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Smith et al. (2017) and respondents of World Economic Forum (2013) surveys consider climate change the world’s gravest environmental problem. Recognizing the seriousness of the environmental situation has led to environmental aspects being taken into account in the decision-making process and the idea of sustainable development being promoted on all governmental levels.
The United Nations Conference on the Human Environment, which took place in Stockholm in June 1972, was a crucial moment. It was attended by representatives of 113 countries; economists, politicians and other major actors recognized environmental pollution as a serious economic problem. Subsequently, a specific segment of economic policy, known as environmental policy, focused on environmental care with appropriate instruments collection, has been set apart. There are diverse approaches to classify environmental policy instruments.
According to Barbieri (2015), Clò et al. (2017), Liao (2018), Piciu and Trică (2012), Xepapadeas (2009), environmental regulation has two basic forms: command-and-control and market-based policy instruments. Command-and-control (regulatory or green regulation) instruments put pressure on polluters to change their behaviour by means of direct restrictions, commands, limitations or prescribed procedures that cannot be lawfully circumvented. If the polluters contravene them, they will be sanctioned. They have different degrees of commitment – laws, regulations, directives, standards (emission, technology and product standards), or agreements (Bergek et al., 2014; Liao, 2018; Singh et al., 2017).
Financial incentives that stimulate the polluter to choose the least costly alternative – to invest in a sustainable solution or to incur additional costs for pollution – are the key element of market-based (economic) instruments. Environmental taxes, environmental fees and charges, deposit-refund systems, tradable permits and subsidies are the most well-known economic instruments. (Bergek et al., 2014; Piciu & Trică, 2012; Xepapadeas, 2009)