Environmental indicators in economic models: technical information and policy implications

Environmental policies in industrialized countries are directed at phenomena like the greenhouse effect, acidification, eutrophication and waste accumulation. Environmental indicators, being a weighted average of individual emissions, measure each phenomenon. Since policymakers tend to have a preference for quantitative policy goals, improving the environment unarguably implies a reduction of emissions underlying the environmental indicators. The differences between environmental indicators are potentially large. Technical characteristics of emissions, determined by their relation to economic variables and the substitution possibilities of these economic variables, are very different. The policy simulations in this paper show these differences, which indicate the relevancy of adequate modelling efforts and sufficient detail with respect to the relation between emissions and human activity. Moreover, the results give an insight into the potential economic effects of improving the environment, which is relevant information for policymakers.