OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Economic Instruments in Environmental Policy

Lessons from the OECD Experience and their Relevance to Developing Economies

In recent years, there has been a rapid spread of economic instruments (EIs) in environmental policies of OECD Member countries. The application of EIs has gained wider political acceptability and, in a growing number of cases, they have come to have incentive rather than merely revenue-raising effects. In Sweden, eco-taxes have been introduced as part of a broad fiscal reform, while in other countries the approach is more piecemeal. Virtually without exception, EIs are employed in combination with regulations and other policy instruments.

Developing countries stand to learn from the OECD experience with EIs, but they often face unique challenges as well as opportunities in applying such instruments. Resource and other prices have historically been distorted in such economies, so correcting such distortions is a prerequisite to the effective use of EIs. Also, underdeveloped markets, public enterprises with soft budget constraints, and high rates of inflation can all undermine the ...


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