Environmental policy tools and evaluation

Other environmental policy instruments


At their ministerial meeting in 2008, OECD Environment Ministers welcomed An OECD Framework for Effective and Efficient Environmental Policy. This document draws together and synthesises much of the work that OECD has done on various types of policy instruments over the years.


In addition to a major, on-going work on environmental taxation,  OECD has been doing much work on other instruments used for environmental policy. Below is a brief description of some of this work, with links to further readings.


Emission trading systems have been studied in detail in several major publications, the most recent being Tradeable Permits: Policy Evaluation, Design and Reform. This publication offers valuable lessons for applying tradable permit systems, and evaluating their effectiveness and efficiency. It also reviews the more general links between policy evaluation and policy design, implementation and enforcement.


In general, OECD recommends that the permits or emission allowances be auctioned rather than handed out for free (“grandfathered”). Auctioning makes sure that the rents linked to environmental policies goes to public authorities, instead of being captured by the existing polluters. However, in practice, most permits have been distributed for free. On the other hand, where environmental taxes are used, they often include some differentiation in taxes across polluters. Hence, none of these approaches normally follow “text-book” prescriptions, and the document "Environmentally Related Taxes and Tradable Permit Systems in Practice" discusses in detail which of the two alternatives perform the better from an economic efficiency point of view.


It is common for countries to use public purchases to promote environmentally benign alternatives, such a recycled paper, electrical vehicles, etc. The publication The Environmental Performance of Public Procurement: Issues of Policy Coherence addressed a number of issues in this regard. Particular attention is payed to the links between public expenditure management and the environmental impacts of public procurement.


Many countries do in some cases apply some sort of voluntary approach to address environmental problems; for example a negotiated agreement with relevant polluters, or establish a sort of labelling scheme that firms can volunteer to adhere to. Two OECD books have discussed the environmental effectiveness and economic efficiency of such approaches, the latest being Voluntary Approaches for Environmental Policy: Effectiveness, Efficiency and Usage in Policy Mixes. In general, governments are warned not to place too much emphasis on such approaches, as they seldom lead to significant environmental improvements beyond what would have happened in any case.


The issue of policy or instrument mixes is of general interest, as it is rare that only one instrument is used to address a particular environmental issue. The publication Instrument Mixes for Environmental Policy analyses a number of cases and seeks to draw out lessons that can be learned. While there are several situations where different policy instruments underpin and reinforce each other (for example, a tax and a labelling scheme), there are number of situations where one or more instruments in the mix adds little to the benefits; only causing additional costs.


One case where overlap between policy instruments can be of concern is when a ‘cap’-based trading system, or some other type of upper limit on emissions, is combined with other instruments – for example various subsidy schemes. There is a danger that the additional instruments only cause extra costs. Such issues are discussed in detail in the document "Interactions Between Emission Trading Systems and Other Overlapping Policy Instruments".



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