Environment and Economics

Why do we use economics in environment policy?

The main reason is that in our society the environment has become a
scarce resource. Since economics is about how to deal with scarce
resources, it can often be useful when tackling environmental
problems.
One way of using economics is to ensure that the costs and the
benefits of environmental measures are well balanced. Although it is
difficult to estimate costs and benefits, there is an increasing demand
that this is done before environmental policy is decided on a European
level. With the use of market-based instruments, environmental goals
can sometimes be reached more efficiently than with traditional
command and control regulations.
Economic and environmental objectives are often perceived as being
contradictory. It is believed that a choice must be made between one
and the other and that both cannot be achieved concurrently. The
facts and figures in this brochure (pdf ~1,5Mb) shows that they this
perception is wrong, and that economy and environment can go
together.
Environment and Economics in the European
Commission:
Published studies on environmental economics
A broad range of studies have been undertaken examining the
different links between environment and the economy. See further details
and most recent studies here.
Impact assessments, cost-effectiveness and cost-
benefit analysis
The Commission introduced in 2002 integrated assessment of all new
policies. These assessments involve the identification of the problem
(including any market failures), objectives, options to address the
problem and an analysis of the economic, social and environmental
impacts of the different options. For comparing the options, relevant
methods being used are cost-benefit analysis, cost-effectiveness
analysis, and multi-criteria analysis. As such, Impact Assessment
should lead to better and more cost-effective policies that are clearly
justified. Around two-thirds of DG Environment's Impact Assessments
have changed the proposals they accompany - often significantly.
See further details on the Commission's impact assessments here. All
final impact assessments - including on environment policy initiatives -
are available here.
Use of market-based Instruments
Market-based instruments (MBI), such as environmental taxes,
tradable permit systems or targeted subsidies, are a cost-effective way
to protect and improve the environment. They provide incentives to
firms and consumers to opt for greener production or products.
Governments can also opt for an Environmental Tax or Fiscal Reform
or the reform of Environmentally Harmful Subsidies. See further details.
Beyond GDP
Gross Domestic Product (GDP) is the best known measure of macro-
economic activity. It has also come to be regarded as a proxy indicator
for overall societal development and progress in general. However,
GDP does not measure environmental sustainability or social inclusion
and these limitations need to be taken into account when using it in
policy analysis and debates. The need to strengthen data and
indicators which would complement GDP has been increasingly
recognised and a number of international initiatives have been
launched to advance on these issues. In August 2009, the European
Commission adopted a Communication on this issue. For concise
information, please look at the press release and its annex. See further
details here or via the Beyond GDP home page www.beyond-gdp.eu.
Commission Staff Working Document issued on 2/08/2013: Progress on
'GDP and beyond' actions and annexes.
European Economic Recovery Plan
The European Economic Recovery Plan, announced at the end of 2008,
identified an important number of green initiatives with a focus on
energy-saving and climate-change related measures. Read more here.
Lisbon and Sustainable Development Strategies
The Lisbon Strategy for Growth and Jobs also includes an explicit
environmental dimension. Integrated Guidelines provide guidance to
Member States to establish reform programmes. Guideline 11 includes
recommendations on important environmental policy issues. Member
States report each year on the implementation of their national reform
programmes. Read more here.
The EU Sustainable Development Strategy (EU SDS) provides a
long-term vision that involves combining a dynamic economy with
social cohesion and high environmental standards. In July 2009 the
Commission adopted the 2009 Review of EU SDS. It underlines that in
recent years the EU has mainstreamed sustainable development into a
broad range of its policies. At the same time, unsustainable trends
persist in many areas. The review also launches a reflection on the
future of the EU SDS and its relation to the Lisbon strategy. More on the
environmental aspects of Sustainable Development
Useful links
Environmental indicators on DG Environment's website
Environmental policies in Member States home page including country profiles and
environmental data tables
Links to other public bodies involved in environmental economics
Database on economic instruments in environmental policy (OECD and European
Environment Agency)