This text covers some of the most relevant issues in the new environmental economics. Its main emphasis is on the international dimension of environmental phenomena, which implies the necessity of designing properly co-ordinated economic/environmental policies. The issue of policy co-ordination is analyzed both in the case where environmental externalities arise because of cross-country and global pollution flows, and in the case where trade and competitiveness effects induced by environmental regulation affect countries' relative economic performance. The context in which these issues are analyzed relies on recent developments of game theory, industrial economics and international trade where imperfect competition and governments' strategic interactions are accounted for. Recognizing that traditional environmental policy tools are not sufficient to regulate the present environment-economy interactions leads to appraising the effects of more sophisticated policy mixes. In particular, policies to stimulate technological innovation, to regulate industrial markets, to offset negative trade effects are examined. Attention is also given to the issue of economic growth.Under which conditions is endogenous growth consistent with environmental protection? Which policy mix can loosen the traditional trade-off between environment and growth?
