Environmental policy is any (course of) action deliberately taken (or not taken) to manage human activities with a view to prevent, reduce or mitigate harmful effects on nature and natural resources, and ensuring that man-made changes to the environment do not have harmful effects on humans.

Definition

It is useful to consider that environmental policy comprises two major terms: environment and policy. Environment primarily refers to the ecological (ecosystems) dimension, but can also take account of social (quality of life) dimension and an economic (resource management) dimension. Policy can be defined as a "course of action or principle adopted or proposed by a government, party, business or individual" . Thus, environmental policy focuses on problems arising from human impact on the environment, which retroacts onto human society by having a (negative) impact on human values such as good health or the 'clean and green' environment.

Environmental issues generally addressed by environmental policy include (but are not limited to) air and water pollution, waste management, ecosystem management, biodiversity protection, and the protection of natural resources, wildlife and endangered species.

Rationale

The rationale for governmental involvement in the environment is complex but could be divided into four key reasons: public/voter pressure, awareness of the need to halt biodiversity loss, maintenance of ecosystem services for the good of the public and market failure.

There are three types of market failure that justify government action: negative externalities, the free rider problem, and the tragedy of the commons. An example of a negative externality is a factory that pollutes the water of a river. The negative cost of such action is paid by society-at-large when they must clean the water before drinking it and is "external" to the costs of the factory. Air pollution is another common example of a negative externality. The free rider problem is when the individual cost of taking an action to protect the environment is greater than the individual benefit. For example, installing an anti-pollution device on a car may cost several hundred dollars and only reduce the air pollution by a little. The rational individual decision is to not buy the device and benefit from the actions of others. Such individual rationality however, can lead to collective irrationality. Finally, the tragedy of the commons is the problem that, because no one person owns the commons, each individual has an incentive to try to exploit common resources as much as possible. Without governmental involvement, the commons may become overused, producing a worse result for everyone. Examples of tragedies of the common are overfishing and overgrazing.

Environmental policy instruments

Environmental policy instruments are tools used by governments to implement their environmental policies. Governments may use a number of different types of instruments. For example, economic incentives and market-based instruments such as taxes and tax exemptions, tradable permits, and fees can be very effective to encourage compliance with environmental policy.