Measuring Environmental Policy Stringency in OECD Countries : A Composite Index Approach

Cross-country analysis of the economic effects of environmental policies is limited by the lack of reliable, comparable measures of the stringency of environmental policies. This paper attempts to fill this gap, by constructing new quantitative indexes of environmental policy stringency (EPS). Selected environmental policy instruments, primarily related to climate and air pollution, are scored and aggregated into composite EPS indexes. Two EPS indexes are proposed – one for the energy sector, and an extended one to proxy for the broader economy (“economy-wide”). They cover most OECD countries over 1990s-2012. While a simplification of the multidimensional reality of environmental policies, the EPS indicators are a first tangible effort to measure environmental policy stringency internationally over a relatively long time horizon. They show relatively high and significant correlations with alternative proxies of EPS used in the literature, such as measures of perceived stringency based on surveys, measures based on environmental outcomes and a composite policy-based measure with no time series. The paper describes some additional features of the EPS indicators and sketches out possible future extensions.