Market Mechanisms

Left to their own, markets often fail to account for environmental and social costs in prices. As such, unsustainable goods retain an artificial cost advantage that can discourage efforts to scale up green investments and make it difficult for green sectors to compete.

Market mechanisms have become a common policy tool to correct for these externalities and internalise the full range of costs and benefits. It is seen as a cost-effective way to achieve the Sustainable Development Goals (SDG), especially around issues of climate mitigation (SDG 13) and biodiversity protection (SDG 15). Market-based instruments such as tradable permits (cap-and-trade schemes, for example) serve to level the playing field and provide incentives to promote the greening of key sectors. Similarly, markets for the payments of ecosystem services, including carbon sequestration, aim to promote sustainable land use decisions by enabling landowners to capture the value these ecosystem services provide.


Korea Environment Institute (KEI), Ministry of Environment of the Republic of Korea
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)

Case Studies

Donor Committee for Enterprise Development (DCED)
International Institute for Environment and Development (IIED), Institute of Tropical Forest Conservation (ITFC)


Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Partnership for Action on Green Economy (PAGE), International Labour Organization (ILO), United Nations Development Programme (UNDP), United Nations Institute for Training and Research (UNITAR), United Nations Environment Programme (UN Environment), United Nations Industrial Development Organization (UNIDO)
United Nations Development Programme (UNDP), International Union for Conservation of Nature (IUCN), Black Sea Economic Cooperation Organization (BSEC), United Nations Environment Programme (UN Environment)

Batumi Initiative on Green Economy (BIG-E)