This blog post introduces new research commissioned through the GGKP's Trade and Competitiveness Research Committee.
Significant advances have been made in the last decades in the generation and collection of data measuring environmental policy stringency in developed countries. As a result, the relationship between environmental policies and economic performance has been assessed mostly in relation to high-income economies. Despite this, there is no unequivocal empirical evidence on the direction of this relationship, with many studies being fragile and context specific. Arguments tend to cluster around two main camps. One camp argues that strict environmental policies hurt the economy and pose an unnecessary burden on businesses. The other camp argues that well-designed stringent environmental policy action can spur investments in clean technology, promote innovation, and support growth and jobs.
The absence of a universal clear-cut causal relation between environmental policy stringency and economic performance is no excuse, however, for inaction on the environmental and climate protection front. There is a sizeable literature providing the empirical evidence on when and how strict environmental regulations may promote or hinder economic growth and productivity applied to particular contexts, environmental issues, and case studies. The issue though is that most of these studies focus on high-income economies. Robust findings applied to developing countries are scarce, partly due to poor data availability in relation to measuring the various facets of environmental policy stringency.
There are emerging pressing global environmental challenges, such as the global climate change problem, biodiversity loss, and water degradation. Traditional economic development paradigms are increasingly questioned, and green growth discourses are more widely adopted and implemented across countries. As such, developing countries are taking more and more the initiative, acting on the environment front, leapfrogging, and striving to develop and grow their economies without irreversibly degrading their natural resource base. We are likely to see accelerated environmental policy actions and innovative initiatives and solutions being put forward by middle and low-income countries. Consequently, data collection and measurement efforts targeting environmental issues and monitoring policy action in developing economies need to be dramatically augmented for a better understanding of interactions between environmental protection, resource efficiency, and economic dynamics.
The concept of environmental policy stringency is nonetheless not only difficult to measure but also difficult to define. A systematic assessment of the different conceptualisations and measurements of environmental policy stringency deployed in the literature assessing environment-economy interactions is called for. A new study commissioned by the GGKP, through it's Trade and Competitiveness Research Committee, seeks to address these issues. It outlines definitional and conceptual challenges in measuring environmental policy stringency, and discusses the pros and cons of different indicators, and their usefulness for application in developing countries. The overarching goal of the study is to identify and prioritize research gaps in relation to measuring the strictness of environmental policies and better understanding green growth potentials in developing countries.
A common problem in empirical research is that there is no unique measure of environmental policy stringency, a concept that tends to be highly contextual and multidimensional. However, breaking the environmental policy-making process into its sequential stages, as applied in various country contexts can provide a helpful systematic assessment of the many environmental policy stringency indicators used in the literature. Based on this approach, the study discusses the merits and shortcomings of different environmental policy stringency indicators by grouping these into policy response, policy impact, and general composite measures.
For instance, policy response stringency indicators refer to the formulation phase (environmental legislation is enacted) or the implementation phase (enacted legislation is brought to bear) the policy process. These indicators capture more explicitly and directly stringency issues. They could range from the presence and incidence of environmental laws, rules, and regulations, applicable to a particular jurisdiction (e.g. the banning of polythene bags across the state of Uttarakhand in India), through to measures of international environmental cooperation (e.g. the Environmental Treaties and Resource Indicators database containing multilateral environmental treaty data for more than 200 countries), or to enforcement measures (see for instance this study by OECD analysing environmental compliance and enforcement in China).
Policy impact stringency indicators relate to the environmental policy operation phase, whereby economic operators invest in abatement measures in order to conform to the rules and regulations issued. These typically incorporate measures of private and public abatement expenditures, such as private pollution control investments or public research and development expenses. Policy impact stringency indicators can also be linked to measures of environmental performance (e.g. SO2 emissions for air pollution or biochemical oxygen demand for water pollution), as well as to likely socioeconomic impacts of enacting and enforcing environmental policies (e.g. infant mortality rates, changes in water prices, or changes in production and trade patterns of goods and services targeted by the environmental policy). These represent more indirect, implicit measures of environmental stringency, as they reflect more the (assumed) consequences of tightening environmental regulations rather than the policy stringency per se.
Finally, there are general composite indicators that bring together several different aspects covering environmental policy and impact stringency dimensions under single aggregate indices, such as the often-cited Environmental Sustainability Index. These indicators have the advantage of facilitating cross-country comparisons, but usually come at the cost of heroic assumptions and loss of important information due to aggregation.
All these types of environmental policy stringency indicators that circulate in the corresponding body of literature are discussed in the GGKP study. Two types of indicators emerge throughout the report as requiring most attention in relation to middle and low-income economies: de facto enforcement indicators (referring to the policy implementation stage), and de jure explicit measures incorporating specific environmental laws, rules, and regulations. Having said this, there is no “best” conceivable measure of the strictness of environmental policies. A multidimensional approach, though with greater focus on explicit direct measures is advocated for application in developing countries.
Two parallel research efforts need promoting in order to increase the evidence base of potential interactions between environmental policy stringency and economic dynamics in developing countries. On one hand, the development of rich data sets are required in order to populate the multi-dimensional matrix of measuring environmental policy stringency. On the other hand, significant methodological challenges remain with regard to empirically estimating the causal relationship between the severity of environmental regulations and economic performance. Advancing on both fronts may be supported through targeted case studies that combine data collection aspects with methodological developments. The developing country context specificity grounded in empirics may bring fresh insightful contributions to the green growth debate.