Free exchange: Green tape

WHAT are the economic effects of environmental policies? It sounds painfully obvious, but the answer depends on how strict those policies are. So how do you quantify that? One of the dirty secrets of green economics is that, until now, no one has had a good measure of environmental strictness.One or two narrow indicators have been developed. The European Bank for Reconstruction and Development, for example, has an index of climate-policy stringency for 2011. But there is no standard measure comparing the effects of different policies, assessing countries’ overall policy stance and calculating how these have changed over time.This lack reflects problems in the underlying data. So-called environmental services—disposing of waste or cleaning up the air—are not included in traditional measures of productivity. So if their inputs or outputs change (and they have changed a lot over 20 years) the results will not show up in the numbers. Environmental policies also influence the stock of capital—for example, by making some technologies obsolete. But depreciation rates in national accounts rarely allow for such effects.This does not mean it has been impossible…

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