Improved economic methods for decision-making on climate and environmental policies

Project results are expected to contribute to all of the following expected outcomes:

• Enhanced operational capacities of the methods of economic analysis for climate and environmental policies, leading to their increased usage in the preparation of decision-making on climate and environmental policies. This includes, but is not limited to, improved cost-benefit, multi-criteria and cost-effectiveness analysis.
• Practical recommendations and conceptual guidelines for improved, methodologically transparent economic approaches and practices for public policy design and evaluation in the domain of climate and environment.
• Proposals on ways to produce a better reflection of the specificities and risks of environmental challenges in public policy and promoting precautionary responses.
• Enhanced efficiency, effectiveness and legitimacy of European regulatory and policy decisions by providing decision-makers, stakeholders and the public with more realistic ability to systematically assess the options and their consequences.
• Improved capacity for decision making under the conditions of (extreme) uncertainty.
• New evidence on the effectiveness of various regulatory strategies, instruments and approaches for climate and environmental policies.
• Factual evidence and insights for the design and evaluation of the implementation of major European policies such as in the domain of the European Green Deal, New Generation Europe, national recovery plans, and other relevant policies.

Actions should focus on the improvement of methodologies, practices and techniques for conducting economic appraisal of environmental policies, taking into account the progress in relevant sciences and in the understanding of the limitations of the methodologies and tools used so far, notably in impact studies. The key environmental policies of interest under this topic are those addressing climate change and biodiversity loss and actions should foster integrated approaches for addressing these interdependent challenges. Innovative and out-of-the-box approaches are strongly encouraged.

Actions are expected to investigate limitations of mainstream economic theory and models used for environmental policy assessment, including the evaluation of appropriateness of cost-benefit and cost-effectiveness analyses. They should also consider alternative approaches that could be applied to assess environmental policies. Issues such as measurement of environmental/climate damages and the treatment of uncertainty, including overreliance on average and most likely outcomes as well as the non-linear features of climate-related risks are expected to be addressed. Other aspects that could be explored include short-termism, treatment of unpriced values, irreversibility, discounting, inclusiveness and socio-economic inequalities, and broader ethical issues such as inter-generational fairness.

The work should encompass in-depth ex-post evaluation of the actual performance of selected climate and environmental policies at European^[1], national or regional level in order to identify their strengths and weaknesses and propose possible improvements in the underpinning methodologies for ex-ante assessments. Alternative approaches derived from the measurement of actual, realised costs and benefits of a representative sample of cases can also be considered.

Actions should also examine the performance of different types of regulatory strategies such as a comparison of market-based vs traditional (command and control) regulation, a comparison among different types of market-based approaches (taxes, emissions trading, green certificates, subsidies, etc.), evaluation of the performance of information-based mechanisms (such as labelling) for purposes of environmental policy-making. The analysis should take into account public acceptance dimension. Consortia should also explore innovative policy interventions (such as various types of incentive) that could be applied to encourage the adoption of more sustainable technologies and behaviours.

Applicants should take into account not only the advances in economic thinking, but also the evolution in behavioural insights, study of public and political acceptance, as well as progress in other relevant fields such as sociology, natural and political sciences, humanities, gender and intersectional studies, public health and disaster risk reduction, as well as key trends that have influenced the evolution of the European environmental policy-making. Lessons from the COVID-19 crisis should also be taken into account. Participation of and co-creation with relevant stakeholders and key actors should be part of the action, including in-depth contribution from social sciences and humanities to advance the understanding of the dynamics and the factors impacting the policy and political decision-making processes.

Finally, actions should formulate and implement strong dissemination plan towards key actors in relevant decision-making processes with an aim to testing the proposed methods in real conditions and towards educational institutions in order to facilitate broad cross-fertilisation of the insights created.

In response to this topic actions are expected to address the broader framework and methodologies for economic analysis of environmental policies and thus go well beyond the economic aspects of Integrated Assessment Models.

Synergies with other topics, in particular from Cluster 6 with respect to relevant biodiversity insights, should be explored and established over the duration of the project.

This topic requires the effective contribution of SSH disciplines and the involvement of SSH experts, institutions as well as the inclusion of relevant SSH expertise, in order to produce meaningful and significant effects enhancing the societal impact of the related research activities.

[1] For European Commission’s impact assessments please refer to https://ec.europa.eu/smart-regulation/impact/ia_carried_out/cia_2016_en.htm (Note: initiatives included in this data base may not be exhaustive and applicants are free to choose other case studies).