How does a price based MBI work?

A price-based Market-Based Instrument (MBI) functions by using economic incentives to encourage environmentally friendly practices through market mechanisms. It typically involves setting a price on pollution or resource use, such as carbon pricing or tradable permits, allowing businesses to buy and sell these rights. This creates a financial motivation for companies to reduce their emissions or resource consumption, as they can profit from selling excess allowances. Ultimately, it aims to align environmental goals with economic activity by making the costs of environmental impact more explicit.