Market solutions for sustainable cities

Sustainable development has become a globally accepted policy objective. It is however, increasingly recognized that the implementation of sustainability strategies has to take place at a decentralized level. This has also provoked the idea of urban sustainability. The notion of sustainable city is indeed nowadays gaining increasing importance and policy interest. However, it falls short in providing a basis for effective urban policy, unless two conditions are fulfilled. - The specification of manageable urban sustainability indicators and related critical threshold values. - The identification of an evaluation mechanism as a basis for urban policies which can boost public support. In principle, several policy orientations can be imagined for ensuring a sustainable urban development. They may range from command and control policies to market-based policies. In practice, urban policies seem to be instigated by the confidence in environmental standards as an effective policy vehicle. But the question on economic efficiency is hardly taken care of. The paper aims to offer a refreshing contribution by making a plea for market solutions for urban sustainability problems. Particular attention is given to the potential contribution of tradeable permits for various polluting activities (air pollution, water pollution, congestion, energy consumption etcetera). The idea is that such market strategies may favour efficiency, equity and environmental quality in the city. An overview of various possibilities is given, followed by policy guidelines and conclusions. The paper argues that Pareto-optimal solutions may be achieved by getting all actors in the urban space involved in sustainability strategies through the possibility of using the price mechanism for tradeable permits for polluting acitivities, taking for granted that - based on measurable environmental quality indicators - it is possible to identify critical threshold values for urban environ­mental quality. In the paper, a wide range of market solutions for tradeable permits is given and