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MEASURING ENVIRONMENTAL POLICIES AND THEIR ECONOMIC IMPACTS Tomasz Kozluk, Economics Department & Environment Directorate, OECD
Expert workshop, Bogor, Indonesia5th November 2015
Contents
Measuring environmental policies:• What is worth
measuring & why?• What can we measure
& how?
Measuring economic impacts:• productivity growth
(OECD)• international trade and
global value chains (OECD+ BRIICS)
• others (investment, employment, inequality, innovation)
Environmental policies – dimensions worth measuring
Source: Hascic and Johnstone, 2009, De Serres et al. 2010, Botta and Kozluk, 2014
• the “strictness”, explicit or implicit price that polluters pay for pollutingStringency
• Choice of compliance strategy, technologyFlexibility
• Continuous incentives to improve performance
Dynamic efficiency/depth
• Stability and consistency of policy signalPredictability
• Extent of obstacles to entry and development of new firms, ideas, products
Competition friendliness
Environmental Policy Stringency(EPS)
How can we measure stringency?
Environmentalpolicy
instruments1
Perceptions of
Environmentalpolicies 2
Changes in agents'
behaviour3
Changes in environmental
outcomes4
Environmental laws are designed and implemented…
… to alter firms’/consumers’ behaviour…
… and achieve “cleaner outcomes
Botta E. and Koźluk, T. (2014)
Environmental policy stringency (EPS) indicator structure
Composite EPS indicator
Market-based policies Non-market based policies
• CO2
• NOx
• SOx
• Diesel
Taxes
• CO2
• Renewable Energy Certificates• Energy Efficiency Certificates*
Trading Schemes
• Solar• Wind
FITs
• Deposit & Refund Scheme
DRS
• Emission Limit Values:• NOx
• SOx
• PMx
• Diesel content limit (Sulphur)
• Govt. R&D expenditure on Renewable Energy
Standards R&D Subsidies
Currently: upstream activities (energy,
transport), mainly air and climate policies.
National and regional.
24 OECD countries over 1990-2012. Now
preliminary extentions to Brazil, Russia, Indonesia, India, China and
South Africa.
Botta E. and Koźluk, T. (2014)
7
01
23
Env
ironm
enta
l pol
icy
strin
genc
y
BRIICS OECD High EPS OECD Low EPS
mean of eps_1995_99 mean of eps_2005_09
Increasingly stringent environmental policies – fears of Pollution Haven effects
Koźluk, T. and C. Timiliotis (2015, forthcoming)
Good proxy for overall country’s EPS?
2000s 2010
Perceived stringency (WEF)
.50(.00)
CLIMI (EBRD) OECD only
.56(.01)
Energy prices (Sato et al. 2015)
0.60(.00)
High correlations with other measures of stringency (OECD+BRIICS):
Notes: numbers in brackets are significance levels. WEF – World Economic Forum Executive Opinion Survey question on managers’ perceptions of EPS. Climate Laws, Institutions and Measures Index (CLIMI) – EBRD (2012).
Koźluk, T. and C. Timiliotis (2015, forthcoming)
• Compare with others if possible• Disclose data (http://oe.cd/OQ) • Continue to improve and extend
(e.g. water, resources; other countries)
• Data collection, policy comparability, measurement, enforcement issues
• Engage with national authorities and experts (!)
Broad, but still a proxy…
Indicators of “Burdens on the Economy due to Environmental Policies” (BEEP)
What are the design and implementation features of environmental policies that can burden entry &
competition?
Why? OECD experience with product market regulation: entry and competition barriers -> bad for investment,
innovation, growth….… should be minimised where possible
BEEP: Question
Burdens on the Economy due to Environmental Policies (BEEP)
Burdens on the economy due to
EP (BEEP)
Barriers to entry and competition
(lack of) Evaluation of EP effects on economy
Administrative burdens
Evaluation of existing
policies
Evaluation of new policies
Impediments to competition
Koźluk, T. (2014)
High barriers to entry/competition are not a “must” of stringent environmental policies
Koźluk, T. (2014).
0.5 1 1.5 2 2.5 3 3.5 4 4.51
2
3
4
5
3
3.5
4
4.5
5
5.5
6
6.5
7
5.8
6.3
5.8
5.1
6.3
4.5
5.2
6.4
6.1
4.8
5.45.5
3.7
4.3
4.84.8
4.5
5.9
4.1
6 5.9 6
4.8
5.2
4.7
5
6.1
3.7
4.7
5.45.6
4.5
5.1
5.5
2.525
3.6
2.06875
3.2375
3.753.56875
4.48125
3.50625
2.65
1.881252.06875
2.16875
3.15625
4.09375
3.7875
3.15
1.94375
3.60625
2.79375
1.94375
3.2375
2.6125
WEF EPS (perceived , 2012) RED
Mor
e st
ringe
nt e
nviro
nmen
tal p
olic
ies
Policies more burdensome to entry and competition
OECD EPS (de jure, 2012) BLUE
Mor
e st
ringe
nt e
nviro
nmen
tal p
olic
ies
Economic effects of environmental policies
Results: simulated effects of EPS tightening on country productivity growth (over time)
Negative anticipation effect
Positive rebound effect
Cumulatively no effect on MFP levels
Albrizio et al. (2014), OECD Economics Department Working Papers, forthcoming.
Simulated short-term effects of EPS tightening on productivity growth
Albrizio et al. (2014).
17
Trade impacts of EPS over 1995-08
Koźluk, T. and C. Timiliotis (2015 forthcoming)
• To facilitate change and make most out of it – (rather than resist it)…
• …broad approach: – well-designed environmental policies, – Framework (to support innovation,
cleaning, reallocation) and social policies,
– Aligning other policies (APT),
Fears of EPS effects on economy likely exaggerated…but winners and losers
Background slides
instruments Indonesiagreen trading scheme DOES NOT EXISTCO2 trading scheme DOES NOT EXISTWhite trading scheme DOES NOT EXISTSO2 trading scheme DOES NOT EXIST?Government R&D expenditure NO DATAFiT Wind FIGURES FOR 2011-2012 FiT Solar FIGURES FOR 2011-2013Deposit refound scheme DOES NOT EXISTEmission limit value SO2 FIGURES FOR 1995 – 2012Emission limit value NOX FIGURES FOR 1990 – 2012Emission limit value PM FIGURES FOR 1990 – 2012Fuel limit value - Sulphur DOES NOT EXIST????CO2 tax DOES NOT EXISTSOx tax DOES NOT EXIST?NOx tax DOES NOT EXIST?tax on diesel HH DOES NOT EXIST?tax on diesel industry DOES NOT EXIST?electricity price industry NO DATA
Preliminary EPS – underlying data
Stringency necessary for addressing wellbeing objectives, nevertheless:• Environmental policy stringency does not have detrimental effects on
aggregate productivity.
• Technologically advanced firms and countries: temporary boost in productivity growth - especially relying on more flexible instruments (e.g. taxes, ETS): – Best suited to grasp new opportunities, innovate, adopt top technologies – Relocate and trim down activity?
• Low-productivity firms: temporary fall in productivity growth– Higher investment to comply– Less able to adjust– Part of the adjustment may be due to entry/exit.
• Effects do not depend on initial EPS levels
Conclusions (1)
Achieving both economic and environmental objectives requires new ideas, technologies and business models.
Environmental policies should do the most not to prevent these to enter and develop – i.e. avoid increasing barriers to entry and competition.
• There is no evident trade-off between stringency of environmental policies and competition-friendliness.
• Ensuring swift reallocation of resources can help assure economic outcomes are in line with productivity gains.
Conclusions (2)
26
EPS – random weights – robustness
27
BEEP – random weights – robustness
