Protecting the environment is essential for the quality of life of current and future generations. Environmental policy is one of the three pillars of sustainable development – the others are economic policy and social policy. Because many environmental problems are global, environmental policies are mainly defined at the international level.
From an economic perspective, environmental problems most often arise because of a lack of well-defined and enforceable property rights. Climate change is a stark example of this seemingly abstract principle: because nobody ‘owns’ the atmosphere, humans have been able to add greenhouse gases to it without limit. This is now causing global temperatures to rise. If greenhouse gas emissions from human activity are not severely reduced in the coming years, the scientific consensus is that our climate will change in unpredictable and dangerous ways.
Measures such as the Kyoto Protocol in effect place the atmosphere under common ownership and limit the extent to which richer countries can use it as a ‘dump’ for their greenhouse gas emissions. Whereas previously these countries had unlimited access to the atmosphere, now their access is capped.
So environmental policy is foremost about creating and enforcing property rights for environmental resources. In practice this means that public authorities take action to restrict previously unlimited access to resources, such as water or air, as places to ‘dump’ pollution. Of course, while these restrictions benefit the community at large by improving water and air quality, they come at a cost for those individuals and companies that have to change their behaviour and find other solutions to their waste problem.
DG ECFIN contributes to the preparation and evaluation of environmental policy initiatives. It assists lead services, namely the Directorates-General for the Environment (DG ENV), Transport and Energy (DG TREN), Enterprise (DG ENTR), and the Taxation and Customs Union DG (DG TAXUD), in:
The ultimate aim is to ensure that policies and policy reforms are welfare-enhancing, that the economic implications are well understood and that expected costs do not exceed expected benefits. Preferably, policy initiatives should support economic growth and job creation as well as sustainable development.
With this in mind, DG ECFIN provides methodological support to the analysis of policy proposals at the interface of transport, energy and environment, and their impact on cohesion within the European Union.
DG ECFIN also encourages the use of economic instruments in these policies to make use of market forces to deal with environmental problems as far as possible. This is logical: many environmental problems are caused by a lack of markets for environmental resources, so why not solve the problems by creating markets for them and harnessing the power of market forces to work with the environment instead of against it?