Recent Policy Issues in Environmental and Resource Economics

This book deals with recent policy issues in environmental and resource economics. To collect articles on recent policy issues is of course always also a question of taste. This volume tries to represent a broad range of papers which covers the double dividend hypothesis, the role of non-profit organizations for environmental policies, trade implications and international environmental agreements. It consists of two parts, a part on domestic policy issues and a part on international policy issues. A separate part on international policy issues would not have been on the agenda when this volume would have been published two decades ago. But international and global environmental problems are different from purely national problems and deserve a special approach.

In an influental paper on environmental tax reforms Bovenberg, De Mooij (1994) come to the result that „environmental taxes typically exacerbate, rather than alleviate, preexisting tax distortions“. Especially, these authors show that a revenue neutral environmental tax reform that increases a tax on a polluting consumption good and cuts the labor income tax, reduces labor supply. Fullerton (1997) and Schöb (1997) have shown that when a different normalization of the Bovenberg, De Mooij model is chosen, environmental taxes do not need to exacerbate preexisting tax distortions. This paper extends the analysis of Fullerton (1997) and Schöb (1997) to show that the choice of the numeraire leads also to different conclusions regarding the efffects of environmental tax reforms on labor supply.

Recently, Greenpeace has announced plans to market a „green“ car which consumes less fuel and causes less ecological damage compared to conventional cars. From an economic point of view, the introduction of a „green“ car constitutes a problem of horizontal product differentiation because the ecological characteristics of cars are usually negatively correlated with other desirable features like, e.g., cubic capacity and maximum speed. The standard approach for analysing this class of problems is based on Hotellings (1929) famous paper „Stability in competition“ where two firms compete on a market for a distinct product differentiated by a single characteristic. The problem is modelled as a non-cooperative two stage game. In the second stage firms play a game in prices given the choices of product varieties made in the first stage. In the first stage firms chose product varieties expecting to receive the Nash equilibrium profits of the price game played in the second stage.¹ Assuming a uniform distribution of preferences in the product space and linear disutility caused by differences between available product varieties and individual preferences, Hotelling (1929) derives the so-called Principle of Minimum Differentiation which claims that in equilibrium both firms will supply (nearly) identical varieties.

The probability that an agent takes a certain action or a certain event occurs depends often on the actions taken by some agents. If this probability depends not only on current actions but on the sum of all past actions, these stock-dependent risks imply an intertemporal effect. In the present paper, we analyse this problem using an example concerning the exploitation of a nonrenewable, exhaustible common-pool resource. The paper discusses resource extraction policies under endogenous closure risks which depend on the accumulated stock of extracted resources. The notion of closure risks means that a certain resource may be no longer available although its physical stock was not completely extracted. Closure risks mirror two different, important phenomena which have not yet been considered in the literature in the context of stock dependency.

There is little disagreement about the need for tighter policy measures to avoid a further environmental degradation. It is also widely accepted that economic instruments will achieve this objective in a wide range of circumstances more efficiently than other policy measures. Still, there is concern over side effects of such environmental policies, because they might negatively affect employment in the economy, they might create undesirable distributive impacts, and they might disturb international trade relations by changing the competitiveness of export industries. The aim of this paper is to review the potential impact of environmental taxes on trade flows on a conceptual as well as on an empirical level.

At least since the Earth Summit in Rio, global environmental problems are on the international policy agenda. The main problems which obviously require international policy coordination are the risks of global warming, the loss of biological diversity and the destruction of the ozone shelter. Although all these problems call for different actions to cope with, they are closely interconnected. For example, the burning or clearing of tropical forests does not only add to greenhouse gas accumulation which is responsible for the risks of global warming. Additionally, tropical forests host an unknown reserve of genetic codes the size of which is assumed to depend on the diversity of species.

The history of Chlorofluorocarbons (CFCs) is a remarkable story. It tells about successful research, high-rising industrial production of CFCs for numerous purposes and the emergence of a pressing global environmental problem — the destruction of the earth’s ozone layer — which can only be solved by international cooperation.

International and global environmental policy issues have been subject to increasing public attention. This increasing attention is due to two reasons. First, global environmental problems like the potential destruction of the ozone layer, global warming and biodiversity loss are at the heart of the current debate on most urgent environmental problems. Second, solving these problems requires international policy coordination. The need for international policy coordination, however, raises several problems which do not exist for domestic environmental problems. Every international policy coordination must be grounded on the voluntary participation of those countries which use the environmental resource. The sovereignty of countries, however, allows countries to change their policies whenever they want to. Hence, international environmental agreements must guarantee that every national participant is at least not worse off by holding the agreement than by breaking it.

The previous paper in this volume considered the chances of international cooperation for environmental protection. Obviously, global problems like depleting the ozone layer, heating-up the atmosphere by emitting greenhouse gases and destroying biospheres require international cooperation. The previous paper has shown that international cooperation is sustainable only if every country is always at least not worse off by fulfilling the agreement than by breaking it.