ESTIMATING SHADOW PRICES OF POLLUTION IN OECD ECONOMIES

The objective of this paper is to estimate time variant shadow prices for CO2, SOx, NOx and PM10 in 19 OECD countries over the period 1990-2008 relying on an output distance function approach. Shadow prices for pollutants are found to vary widely across countries, depending on national environmental regulations, the use of inefficient abatement technologies and the structure of the economy. All countries but Korea experienced a decline in CO2 and NOx prices over the period 1990-2008, with the bulk of the decrease occurring since 2000. This suggests that most OECD countries have strengthened their regulatory framework and encouraged the adoption of clean technologies since the 2000s. Estimates of shadow prices of PM10 appear to be extremely variable across countries. Contrary to what is observed for CO2 and NOx, steep declines have occurred in both 1990-2000 and 2000-2008 sub-periods. The empirical work undertaken in this paper could easily be replicated to other countries, and is relatively parsimonious in terms of data.