Modelling the Economic Effects of Environmental Policy Measures Applied to Transport

Abstract

Transport is an economic activity characterized by intensive energy use and direct emissions of various environmentally and health damaging substances. Environmental policy may therefore include specific attention to measures aimed at ameliorating such negative and external effects of transport, as well as from related physical infrastructure. From a policy point of view it is relevant then not only to know the direct effect of applying policy measures to transport but also economy-wide effects. The latter may include both macro-aggregate indicators as well as more or less structural aspects of alterations in micro-economic compositions of an economy. This can take the form of processes on individual markets, changes in relative prices, and substitutions between inputs or outputs. The importance of the micro-observation level derives from the fact that transport is entangled with most economic activities, and can even be regarded as a physical dimension of interaction between such activities, both spatially and sectorally. The two levels of economic observation are not separate of course, and, as we will see later, the economic methodology of general equilibrium analysis can serve as a basis for accomplishing an adequate linkage.