Defending Environmental Economic Instruments Against the Economists and Their Opponents

Both advocates and opponents of economic instruments in environmental policy base their opinions on neoclassical economics, which they then either welcome or criticize. This paper aims to show that economic instruments are still (or especially) effective policy approaches for transformation towards sustainability, if assuming that those basic assumptions are wrong. This applies to six focal points: (1) In the common perception of economic instruments such as emissions trading, they trigger technical innovation and will thus enable environmental protection while continuing to generate economic growth. It is ambiguous however, whether environmental protection will be successful if purely based on technical solutions. Economic instruments are also fit to trigger sufficiency. (2) This is closely linked to the question whether the necessity of sufficiency will undermine the growth society. While there are some indications suggesting that, consistent environmental protection with economic instruments is still economically more efficient than all other reactions to the environmental crisis. (3) Discussing internalizing external effects, assumes that economic evaluation is a viable method to establish exactly which costs need to be internalized. Contrarily however, economic instruments do not require economic evaluation welcomed by some, criticized by others. (4) Economic instruments are not mainly eligible because of their (demanded by some, criticized by others) cost efficiency, but from their ability to overcome rebound and displacement effects. (5) Policy proposals need verified assumptions on how norm addressees are behaving and how they will react to governance incentives. Economists rely on the behavioural model of homo oeconomicus, which critics consider outdated. However, the general notion that economic instruments are only effective under the condition that people behave like a homo oeconomicus is wrong. (6) Economic instruments are discussed by both advocates and opponents as answer to single environmental problems, with climate change dominating the de-bate for some time now. A special argument in favour of economic instruments as means of quantity control can be made because they address different environmental issues at the same time – without causing invincible compliance problems.