising GDP while destroying its natural capital.
💡 Hint
GDP counts pollution cleanup as positive growth!
Question
What is the key challenge of sustainable development?
Answer
Balancing economic growth, social equity, and environmental protection simultaneously — especially when these goals conflict in the short term.
💡 Hint
Three goals, often pulling in different directions
Question
How does the circular economy differ from the linear economy?
Answer
Linear: take resources → make products → dispose as waste. Circular: design for longevity → reuse/repair → recycle/remanufacture → no waste.
💡 Hint
Linear = straight line to landfill. Circular = loop back.
Question
Why is Bhutan's GNH a good exam example?
Answer
Bhutan measures development through nine domains including wellbeing, ecology, and culture — not just money. It shows an ecocentric alternative to GDP-focused anthropocentric development models.
💡 Hint
Bhutan = happiness over money
Question
Give an example of "shifting from ownership to service models".
Answer
Car-sharing services instead of individual car ownership. This reduces total cars manufactured, raw materials used, and waste generated while still meeting transport needs.
💡 Hint
Don't own — share and use
Question
What is Gross National Happiness (GNH)?
Answer
An alternative development measure used by Bhutan, based on nine domains including psychological wellbeing, health, education, ecological diversity, and governance.
💡 Hint
Bhutan's alternative to GDP — happiness matters
Question
What are two disadvantages of cap-and-trade?
Answer
1) Carbon price can be volatile, creating business uncertainty. 2) Complex to administer — requires monitoring, verification, and trading infrastructure.
💡 Hint
Volatile price + complex admin
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Full study notes for Market-Based Instruments and Sustainable Development
Topic 9.2 hub
Environmental Economics
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