Integration of the environment into economic policy

The European Union defines a Community strategy to integrate environmental issues into economic policy using various instruments such as market mechanisms, Member States' annual reports and the Broad Economic Policy Guidelines.

ACT

Communication from the Commission of 20 September 2000 to the Council and the European Parliament: bringing our needs and responsibilities together - integrating environmental issues and economic policy [COM(2000) 576 final - not published in the Official Journal].

SUMMARY

This communication takes as its premise, that there is no inherent contradiction between economic growth and the maintenance of an acceptable level of environmental quality. So measures to integrate environmental and economic policies should simultaneously reduce pollution and improve the functioning of the economy.

At the present time, economic policy is essentially concerned with economic stability and the functioning of markets. For a great many environmental groups and services, there is no market or it is incomplete and these missing markets give rise to economic inefficiency. Consequently, the best strategy for integrating the environment into economic policy must be to create or improve the functioning of markets for environmental goods.

The communication advocates a number of solutions to improve the functioning of environmental product markets:

• fixing correct prices for environmental goods;
• creating and assigning well-defined property rights for environmental goods and services which are enforceable by law and tradeable;
• fixing a price to pay (in the form of a tax or charge) for pollution;
• establishing deposit-refund schemes to encourage recycling;
• offering subsidies to goods and services which generate positive environmental effects;
• negotiating agreements with industry;
• providing information about the environmental characteristics of goods and services.

As far as the relationship between competitiveness and the environment is concerned, the communication states that increased protection of the environment should not damage the Community's competitiveness in the world. On the contrary, integrating environmental factors into economic policy should increase efficiency and hence improve the competitiveness of the European Union's economy.

While the Commission identifies international cooperation as the most appropriate means of combating world ecological problems, it also raises the possibility of making broader tax adjustments which would be environmentally sound and consistent with international trading rules.

The Commission is proposing to analyse the environmental implications of the taxation systems of the different Member States for the Council. An analysis of this kind would have to include the effects of subsidies, taxes, tax exemptions and reductions on the environment.

With regard to social stability, the communication states that environmental policies can have a positive effect on employment where the supply of environmental goods and services is more labour-intensive than the economic activities it replaces.

The Commission undertakes to devise a detailed series of indicators for integrating environmental and economic policies. They will be compatible with the structural indicators which emerged from the Lisbon European Council. This will make it possible to take account of environmental questions in structural reforms of the European economy. These indicators will be of different kinds:

• relating to the use and effectiveness of economic instruments (such as the amount of income received from environmental taxes, the use of tradeable emission permits and negotiating agreements);
• relating to policies and measures that are harmful to the environment (such as indicators on the importance and impact of subsidies);
• relating to the value of the environment (such as measures of savings and wealth which attempt to capture the impact of depletion and degradation of natural resources);
• relating to "environment" industries (data relating to repairing pollution damage and providing environmental services).

To recapitulate, the communication lists the basic elements for a Community strategy to integrate the environment into economic policy by:

• adopting a gradual and credible approach to environmental integration, derived from an analysis of available scientific and technical data, the environmental conditions in the various regions of the Community and the potential costs and benefits of action or lack of action;
• adopting an approach consistent with the strategy for sustainable development which the European Council intends to adopt in June 2001;
• the Broad Economic Policy Guidelines must fully incorporate the objectives of environmental integration;
• adopting an approach which takes account of the contribution of taxation and expenditure policies to environmental integration, including the efficiency of economic instruments in achieving environmental objectives;
• including the removal of subsidies which are harmful to the environment.

RELATED ACTS

Communication from the Commission of 15 May 2001 A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development (Commission proposal to the Gothenburg European Council) [COM(2001) 264 - not published in the Official Journal].

Report by the (ECOFIN) Council of 28 November 2000 to the European Council in Nice - A strategy for the integration of environmental issues with economic policies. The Council considers that environmental considerations should be integrated with the Broad Economic Policy Guidelines (BEPG), and rigorously followed through. Environmental policy should include various complementary economic instruments:

• a command-and control approach relying on effective technical standards or on limit values for emissions of polluting substances;
• market-based instruments designed to influence supply or demand through appropriate incentives, such as negotiable emission quotas, taxes or deductions;
• negotiated agreements between public authorities and industry;
• the provision of information on the environmental impact of goods and services.

The Council also considers that the choice of policy instruments should be decided on a case-by-case basis following a cost-benefit analysis, and that provision should be made for accompanying policies to compensate economic operators for the consequences of the legislation.

Last updated: 10.10.2005