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The first part of this module looks at the role of government in attaining socially optimal environmental pollution levels through the use of taxes, standards and tradable permits, and compares the merits of these policies. The issues raised in forming effective international environmental agreements will also be discussed. The module then analyses various techniques used to quantify the value environmental resources. Finally, the module outlines how to optimally extract natural resources and discusses how government policy towards natural resource extraction can affect environmental quality.