Does international harmonization of environmental policy instruments make economic sense? : The case of paper recycling in Europe

Reprint Series No. 33. February 2003, National Institute of Economic Research

Harmonization of the instruments used in environmental policy has been considered necessary to guarantee "fair" competition in international markets. We examine the economic costs of harmonizing paper recycling standards in countries where the urgency of the waste disposal problems differ. Using data of seven European countries we estimate the technologically feasible input conbinations of pulp and waste paper for paper production. Short-term effects of two environmental policy measures, minimum content requirement and utilization rate target, are analyzed. By translating the two administrative instruments into taxes and subsidies, we show that the shadow costs of harmonization vary considerably between countries. The difference in the domestic availability of waste may explain the variation, and a modification of the policy measures to incorporate this aspect is suggested.