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How have governments responded to the criticism that free-market competition produces better and cheaper solutions to environmental problems than the command and control approach does?

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They have responded producing a vast array of different companies as well non-govermnemtal organisations and non-profit organisations that combat environmental problems in different ways. Most often these problems are tackled by the use of non-fossil fuels and renewable energy sources souch as sun or water energy. 
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User Prayagupadhyay
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