In order to internalize environmental costs in the production process it is essential to calculate costs and benefits properly and to distinguish clearly between true income and the drawing down of assets by depletion or degradation.
Agenda 21 recommends assessment of the practical implications of moving towards greater reliance on pricing that internalizes environmental costs appropriate to helping achieve sustainable development objectives.
While market systems have been inherently efficient at economic organization, environmental costs have traditionally been excluded from the decision-making process. This has allowed unsustainable exploitation of natural resources as well as unsustainable demands on natural pollution sinks. However, some valuation of environmental resources and services is gradually being established in the market through the regulation and assignment of property rights. The good example is the successful system of sulphur dioxide emission trading in the United States which has helped achieve substantial reductions in emissions.
2. Trade agreements must promote environmental cost internalization in traded goods, taking into account the principle that the polluter should bear the cost of pollution.
3. GDP does not adequately represent true income because environmental protection costs are treated as generating income and because depletion and degradation of natural resources are not charged against current income.
4. Many forms of development erode the environmental resources upon which they are based. Such environmental degradation can undermine economic development.