Assessing the Economic Impacts of Environmental Policies
Evidence from a Decade of OECD Research
Over the past decades, governments have gradually adopted more rigorous environmental policies to tackle challenges associated with pressing environmental issues, such as climate change. The ambition of these policies is, however, often tempered by their perceived negative effects on the economy. The empirical evidence in this volume – covering a decade of OECD analysis – shows that environmental policies have had relatively small effects on economic outcomes such as employment, investment, trade and productivity. At the same time, they have been effective at reducing emissions from industry. The policies can however generate winners and losers across firms, industries and regions: while the least productive firms from high-polluting sectors are adversely affected, more productive firms and low-pollution sectors benefit. Environmental policies can be designed and combined with other policies to compensate workers and industries that may lose and to emphasise their positive impacts.
Firm employment, energy prices and environmental policy stringency
Employment effects of tighter environmental policies are the focus of this chapter. By increasing production costs, unilateral environmental policies might hamper the competitiveness of industries, leading to output contraction and job losses. The potential impacts on employment are probably the main concern for policy makers when implementing stricter environmental policies, but the empirical evidence on this effect is limited so far. This study provides an empirical evaluation of the impact of increased energy prices and more stringent environmental policies as measured by the OECD Environmental Policy Stringency (EPS) Indicator on employment. It uses a combination of firm- and sector-level datasets across OECD countries over the period 2000-14. The results at the sectoral level show a significant negative effect on average of changes in energy prices as well as of changes in the environmental policy stringency index. The magnitude of the effect is, however, small: a 10% increase in energy prices leads to a reduction of 0.7% in manufacturing employment. Energy-intensive sectors see a stronger decline in employment due to higher energy prices, but less energy-intensive sectors do not show any significant effect. The firm-level analysis shows that higher energy prices have a small positive effect on the employment level of surviving firms while increasing the probability of firm exit. Tighter environmental policies on the other hand show a small negative effect on the employment level of surviving firms while not affecting firm entry or exit.
- Click to access:
-
Click to download PDF - 1,021.82KBPDF