International Review of Environmental and Resource Economics > Vol 15 > Issue 4

The Political Economy of Market-based and Information-based Environmental Policies

Jason M. Walter, Department of Economics, University of Tulsa, USA, jason-walter@utulsa.edu
 
Suggested Citation
Jason M. Walter (2021), "The Political Economy of Market-based and Information-based Environmental Policies", International Review of Environmental and Resource Economics: Vol. 15: No. 4, pp 359-385. http://dx.doi.org/10.1561/101.00000137

Publication Date: 07 Dec 2021
© 2021 J. M. Walter
 
Subjects
Environmental Economics,  Environmental politics,  Political economy,  Political participation,  Public policy
 
Keywords
JEL Codes: Q58H23P48D62D43
Market-based environmental policyinformation-based environmental policyeco-certificationemission taxeco-labeltradable permit
 

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In this article:
1 Introduction 
2 Background and Related Work 
3 Political and Economic Analysis 
4 Implications and Limitations 
5 Conclusion 
Acknowledgements 
References 

Abstract

Contemporary research shows consumers are willing to pay a premium for eco-friendly products, suggesting eco-labels and other information-based policies may be an alternative to market-based policy tools. Emission taxes and tradable permits incentivize pollution reduction through monetary penalties, thereby punishing dirtier firms. Eco-labeling, instead, incentivizes pollution reduction through monetary rewards, allowing producers to leverage environmentally concerned consumers' willingness-to-pay to increase their profits. A comparison of emission taxes and eco-labels illustrates a "carrot" versus "stick" approach to environmental policy. Both approaches yield environmental benefits; however, the political nature of environmental policy can create scenarios where the socially-optimal environmental policy is not implemented. This paper compares the political and economic impacts from traditional market-based policies to the popularized use of information-based eco-labels. The political nature of environmental policy suggests the "stick" provides an unpopular but effective environmental guidance, whereas the "carrot" shifts cost to consumers and yields only minor environmental benefits.

DOI:10.1561/101.00000137