Chapter 3: Framework for Assessing the Distribution of Financial Effects of Environmental Policy
3. Framework for assessing the distribution of ﬁnancial eﬀects of environmental policy Bengt Kriström The primary fact of economics is the production of wealth. The division of the product among those who create it is secondary in logical order, and in a sense, in importance. Yet the most important subject of thought connected with economy is distribution. (J.B. Clark, 1894, Palgrave Dictionary of Economics) 1. INTRODUCTION By its very nature, environmental policy must have distributional impacts. Because the essential purpose of environmental policy is to change consumption and production patterns, there will inevitably be ‘winners’ and ‘losers’ among the economy’s households and ﬁrms. Indeed, the daily drama of environmental policy typically involves making hard choices rather than implementing ‘win–win’ policies. Witness the sometimes acrimonious protests against gasoline tax increases, or the occasionally unfriendly reception of a decision to preserve a natural resource; in any realistic setting, environmental policy imposes both gains and losses. Yet, the environmental economics literature has focused primarily on eﬃciency. We know much less about how the fruits of environmental policy are distributed in society, than how to design eﬃcient policies. The tide is now turning and distributional concerns are returning to the frontlines of economic research: a vigorous new strand of the macroeconomics literature explores the income distribution–growth nexus,1 modern welfare economics stress the importance of scrutinising the distribution of impacts, for example, in the recent literature on assessing the beneﬁts and costs of public programmes,2 a...
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