policymakers demonstrate

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they may be applied to biodiversity, rather than individual species, habitats or
ecosystem services, is required. This also includes the construction of a commonly
accepted, functional definition of the term. Such research will also provide
a more robust basis for the use of biodiversity offsets, the focus of increasing
policy attention.
An ongoing area of strong sustainability research is the refinement of robust
approaches to identifying critical natural capital, in order to further define
environmental limits, in respect of which monetary valuation is inappropriate,
too expensive or impossible. Advances in the natural sciences will contribute
to improving knowledge in this area. Research into the above issues
would advance the development and quality of indicators for sustainability, in
respect of both strong and weak interpretations – an important area for continued
research.
The second theme, on nonpolicy drivers of change, contains two principal
longstanding questions. The first concerns the validity of the EKC hypothesis.
Whilst a large body of literature has attempted to address this question, no
consensus has been reached. Further research using structural equations, rather
than reduced-form econometric models, is required, along with an increased
focus on the influence of economic and demographic structures, and the political
economy. However, this requires additional efforts in the generation and
collection of the required data, and improvements to modelling techniques, discussed
below. The second long-standing question surrounds the calculation of
marginal social costs of pollution, and of CO 2 in particular. Continued research
in the natural sciences on the impact of climate change will help advance this
question, although in the economics sphere, alongside improvements to the valuation
of natural capital and ecosystem services (in addition to valuation of
human health and comfort, etc.), debates around discount rates are dominant.
Whilst this topic is a key broad area for continued research, specific efforts may
focus on how to reflect risk aversion, uncertainty and time variation in respect
of the discount rate.
The third theme, on the impact of policy interventions and their design,
contains four principal, interrelated topics for further research. The first concerns
the cost for firms of environmental, energy and climate policies, and
the effect this has on competitiveness. As with other subjects, the contentious
Pollution Haven and Porter Hypotheses have received significant attention in
the literature, but with consensus yet to emerge. For the former, two principal
areas of recommended research arise. Firstly, determining the relative
strength and characteristics of nonregulatory cost factors, such as capital availability,
labour force qualification and infrastructure quality in determining the
potential for migration for different industries. Secondly, the impact of specific
regulatory approaches, such as the difference between market-based and
direct regulatory instruments, and the specific design of instruments therein