Is it wise to combine environmental and labour market policies? An analysis of a Swedish subsidy programme

In 1998 the Swedish government launched its largest ecological subsidization programme to date, the Local Investment Programme (LIP). By having two political objectives; to step up the pace at which Sweden transforms into an ecologically sustainable society and to reduce unemployment, the programme did not conform to the ʽʽone-instrument-per-objective" policy guideline often advocated by economists. Concentrating on a subset of the subsidized projects, the projects for remediation of contaminated sites, we evaluate how effectively the LIP's separate political objectives were fulfilled. Between 1998 and 2002, € 670 million (SEK 6.2 billion) were allocated to over 1800 different projects under the LIP. Twenty-four, i.e. one percent, of the projects aimed at remediation of contaminated sites. These projects received a disproportionate amount, six percent, of the total LIP subsidies. By using data on both accepted and rejected remediation projects, we find that the LIP's ecological sustainability objective could have been achieved better if the most hazardous sites had been prioritized to a greater extent. Furthermore, society's cost for the employment opportunities generated in the remediation projects was higher than society's cost for the equivalent number of employment opportunities generated in traditional labour market policies. Although other subsets of the LIP projects may have been more successful in achieving the programme's separate objectives, our results illustrate inefficiencies that may arise from a desire to attain several political objectives through a single policy instrument.