Externalities

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Externalities are unintended consequences of something. They can be either positive or negative.

Pollution Sinks:

Technologies can produce externalities e.g. CO2 form burning fossil fuels. The atmosphere is treated as a pollution sink as it was assumed it was large enough to cope. Issues of the hole in the ozone and reducing the living planet index suggests it can't cope.

Polluter Pays Principle:

Those that cause the pollution should bear the economic cost of the damage they are doing to the environment.

1. Command and Control - new technologies are introduced to limit pollution e.g. catalytic converter

2. Market Based - governments introduce pollution taxes, carbon trading permits and produce labelling

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Car Industry:

Many governments have imposed penalties on polluters e.g. car drivers have to pay Vehicle Excise Duty bands based on the amount of CO2 a vehicle emits. In 2010 a higher rate of VED was introduced to specifically influence new car buyers choice on a CO2 basis.

Indian Car Sales Boom:

Tato Nano sells for £1250 and is the cheapest new car in the world

Demand for 1 million cars each year

Indian car ownership expected to be more than Japan by 2017