Abstract
Market forces and environmental regulation are coming together in the global pursuit of sustainability. Beyond traditional command-and-control approaches, which have thus far dominated the impacts of industrial processes, market-based instruments like emissions trading systems, green levies, and certification schemes are now required to shape industrial practice. This research examines the nexus of these system-making approaches and the function of market mechanisms to shape green innovation and improve environmental, social, and governance (ESG) performance. Using empirical evidence and cross-national case studies, the research examines the success and limitation of such practices, including side effects and unfairness. The evidence shows that market mechanisms can bring significant progress towards sustainability but its efficiency depends on careful design, effective monitoring, and alignment with overall policy objectives.
Keywords: Emission Trading System, Greenwashing, Environmental Regulations, Carbon Offset, Technology Transfer
Introduction
Environmental degradation and global warming have pushed governments, industries, and civic groups to seek alternative ways of attaining sustainability. In the past, environmental management was defined by command-and-control approaches, where industries had to adopt specific technologies or release specific amounts of pollution. Such regulatory mechanisms, however, were not flexible and did not stimulate innovation for purposes other than compliance. With the growing need for more flexible mechanisms, market-based mechanisms emerged as a possible solution, offering economic incentives to firms in minimizing their environmental impact while stimulating technological innovation.
Market mechanisms like emissions trading schemes, environmental taxes, and voluntary certification schemes aim to internalize the externalities of pollution and resource depletion, making sustainable practices economically feasible. The convergence of these regulatory instruments with industry-specific market-driven initiatives has emerged as a leading area of research and policy formulation. This study explores how market mechanisms, combined with regulatory instruments, encourage sustainability in various industries, using empirical data and real-world cases to shed light on both advances and ongoing challenges.