3. What are the advantages and drawbacks of market-based incentives versus regulations as
instruments of environmental policy?

Market based incentives are policies that rewards companies and individuals that produce low levels of pollution, conserve resources and protect the environment, while punishing those that do not comply. They include such schemes as emissions trading, carbon credits, renewable energy industry subsidies and "cap-and-trade" programs. Advantages of these incentives are that they create an economic framework to encourage companies to reduce their negative environmental impacts. They can also reduce the costs of pollution reduction, since companies can trade or purchase incentives. Regulations, on the other hand, set minimum environmental standards for output and performance that must be met or businesses suffer the consequences. The biggest advantage of regulations is that they provide certainty and clear parameters for compliance. Companies can plan ahead and can factor in the likely costs of compliance in their production and operations costs. Regulations also ensure that all businesses in a particular industry offers the same level of environmental protection, meaning that no one can gain a competitive advantage by buying an emissions permit or carbon credit to reduce emissions, while their rivals are forced to make the cost of engineering improvements to meet the regulations. The drawbacks of market incentives is that they rely heavily on self-monitoring and trust, whereas regulations are enforceable. Companies may not adhere to the incentives, and those incentives often advantage larger organizations and those with greater financial resources. Regulations also have drawbacks such as bureaucratic complexity, delays due to lengthy permit reviews and opposition from organizations and industries that they impact. Overall, both market incentives and regulation