Sustainability Policy and Environmental Policy

Abstract

A representative agent economy with a resource stock, polluting emissions, productive, abatement and foreign capital, trade, and technical progress, is used to contrast environmental policy, which internalises amenity and productivity values, with sustainability policy, which achieves some form of intergenerational equity. Environmental policy comprises a tax on emissions and a subsidy on the resource stock equal to the respective externalised costs or benefits. Sustainability policy comprises a capital and/or consumption tax to change the effective utility discount rate. Environmental policy can reduce the strength of sustainability policy needed. More specialised results are derived in a closed economy with a non-renewable resource and no technical progress, and in a small open economy with few environmental effects.