The market fails to contribute towards environmental protection because of a pricing problem. The function of price, and hence the market, is to allocate resources efficiently. However, when it comes to many environmental resources and externalities no prices exist and so the market has no way of allocating these resources. Traditionally the role of government in relation to the market has been to distribute resources i.e., define and enforce property rights.
Prices are a consequence of the distribution of property rights that underlie market exchange.
Theoretically, if the government were to define property rights in such a way that would allow for correct pricing of environmental resources, then their actual scarcity and cost would be reflected. Further environmental degradation resulting from economic activity should be halted. This suggests a role for governments in implementing environmental protection. In other words, they regulate activities that degrade the environment in accordance with some legislated or agreed standard. Regulations can be difficult to enforce and costly to administer.