Command and control instruments (e.g. standards, permits and licenses) have not been very successful in reducing environmental problems in the past. They should be replaced by market-oriented instruments, such as a system of environmental taxes and charges. Such a system would provide incentives to reduce the demand for polluting activities or to substitute other goods for pollution-intensive commodities. Further, it would provide incentives to continually apply the most advanced abatement technology available. • With international or global environmental problems on the upsurge, there is an increasing role for environmental policy coordination at the Community level. Coordination of environmental policy should in general stop short of a harmonisation of environmental tax and charge rates, as differential tax and charge rates can very frequently be made compatible with the needs of the completed Internal Market 1992. • In the absence of transboundary spillovers, environmental policy can be completely decentralised if polluting activities can be charged without using integrated control devices. If integrated control devices are unavoidable, only the tax or charge base needs to be harmonised. Tax and charge rates should be fixed by national authorities. Furthermore, if there are no transboundary spillovers and if goods are taxed at the consumption level, only norms for the declaration of polluting components should be set at the Community level. If goods are taxed at the production level, an integrated market requires the harmonisation of tax bases and tax rates at the cost of major environmental distortions. • If there are international environmental spillovers and if side payments between countries are not feasible, merely international diffusion norms should be set at the Community level. If spillovers are global (e.g. in the case of the ozone hole and climate change), tax or charge bases as well as rates should be harmonised at the Community level.