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Why Environmental Policy Rarely Follows Economic Advice

Sep 21, 2012

Why Environmental Policy Rarely Follows Economic Advice
RFF Feature
September 21, 2012
Capitol Dome

Economic approaches to environmental issues typically strive for the most cost-effective means to achieving a given policy goal. However, these approaches are not widely applied to environmental policies.

According to RFF Darius Gaskins Senior Fellow Dallas Burtraw, this occurs because economic approaches often fail to reflect the complexity and role of governing institutions. In a new RFF discussion paper, “The Institutional Blind Spot in Environmental Economics,” he notes:

“A virtue of economic approaches is that they are typically simple and in principle cost-effective. However, for economic advice to reach its full influence requires consideration of the role of institutions and their complexity that determines how economic policies ultimately will function. The success of economic prescriptions for environmental policy depends on a new round of sophisticated thinking about institutions and how they interact with the policy tools at our disposal.”

In the paper, Burtraw considers three institutional relationships that strongly influence how economic tools can be used in environmental policy. First, he investigates the federalist nature of governmental authority. Second, he looks at how this federalist structure interacts with the economic alternatives of cap and trade versus emissions fees. Third, he considers the Clean Air Act and compares the effectiveness of economic instruments versus regulation under the act in the context of mitigating emissions of sulfur dioxide and greenhouse gases.