Can Environmental Regulations Promote Greenhouse Gas Abatement in OECD Countries? Command-and-Control vs. Market-Based Policies

Abstract

In response to global warming, greenhouse gas (GHG) abatement has been one of the top priorities of governments, and a large variety of environmental regulation policies have been implemented in past decades. Using panel data from 27 OECD countries over the period of 2005–2012, this study measures and compares the stringency level of command-and-control and market-based environmental regulations. The differentiated impacts and indirect effects of environmental regulations on GHG emissions are tested empirically. The results show that: (1) Both command-and-control and market-based environmental regulations have effects on GHG abatement in OECD countries, and there is a non-linear relationship between environmental regulations and GHG discharge, in which stringent command-and-control environmental regulations and mild market-based regulation policies are preferred; (2) Command-and-control environmental regulations reduce GHG emissions by improving the technological level, rather than the energy consumption structure. In contrast, market-based environmental regulations can promote GHG abatement through the intermediary effects of both technological progress and the energy consumption structure. The findings provide implications for OECD countries to further reduce GHG emissions.