Taxes, fees and charges, tradable permits systems and deposit-refund systems are examples of economic instruments used in environmental policy. Such instruments -- which are increasingly used -- can give firms and households economic incentives both to change their behaviour in a more environmentally friendly manner, and to develop new, cleaner technologies.

Taxes and charges are for example levied on fuels, motor vehicles, packaging, waste, etc. Tradable permits systems can set a cap on total emissions, while permitting polluters to trade emission quotas between themselves. Both types of instrument will stimulate abatement efforts to be made where they are cheapest, thus causing environmental targets to be reached at lowest possible costs.

OECD collects and analyses information on the use of economic instruments in Member countries. A database on environmentally related taxes, fees and charges, and a complementary database on the use of other instruments, have been prepared. A report discussing the use of tradable permits systems, practical guidelines on how to implement or evaluate them, have been published.

The tax database details a large number of exemptions and other special provisions in the existing taxes, fees and charges, often related to concerns over possible negative impacts on the competitiveness of some sectors, or on low-income households. A recent report describes current taxes and obstacles to their broader use. Impacts of economic instruments in the steel sector are analysed here .