IISD looks at three economic policy issues pertinent to sustainable development. The first issue revolves around the poverty-ecosystem nexus. The second area of work looks at energy efficiency and equity issues arising from climate change policies. The research investigates the impacts full cost pricing will have on the distributional impacts of Kyoto-oriented policies. The third line of work investigates the role of stakeholders and institutions in the development and implementation of economic instruments to internalize environmental externalities.

Achievements and Highlights

• IISD was approached by the United Nations Environment Programme to draft a concept paper on the poverty-environment nexus and a set of guidelines. These two documents will be presented by the director of UNEP to the Governing Council as the response to GC21/15. Drafts of the conceptual framework can be found at http://www.iisd.org/economics
  /pov_sd/documents.asp.

• IISD launched Nexus, a newsletter designed to enhance the poverty-environment dialogue. This newsletter comes at an appropriate time in light of the growing appreciation among policy-makers of the critical role ecosystems play in poverty reduction but also of increasing confusion because of the complexity of the relationship.

• Another major international initiative looking at ecosystems and human well-being is the Millennium Ecosystem Assessment. This five-year, US$20 million project's main aim is to carry out an integrated ecosystem assessment but with the understanding that human wellbeing plays a central role in this assessment. IISD was invited to participate in this initiative by contributing its expertise on well-being and poverty reduction.

• In the area of energy and climate change policies, IISD had just completed estimating--using a combination of econometric techniques--demand functions that capture the demand for energy by various income groups. These demand functions are unique in the sense that they capture the demand for output energy (space heating, hot water, appliances) rather than the standard energy demand functions that capture the demand for input energy (electricity, gas, oil). Output energy is what consumers need and finally use while input energy is the raw form of energy before being transformed into output energy. Increases in energy prices are always at the input energy level but the impacts are felt at the output energy stage. This work will provide policy-makers with information to develop energy policies that are sensitive to the demands of the poor.

• IISD was able to advance earlier Canadian emission cost studies by using a geographic information systems (GIS) approach to link emissions data to population distribution, giving a better picture of the distribution of the health costs of air pollution than was previously available. In order to calculate these public health costs of electricity generation in Canada, IISD combined the methodology from the European ExternE project with existing Canadian data and models.

• In the field of full cost pricing, IISD produced a paper for Environment Canada that looks beyond the economic efficiency arguments of economic or market-based instruments to address pollution problems. The paper addresses the political economy of institutions and the interplay among various stakeholders in the success or failure of the implementation of pollution policies. A complex adaptive management approach for the design of economic instruments was formulated.

Long-term Vision

Economic Policy's long-term aims are threefold: 1. to raise the profile and importance of the poverty-ecosystem nexus and to sensitize policy-makers to the critical multi-dimensional role ecosystems play in reducing poverty and to establish IISD as a key resource centre for advice in formulating policies in this complex and evolving area; 2. to advance the state of art in energy modelling by introducing the equity dimension; and 3. to advance the concept of complex adaptive management as a framework for economic instrument design in the field of full cost pricing.

From the Director of Economic Policy...

"IISD has been given a unique opportunity to play an instrumental role in the field of poverty reduction and ecosystems. The production of a pragmatic, yet substantially radical approach to poverty reduction through the development and extension of the freedom framework developed by Nobel Laureate Amartya Sen will put IISD as a fore-runner in the sustainable development community. More importantly, IISD will be seen as a champion of the impoverished."

-Anantha Duraiappah, PhD