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Environmental economics

The economics of environmental policy

Costs of environmental legislation for selected industries over time (2015)

This study examines how business spending on environmental protection has changed over time. In particular, it looks to see if the cumulative costs of environmental policy are increasing or decreasing for 6 industrial case studies: Mining and quarrying, manufacturing, refineries, chemical industries, the base metal sector and the power sector. The time series cover the period 1995 – 2012. The data used is collected as part of the Structural Business Statistics by National Statistic Offices. Over the period, the analysis shows a small downward trend with some peaks and troughs. In 2012, the environmental protection expenditure was around 2% of value added for these sectors. New environmental regulations do not in general appear to be leading to higher environmental expenditures (at the level of the EU). This seems to be because sectors become more efficient over time in responding to legislation, and so the costs of existing regulations fall over time. However, there are large differences between sectors and member states.

Influences on consumer behaviour: Policy implications beyond nudging (2014)

Many policy interventions are based on information supply, e.g., energy labelling. Yet, the evidence does not support the common premise that 'informed people make the right choices'.

This policy brief summarises (only 19p) recent scientific findings in behavioural economics, psychology and sociology and their implications for policy-making. It discusses the influences of biases and framing, the role of values and social norms, as well as of physical infrastructures in shaping behavioural outcomes.

The authors argue that policies need to jointly address the multiple drivers of behaviour and in a coherent way. Also, instead of focusing exclusively on individuals, policies may be more effective when they target groups or whole segments of society with tailored approaches. The brief closes with a set of potential future policy options.

The costs of not implementing the environmental acquis (2011)

This report examines the costs associated with the gaps in implementing the EU environmental acquis. These costs relate to many impacts – in particular, potential environmental benefits are not realised, but also impacts such as uncertainty for business and infringement costs. The costs are often not easy to quantify but, as an indicative estimate, the costs of the implementation gap between current legally binding targets and the current level of implementation could be equivalent to around 50 billion Euros per year.

The economic benefits of environmental policy (2010)

This report describes the areas in which environmental policies deliver Europe’s current economic priorities, often more successfully than other forms of economic policy intervention. It provides evidence of the role of environmental policy both in providing a short term economic stimulus and in building a sustainable, efficient and resilient economy in the long term. It highlights many areas where environmental policy is essential for sustainable economic progress. The report explains and illustrates how environmental policy may benefit the economy by delivering eight key economic outcomes. These are that environmental policy: Enhances Productivity, Stimulates Innovation, Increases Employment (and/or the quality of Employment), Improves our Balance of Trade, Strengthens our Capital Base, Supports Public Finances, Promotes Economic Cohesion, Encourages the Transition to a Resilient and Sustainable Economy.

Scoping Study on completing the European Single Market for environmental goods and services (2010)

The study explored what improvements EU Single Market needs to facilitate the growth of European eco-industries and to support the better trading and movement of eco-industry workers, technology and products and services. Fourteen important problems causing a malfunctioning of Single Market for environmental goods and services have been identified, ranked and policy recommendations have been formulated. Amongst the most important policy priorities to be put in place or further strengthened are: The improvement of legal clarity and efforts to correctly transpose and uniformly implement environmental legislation, the better implementation of the Services Directive, the introduction of a common EU-wide approach for subsidizing new environmental technology applications or supporting environmental goods and services, the further development of uniform green procurement rules, the reduction of EU labour market complexities, the promotion of EU-wide recognition of qualifications and skills in eco-industry and also the adoption and promotion of common EU standards, certification and testing procedures where necessary.

Environment and the Single Market (2009)

A harmonised approach is still missing within the EU in a number of environmental policy areas. While many commonly agreed objectives exist on the European level, frequently Community environmental legislation leaves the action needed for better achieving these objectives largely to the Member States. There are many good reasons for this; the national capacities and institutions can be utilised, and variations in local conditions might be more appropriately addressed. However, cross-national differences in environmental standards may persist. Stakeholders and academics disagree to what extent such differences in environmental standards might cause competition distortions and what effects such distortions might have in achieving the desired environmental objective. Furthermore, the absence of environmental policies at European level might also cause market distortions. The study searched for cases where the absence of common approaches to legislation and lack of harmonisation has led or may lead to market distortions and discussed options to overcome them. The introduction of European standards might potentially level the playing field and contribute to the removal of market barriers.

Scoping study on cost effectiveness of EU environmental policy (2009)

This scoping study investigates whether the costs per unit of environmental benefits for a given environmental target vary across EU Member States as a result of different policy implementation. The analysis is based on existing ex-post cost-effectiveness evidence and more indirect indicators of possible cost-effectiveness differences. The study shows that there is little information on whether the cost of achieving a given environmental target differs between Member States. One of the main explanations is that ex-post recording of costs and their allocation to specific policies is very difficult and is therefore not done in any systematic manner across the EU. Where there is information, it is often difficult to compare MS because the environmental targets vary or because other factors might explain differences (geography, industrial structure etc). However, the indirect indicators' assessment suggests that differences in cost-effectiveness between MS do exist in most environmental areas. The existence of such differences suggests that, if best practice could be more widely identified and adopted, the cost of environmental policy might be reduced, allowing for more to be done for less. The identified examples (mainly in the water quality domain) point to the use of economic instruments as being more cost-effective in implementation of environmental policies compared to command and control measures.

The links between the environment and competitiveness (2009)

This study asks ‘if’ and ‘to what extent’ existing theories on the links between the environment and competitiveness are correct in practice. It does so by looking at water policies and the evidence on resource productivity. In general, there is a positive correlation between competitiveness of countries and their resource productivity However, resource productivity varies considerably and what is good for the competitiveness of a firm or sector might easily be bad for the competitiveness of a different firm or sector in the same country. There is significant potential for increased resource productivity and a role for policy in encouraging this by, for example, raising the prices of resources.

Sectoral costs of environmental policy (2007)

This study aims to answer a series of questions frequently asked about environmental policy. Are the costs significant for firms? Do the costs affect their international competitiveness? Is the sum of individual environmental policies more or less than the its constituent parts meaning that it is the cumulative burden that needs to be assessed? How are the costs of environmental policy changing over time? Do costs differ between Member States, suggesting that the European playing field is not level? Do the costs of an individual environmental policy come down over time as firms innovate and seek ways to reduce costs? Are their benefits from environmental policy to firms? It concentrates on a the oil chain industry, electricity producers, the iron and steel industry, and the textiles and leather sectors.

Cost of policy inaction - scoping study (2006)

This study examines the possibility to use cost of policy inaction (COPI) for analysis of environmental policies, and provides some pointers for how DG Environment might use the tool. COPI is defined as the environmental damage occurring in the absence of additional policy or policy revision. COPI is an instrument best used in the early phases in policy development, when the emphasis is on identifying problems, warning, communicating the need for policy action, and perhaps also sketching the urgency relative to other issues and indicating which sectors need to take action or revise their policies.

Economic analysis of reaching a 20% share of renewable energy sources in 2020 (2006)

This study identified how the EU would reach 20% share of renewables by 2020 in least cost manner.

Populating the Environmental Valuation Reference Inventory: 40 European valuation studies (2002)

The following study was undertaken by Economics for the Environment Consultancy Ltd (eftec). The purpose of the study was to review 40 economic valuation studies that had taken place in European countries. These reviews could then be used to populate the EVRI database (Environment Valuation Reference Inventory) with European studies, as well as providing examples of monetary valuation in practice. The Commission is not responsible for any errors in the studies.

Workshops on the State-of-the-art in noise valuation and on the costs and benefits of Noise mitigation (2001)

In December 2001 DG Environment invited leading noise valuation leading experts on a Workshop of the State-of-the-art in noise valuation. The main objectives of the workshop were to discuss the best current valuation techniques and estimates for monetary value of noise exposure, and to identify research needs in that field. In order to support the work and discussions of the experts during the workshop itself, DG Environment had commissioned a review of the state-of-the-art in noise valuation:

Workshop on the value of reducing the risk of ill-health or a fatal illness (2001)

Health impacts are often a significant portion of the benefits of improvements in environmental quality. We know that, for example, air pollution can cause ill-health (morbidity) or can lead to fatal illnesses (mortality). However, we often cannot reduce risks to zero without incurring significant and disproportionate costs. Individuals try to strike a balance between risk and costs (financial or otherwise) for themselves. Society needs to seek such a balance as well. If we did not, then we would use resources inefficiently: for example, we might spend money on reducing air pollution that would save more lives if spent on health care. If we seek to balance the costs of a policy against its benefits, then we must compare the benefit of reductions in risk against costs. Any decision in this context means placing an implicit monetary value on health benefits. Decision-making will be easier and become more consistent if we have a monetary estimate of the value of health benefits.

The monetary value represents the strengths of society's preferences. It is consistent with people's observed actions. For example, while no one would trade their life for a sum of money, most people will be prepared to choose between safety equipment with different prices and offering different levels of safety. We can use these values for small changes in risk when assessing the benefits of policies that also deliver small changes in risk over large populations. In air quality benefit assessments, the value of reducing the risk of fatalities can often be 80 per cent of the total benefits when health impacts are expressed in monetary terms. It is therefore important that as one of the inputs to decision-making we can monetise changes in risk and that we use the best available understanding of existing practice when doing so. Environment DG therefore held a workshop on 13th November 2000 that brought together some of the experts in the subject to examine methodology and findings.

Five papers are attached which explain the background to this workshop and its findings.

European Environmental Priorities: An Integrated Economic and Environmental Assessment (2000)

In 1997, the Environment Directorate-General commissioned a comprehensive multi-sectoral study to identify which environmental issues Europe would be facing in the years to come. The purpose of this ambitious study was also to analyse what would be the environmental and economic consequences to solve or mitigate the environmental problems.

Some of the main highlights of the study are:

  • For all problems where meaningful analysis could be carried out, the benefits outweighed the costs of meeting stricter environmental targets in 2010. In particular significant net benefits were identified in areas related to air quality and acidification.
  • Secondary benefits of meeting EU climate change commitments to other policy areas (acidification and air quality) are very substantial.
  • International emissions trading in greenhouse gases reduces EU’s compliance costs significantly, even if this slightly diminishes the secondary benefits.
  • Negative environmental consequences of transport and agriculture are and will remain significant in the foreseeable future.
  • On substances, particulate matter and nitrogen remain major problems.
  • The study shows that for many European-wide environmental problems the basic knowledge of scientific, biological or economic issues needs further improvement.

The following reports (in alphabetical order) describe the nature of the main environmental problems, their likely trends, the environmental implications of actions including their costs and benefits.

In addition three supporting studies were made, namely

Assessment of Environmental Valuation Reference Inventory (EVRI) and the Expansion of Its Coverage to the EU (2000)

The Environmental Valuation Reference Inventory (EVRI) is a North American database of valuation studies accessible through the Internet. At present, the database contains detailed information of about 700 environmental valuation studies, primarily from North America but with about 10 % of its studies from Europe. One of the potential uses of the database is in facilitating benefits transfer - the tranfer of a monetary valuation for an environmental asset from an existing study to a similar environmental asset. The main aim of this report is to assess what adaptations would be needed before using EVRI in Europe. The overall assessment is largely positive, finding it to be a user-friendly database that provides summaries of existing work that could facilitate benefits transfer. The main requirement to increase its usability in the European context would be to deposit more of the existing European studies in the database.

Part I describes the evaluation of EVRI studies for european conditions.

Part II presents a list of european valuation studies.

Part III assesses the caputure of european studies in EVRI.

Induced and Opportunity Cost and Benefit Patterns in the Context of Cost-Benefit Analysis in the Field of Environment (2000)

Economic Evaluation of Environmental Policies and Legislation (1998)