This article is written by Shambhavi Shree, a student of KIIT School of Law, Bhubaneswar (4th year).


Market-based instruments are used by many countries worldwide. The first MBIs were introduced by David Llyod in the United Kingdom (UK) when fuel tax was levied in 1909 during his tenure in the ministry. The main objective of MBIs is to reduce negative outside factors or influences that impact the operation of a business. So that people will adopt new production at a low cost. It reduces the activities which are harmful to society such as environment-related taxes, air pollution, water pollution, motor vehicle fuels, greenhouse gas emissions, carbon leakage, etc. The Organization for Economic Cooperation and Development (OECD) suggests that there are 250 environment based fees charges and 375 different environmental taxes. Market-based Instruments are also known as economic instruments, price-based instruments, new environmental policy instruments, or new instruments of environmental policy. 

Advantages of MBIs

  1. Market-based Instruments are highly flexible.
  2. It motivates the firms to change their practices and improve their functioning.
  3. It reduces toxic emissions from vehicles and engines.
  4. It is cost-effective.
  5. It promotes Competition which drives innovation.

Types of MBIs

  1. Pollution tax: It talks about the charges imposed on the products that are harmful to the environment. 
  2. Subsidies: Any state or a public body grants money to reduce the number of industry discharges and for investing in pollution control measures.
  3. Marketable permits: An authority sets maximum limits on the total allowance emissions of a pollutant. Traders can be both external as well as internal. The criteria are set for the total demand for the amount of the pollutant over a specified period.
  4. Liabilities
  5. Refundable deposits: It consists of the product returned after use till a specified time and which needs recycling or proper disposals like batteries, textiles, pesticides, containers, metal, paper, plastic, glass, tires, and electronics.

Various Categories of MBIs

  1. Price-based Instruments: Price-based Instruments was first put forward by Pigou in 1920. It establishes the resources which have some positive externalities and deny the resources which have negative externalities. Example: Ozone depletion fee, greenhouse challenge subsidy, the license fee for use of marine water, aircraft noise levy, etc.
  2. Quantity-based Instruments: quantity-based Instruments imposes restrictions on the resources which are harmful to the environment. It also establishes limits on the quantity and quality of goods and services. Examples: Release of air pollution that is detrimental to human health like carbon dioxide, methane, smoke, nitrogen oxides, sulfur oxides, etc.

Laws Dealing with MBIs

  1. The Forest (Conservation) Act, 1980
  2. Motor Vehicle Act, 1938
  3. Wildlife Protection Act, 1972
  4. Water (Prevention and Control of Pollution) Act, 1974
  5. Water (Prevention and Control of Pollution) Cess Act, 1977
  6. The Public Liability Insurance Act, 1991
  7. The Environment (Protection) Act, 1986
  8. The Air (Prevention and Control of Pollution) Act, 1981
  9. Clean Air Act, 1990
  10. Federal Water Pollution Control Act, 1948


  • Any person found liable shall be punishable with an imprisonment of three months or with fine or both. 
  • In the case of the Wildlife Protection Act, 1972 the punishment is ranging from ₹500 to ₹25,000 for violation of the law.
  • In case of violation of the Environment Act, the person shall be liable with the maximum imprisonment of five years or with a fine up to ₹1,00,000 or with both. If any person continues the act then he shall be liable with a fine of ₹5,000 on a daily basis.
  • Under the Motor Vehicles Act, 1938 states that any person who violates “pollution under check” (PUC) for the first time shall be liable for a penalty of ₹1,000 and ₹2,000 if found liable again. 

Delhi Air Pollution

In the 1990s there were forty-one names of the polluted cities in which Delhi was in the fourth position. The Central Pollution Control Board further analyzed that two-thirds of air pollution was caused by motor vehicles. The term “vehicles” refers to “automobiles, motorcycles, trolleybuses, trailers and agricultural vehicles.” In 1996 around 2000 metric tonnes of air pollutants were emitted daily by motor vehicles which resulted in 67 percent of total air pollution. Therefore the citizens filed Public Interest Litigation (PIL) in the Supreme Court. The court instructed the government to take some important rules and regulations to reduce pollution. To reduce the pollution all petrol and diesel were converted into Compressed Natural Gas (CNG). So basically till 2002, all the buses were converted to CNG. 

The main advantages of CNG consist of:

  1. It is cheaper than petrol and diesel.
  2. CNG burns most efficiently.
  3. Adulteration.
  4. CNG gas has rarely been robbed. 

The challenges faced by CNG from the 1990s to 2002 was because of the pipeline. There were a lot of restrictions by the government namely unleaded petrol, removal of sulfur and diesel, disposal of the vehicles which produce pollution. Air pollution can lead to heart disease, lung cancer, asthma, skin infection, and respiratory diseases. 


Our environment is preserved and used as an instrument for human satisfaction but the biggest drawback of our society is that no one wants to pay the tax. Federal and State governments stated that MBIs will play an important role in the future. The government has undertaken a scheme known as Common Effluent Treatment Plans (CETP) which has 65 member industries. It is a concept of treating effluents through a collective effort. It is generally practiced using tankers, underground piping systems, and open channels. There was the introduction of the United Nations Framework Convention on Climate Change (UNFCCC), 1992 to stabilize greenhouse gas emissions that are affecting our climate.



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