Insights from the OECD's Environmental Policy Stringency (EPS) Index help policy makers evaluate the effectiveness of their environmental strategies and adjust accordingly.
A tool to evaluate the effectiveness of environmental policy
As countries adopt stricter environmental policies, the need for tools to compare the stringency of these policies across nations has become increasingly urgent. Since its creation in 2014, the OECD Environmental Policy Stringency (EPS) index has become a widely used tool for policy analysis. Updated in 2022, the index now spans over three decades (1990–2020), covering 40 countries and 13 policy instruments, with a focus on climate change and air pollution mitigation and a sub-index that measures the strength of technology support policies, complementing the existing market-based and non-market-based sub-indices.
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About
As countries implement stricter environmental policies, the need for tools to compare countries’ environmental policy stringency is rising. This is especially the case as the mix of policy instruments to regulate environmental pressures varies widely across countries. Some countries rely relatively more on pricing instruments, while others use non-market or technology support instruments.
Built in 2014 by Botta and Koźluk, the OECD Environmental Policy Stringency index was the first cross-country index that enabled a comprehensive evaluation of environmental policy stringency in a panel setting covering more than 20 countries and more than a dozen policy measures, making an important contribution to the field.
The 2022 updated version of the index measures environmental policy stringency over three decades from 1990 to 2020, across 40 countries (34 of which are OECD member countries), and 13 policy instruments, focussing on climate change and air pollution mitigation policies.
Key messages
As countries tighten environmental regulations, there is an increasing need for tools that can compare the stringency of these policies across countries and over time. The OECD’s Environmental Policy Stringency (EPS) index serves this purpose by providing a composite measure of the strictness of climate and air pollution mitigation policies across 40 countries and 13 policy instruments.
Environmental policy stringency has significantly increased across OECD countries since 1990. However, the rate of increase has slowed in the past decade, particularly in technology support policies for clean innovation, which saw a decline after 2011. This trend raises concerns about the adequacy of innovation incentives for future green technologies.
The revised EPS index breaks down environmental policies into three sub-categories: market-based policies (e.g., carbon taxes), non-market-based policies (e.g., emission standards), and technology support policies (e.g., R&D subsidies for low-carbon energy). Non-market policies have increased the most in recent years, followed by technology support policies, with market-based policies (like emissions trading schemes) showing substantial but more variable growth.
The index highlights significant differences in policy stringency between countries. While some countries, such as France, Switzerland, and Finland, have adopted very stringent environmental policies, others have made slower progress, reflecting different national priorities and approaches to environmental regulation.
The EPS index can be used to assess how stricter environmental policies affect pollution reduction and economic outcomes. It shows that while the economic impact of environmental policies on macroeconomic indicators like employment and productivity has been small, there are significant sectoral differences, with high-polluting industries often bearing the brunt of stricter regulations.
Main papers on the OECD composite EPS indicator
Context
Structure of the index
The index consists three sub-indices - market and non-market based policies and a sub-indes which groups technology support policies (public R&D expenditures in low-carbon energy technologies and renewable energy price support policies for wind and solar).
Environmental Policy Stringency in 2020 and 2000
The substantial increase in the Environmental Policy Stringency on average across the OECD over the past decades masks wide heterogeneity across countries. Figure 3 shows countries according to their EPS in 2020 (dark green bars), together with their scores in 2000 light green). All countries increased their environmental policy stringency between 2000 and 2020. In 2020, the countries with the most stringent environmental policies are France, Switzerland, Luxembourg and Finland.
