Sustainability Policy and Environmental Policy

Preprint OPEN
John C. V. Pezzey (2001)
  • Subject: sustainability, optimality, externalities, tax, policy
    • jel: jel:Q58 | jel:Q01 | jel:H30 | jel:O23

A theoretical, representative agent economy with a depletable resource stock, polluting emissions and productive capital is used to contrast environmental policy, which internalises externalised environmental values, with sustainability policy, which achieves some form of intergenerational equity. The obvious environmental policy comprises an emissions tax and a resource stock subsidy, each equal to the respective external cost or benefit. Sustainability policy comprises an incentive affecting the choice between consumption and investment, and can be a consumption tax, capital subsidy or investment subsidy, or combination thereof. Environmental policy can reduce the strength of sustainability policy needed. More specialised results are derived in a closed economy with a non-renewable resource, and in a small open economy with no environmental effects on utility.
  • References (23)
    23 references, page 1 of 3

    2. Environmental policy in a fairly general economy . . . . . . . . . . . . . . . . . . . . . 6 2.1 The economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Environmental policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

    3. Sustainability policy in the same economy . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 Sustainability policy versus social welfare maximisation . . . . . . . . . . . 13 3.2 Optimal and non-optimal sustainability policies . . . . . . . . . . . . . . . . . . 14

    2. For examples, see Pearce and Atkinson (1993), Asheim (1997), Aronsson et al

    (1997), Atkinson et al (1997), Brekke (1997) and Weitzman (1997).

    Asheim, Geir B. (1997). "Adjusting green NNP to measure sustainability." Scandinavian Journal of Economics, Vol 99 No 3, 355-370.

    Hartwick, John M. (1990). "Natural resources, national accounting and economic depreciation." Journal of Public Economics, Vol 43, 291-304.

    Howarth, Richard B. (1992). "Intergenerational justice and the chain of obligation." Environmental Values, Vol 1 No 2, 133-40.

    Howarth, Richard B. (1998). "An overlapping generations model of climate-economy interactions." Scandinavian Journal of Economics, Vol 100 No 3, 575-591.

    Howarth, Richard B. and Richard B. Norgaard (1990). "Intergenerational resource rights, efficiency, and social optimality." Land Economics, Vol 66 No 1, 1-11.

    Howarth, Richard B. and Richard B. Norgaard (1992). "Environmental valuation under sustainable development." American Economic Review, Vol 82 No 2, 473-7.

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