Valuing the Environment and Its Impact on Formulating Environmental Policies
37 Pages Posted: 23 Aug 2014
Date Written: August 21, 2014
Abstract
The aim of this paper is to demonstrate the significant differences that would emerge in policy formulation, when environmental capital is explicitly accounted for in macroeconomic analyses. These differences are illustrated with reference to two Organisation for Economic Co-operation and Development (OECD) economies, namely Australia and Canada. The main analytic framework considered is a factor utilization function, which traditionally deals with labor and manufactured capital. The development of a three-factor function in terms of labor, manufactured capital and environmental capital enables the display of mistaken notions of economic performance. That is in the absence of environmental capital, policy makers overstate the performance of labor and manufactured capital. The recognition of mistaken level of economic performance with reference to labor and manufactured capital in standard macroeconomic analyses enables the identification of policy avenues to protect and enhance environmental capital. As illustrated in this paper, the implications of developing and applying environmental-macroeconomic framework for formulating environmental and climate change policies are significant.
Keywords: macroeconmics general, valuation of environmental effects, climate change, sustainability; environmental accounts and accounting
JEL Classification: E00, Q51, Q54, Q56
Suggested Citation: Suggested Citation