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Environmental policy analysis

Dealing with economic distortions

image of Environmental policy analysis

This report discusses how policymakers should deal with economic distortions on the cost-side of cost-benefit analysis in the area of environmental policies, and assesses the existing Nordic guideline recommendations. The two types of economic distortions are distortions to product markets, which are almost by definition tied to environmental policy interventions, and distortions to labour supply decisions. Drawing on best practices from the literature, we formulate a number of key principles useful for assessing the impact on labour supply decisions and welfare on product markets from policy interventions. Four analytical examples are included to illustrate the importance of these principles for the correct quantification of distortionary impacts, especially the importance of taking into account pre-existing policy induced distortions.

English

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Preface

Environmental policies justifiably form a substantial part of government policies in all Nordic countries. A wide range of policy instruments are used simultaneously and with substantial interactions - e.g. taxes on polluting activities, subsidies to support “cleaner” solutions and regulatory minimum standards. These instruments affect the functioning of both product and labour markets.

English

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