Is ecolabelling a reliable environmental policy measure?

The rationale of ecolabelling is to enable firms to reap the willingness-to-pay for the environmental attributes of goods by helping consumers to identify "green'' products. By so doing, ecolabelling is expected to stimulate spontaneous environmental innovation and to reduce aggregated pollution. Our analysis however outlines situations under which ecolabelling could induce perverse effects, namely increased investment in conventional technologies before the labels are awarded, and examines whether restricting the issue of labels could constitute an antidote.