Original research articleThe influence of institutions, governance, and public opinion on the environment: Synthesized findings from applied econometrics studies
Introduction
The ability of environmental interventions to achieve the objectives they are designed for depends on the political process leading to policy adoption as well as on the nature of the underlying institutions, dominant ideas, cultural discourses, the industrial structure, and the distribution of resources and power [1,[2], [3], [4]]. Designing targeted economic, social, and environmental policies will play a crucial role in steering and fostering this transition towards sustainability. Yet, since environmental interventions are essentially economic policies ultimately implemented by bureaucrats in a broader institutional setting [5], the quality and efficiency of institutions crucially affects the effective implementation and monitoring of policies [6].
In this review, we synthesized findings from the applied econometrics literature to examine the influence of institutions and governance on environmental policy, environmental performance, innovation, and green investments at the national level. We describe and summarize the main findings on how the relationship between institutions and various indicators of environmental performance and environmental policy have been conceptualized and operationalized. Along with reviewing impacts of institutions and governance on physical indicators such as indicators of environmental performance, we also reviewed the literature on the relationship between institutions and green investments and innovation, considered fundamental drivers of sustainability transition. Finally, we reviewed the empirical literature on the impact of public opinion and populism on environmental policy adoption to reflect the growing influence of right-leaning populism.
Review papers always face a trade-off between inclusiveness and degree of detail, we acknowledge the limited scope of this paper, being centred around quantitative studies that use a specific method, namely econometric analysis. The motivation for this choice is the objective behind this paper, namely to inform the macroeconomic models used for policy analysis. Integrated Assessment Models (IAMs) have become a key analytical tool to exploring plausible pathways towards sustainable futures. They use mathematical relationships to provide a simplified representation of the climate, economy, and energy systems, as well as their interactions, and focus on the consequences of exogenously specified policies. Given the growing attention towards the implementation of environmental and climate policies, these tools need to incorporate the interplay between economic, political, institutional and as well as socio-cultural changes. One approach to address this need is to parametrize the models with econometric estimations – focus of this review paper.
The goal of our paper has also implicitly determined the selection of the papers we reviewed. We have analysed econometric papers from the applied economics literature focusing on institutions and environment – either in terms of environmental performance, environmental policies, green innovation, green investments and the impact of public opinion on policy adoptions. Empirical studies from the applied economics literature quantitatively examine the relationship between institutions, or more broadly political economy factors and various indicators of policy adoption, policy effectiveness, and environmental outcomes. They rely mostly on observed cross-sectional or longitudinal data, and in some cases on the use of natural experiments. Reduced-form equations building on hypotheses grounded in theoretical frameworks are generally used to formalize simple models testing a causal relationship between quantifiable variables.
We review 60 papers dealing with the impact of institutions and governance on a range of environmental performance indicators and of policy adoption. The main indicators of institutional quality, environmental performance, and policy used in the literature are classified. Based on the key findings, we summarize the main hypotheses. We conclude by outlining avenues for future research in the specific context of climate change and energy, and describe opportunities for future work that have emerged with the recent advances in data collection and empirical methods. We find that 43 out of the 601 reviewed papers have evaluated the impact of institutions and governance on environmental performance indicators such as emissions (methane, carbon dioxide, sulfur dioxide, chlorofluorocarbon, and nitrogen dioxide), pollutants (water pollutants, air particles, carbon monoxide, and lead), deforestation, land degradation, and protected areas. Only 5 out of 43 studies (Table 1) have looked at the impact of institutions and governance on green investments. Of the reviewed papers, 17 have investigated the impact of institutions and governance on policy adoption, 9 of which use policy stringency as the dependent variable.
Greater democracy, more civil liberties, and experience with democratic systems of government generally lead to greater environmental protection policies, including greater participation in international environmental agreements and better environmental performance outcomes. Public opinion matters in democracies, but it can be a ‘double-edged sword’ as the rise of right-leaning populism threatens to bring about worse environmental policies and outcomes, or reverse previous progress with environmental policies and energy transition. This seems particularly relevant for the US, where the right denies the existence and policy importance of climate change. Increased levels of corruption tend to lead to environmental degradation, fewer environmentally friendly laws being passed or adopted, and acts as a barrier to green investment and innovation.
Our review of the literature on public opinion and environmentally friendly policy outcomes suggests that, although public opinion has a substantial positive impact on passing and adopting environmental-friendly laws and regulations. Unfavorable public support can also act as a major barrier to transitioning to a low-carbon economy. This could be cause for concern, as public support for climate change policies may decline with the rise of right-leaning populism. In the case of energy transition, countries where energy regulators are under parliamentary authority and commitment from the government are more likely to achieve sustainable energy transition.
We also highlight that, despite the empirical literature on this topic being rather broad, the focus has mostly been on physical performance indicators (e.g. GHG emissions or pollutants) or on policy adoption choices that are dated (e.g. signing and ratification of the Kyoto Protocol). In this view, we discuss how expanding the field of research to analyze the impact of institutions on green investments or policy stringency in a more systematic manner is ripe for investigation and review the few papers that have started investigating this topic.
We do not conduct a systematic review but have focused on providing an in-depth review of the empirical literature on the influence of institutions, governance, democracy, corruption, and public opinion on environmental performance and environmental policy adoption. The papers reviewed were chosen based on this particular outline and most of them were chosen from Google Scholar using variants of “impact of institutions/governance/democracy/corruption/public opinion on environmental performance/environmental policy”. However, some of the papers were chosen from references of other papers.
The remainder of paper is structured as follows. Section 2 provides definitions and concepts of institutions and governance while Section 3 presents the review of the existing literature organized as follows; four sub-sections study the impacts of institutions and governance on environmental performance (3.1), environmental policy (3.2), investments (3.3), and innovation (3.4). Sub-section (3.5) reviews the literature on populism and public opinion and environmental policy and (3.6) provides an overview of political systems and energy transition. Section 4 discusses the research gaps and priorities with a focus on the political economy of green transition and Section 5 concludes. Detailed information on the dependent variables (indicator for environmental performance/policy/investment), independent variables (indicator for institutions/governance/corruption/public opinion), methodology used, and main results for each of the paper reviewed are provided in Table A2, Table A3, Table A4 in Appendix A.
Section snippets
Definitions, concepts, and philosophical worldview
The concept of institutions has been used in different contexts, often with dissimilar meanings, making it difficult to provide an unequivocal definition. For example, sociology refers to institutions as a broader set of; (a) regulatory, (b) cultural-cognitive, and (c) normative rules [7]. From this perspective, institutional change refers not only to the direct effect of policies and formal prescriptions (institutions type a) but also to changes in how we see and understand the world, how our
Institutions and the environment
The theoretical argument for government activity in the context of the environment is provided by the public-good nature of environmental protection. Private agents systematically fail to consider the full costs of pollution due to the associated externalities, creating the scope for government intervention [30]. Relevant questions include the degree of government intervention and the ways different forms of government (political institutions) and electoral arrangements affect environmental
Existing gaps and future directions
Our review reveals four major gaps in the applied economics literature on institutions and environment. The first gap concerns the relationship between institutions and policy adoption. With respect to the choice of policy adoption indicators, only a few papers have studied the impact on policy stringency and regarding the institutional factors considered, very few papers have investigated the influence of lobbying and veto power. Understanding the drivers of policy adoption and stringency and
Conclusion
This review surveys the existing literature on institutions, governance, populism, public opinion, and the environment by comprehending the major findings of the empirical contributions on institutions and environmental outcomes, environmental policy adoption, green investments, and energy innovation. It suggests that it is critical to expand the existing empirical literature on institutions and the environment to energy and climate change related issues, which could contribute to the broader
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