OECD Environment Working Papers

ISSN :
1997-0900 (online)
DOI :
10.1787/19970900
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This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.
 

Linkages between Environmental Policy and Competitiveness You or your institution have access to this content

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Author(s):
OECD
Publication Date
11 Jan 2010
Bibliographic information
No.:
13
Pages
54
DOI
10.1787/218446820583

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Debates exist between those who claim that environmental policy will impose additional burdens and costs on industries, thus impairing their competitiveness, and those who claim that improved environmental performance can spur competitiveness. These arguments often surface when new environmental policy regulation are considered, e.g. when the REACH Directive was introduced in Europe, or when a government is considering the introduction of a carbon tax.

The report develops a conceptual framework to shed some light on this difficult debate. Competitiveness impacts of environmental policies may derive from the policy itself, or from the improvements of the environmental performance that derives from the policy. These impacts can be analysed at either firm or industry levels; they may differ over the short and long term. Globalisation, with the increasing role of MNEs and mobile capital and labour, is adding more complexity.

This framework is used to decipher some of the messages that come out of empirical studies on these issues. Empirical evidence is mixed, and the paper identifies methodological and substantive reasons why empirical research fails to determine the relationship between environmental policy and competitiveness.

Lessons derive from this literature review. Typically, even when implementing the environmental policy is clearly in the overall interest of society, the costs and benefits of the policy are unlikely to be equally shared among economic agents. While some win, individual firms or industries may stand to lose. Policy design should make sure that the adverse competitiveness impacts are not unnecessarily large, for example by paying attention to predictability, transition periods, and transaction costs. Specific measures to support the losers in their adjustment can also be developed. Sometimes measures to mitigate the adverse competitiveness impacts of an environmental policy are necessary to achieve political support for the policy. In those instances, the planned measures should be carefully analysed from several angles to ensure that they do not inadvertently hurt the efficiency and effectiveness of the original policy. More work is required to further explore these issues, which are consequential for the design, the implementation and the enforcement of environmental policies.

Keywords:
supply chain, globalisation, resource efficiency, pollution haven, competitiveness, Porter hypothesis, eco-innovation, environmental policy
JEL Classification:
  • O31: Economic Development, Technological Change, and Growth / Technological Change; Research and Development; Intellectual Property Rights / Innovation and Invention: Processes and Incentives
  • O33: Economic Development, Technological Change, and Growth / Technological Change; Research and Development; Intellectual Property Rights / Technological Change: Choices and Consequences; Diffusion Processes
  • O38: Economic Development, Technological Change, and Growth / Technological Change; Research and Development; Intellectual Property Rights / Government Policy