Energy is a major component of OECD economies in and of itself and as a factor input to all other economic activities. Energy production and use have environmental effects that differ greatly by energy source. Fuel combustion is the main source of local and regional air pollution and GHG emissions. Other effects involve water quality, land use, risks related to the nuclear fuel cycle and risks related to the extraction, transport and use of fossil fuels.

Energy end-use prices influence overall energy demand and the fuel mix, which in turn determine environmental pressures caused by energy activities. They also help internalise environmental costs. Though price elasticity varies considerably by end-use sector, historical and cross-country experience suggests that the overall price effect on energy demand is strong and that increases in energy prices have reduced energy use and hence its environmental impact.

Transport is a major component of economic activity in and of itself and as a factor input to most other economic activities. It has many effects on the environment: air pollution raises concern mainly in urban areas where road traffic and congestion are concentrated, though road transport also contributes to regional and global pollution problems such as acidification and climate change; vehicles present waste management issues; and transport infrastructure exerts pressures on the environment through use of space and physical transformation of the natural environment (e.g. fragmentation of natural habitats).

Prices are a key form of information for consumers. When fuel prices rise relative to other goods, this tends to reduce demand for fuels, as well as for vehicles with high fuel consumption. This stimulates energy saving, and may influence the fuel structure of energy consumption. However, there may be a rebound effect whereby greater use of more fuel-efficient vehicles encourages greater vehicle usage.

Agriculture’s environmental effects can be negative or positive. They depend on the scale, type and intensity of farming as well as on agro-ecological and physical factors, and on climate and weather. Farming can lead to deterioration in soil, water and air quality, and to loss of natural habitats and biodiversity. These environmental changes can in turn affect the level of agricultural production and food supply limiting the sustainable development of agriculture. Farming can also provide sinks for greenhouse gases, conserve biodiversity and landscapes and, help prevent floods and landslides.

This section provides important socio-economic background information, particularly with regard to economic growth, population and consumption.