Measuring environmental policy stringency: Approaches, validity, and impact on environmental innovation and energy efficiency

Abstract Solid tests of the impact of environmental and energy policy on important economic outcomes, such as innovation, productivity, competitiveness and energy and carbon efficiency are impaired by the lack of appropriate empirical proxies for the commitment to, and stringency of, environmental policy. We contribute to the literature by: (1) computing different indicators of environmental policy stringency, (2) testing to what extent they convey similar insights through a statistical comparison exercise, and (3) showing the implications of using one or the other indicator in two illustrative empirical applications focused on environmental innovation and energy efficiency. We conclude by highlighting the implications of our analysis for empirical research focusing on the evaluation of policy impacts, and highlight fruitful future research avenues.