Determining the costs to industry of environmental regulation

Abstract

During the negotiation of international and European environmental regulations, the industry sector typically raises the issue of the cost of compliance. It is often maintained that the cost of complying with environmental regulations restricts business profitability and competitiveness. This paper provides an overview of the cost of compliance by considering the arguments, strategies and cost estimates that were presented by industry during the negotiations of several different environmental regulations in Europe and North America, and at the global level. It examines the difficulties associated with comparing costs using pre‐ and post‐regulation cost data and discusses the strategies adopted during the negotiations of the regulation and once the regulation was implemented. The paper concludes that although some proposals for regulation may impose burdens on industry, which it will oppose, industry has come to recognize that environmental regulation does not necessarily mean increased costs at the level anticipated. While regulation cannot guarantee innovation or lead to greater competitiveness and higher productivity for all firms, those that seize the opportunities will usually gain benefits. The paper reinforces the view that the EU should give careful consideration to the costs presented by industry as in the past it has tended to overestimate costs of compliance and underestimate the potential for the development of new technology. The introduction of independent cost assessments and technology assessments may be one way of overcoming this problem. Copyright © 2001 John Wiley & Sons, Ltd. and ERP Environment

Mind the gap! Comparingex anteandex postassessments of the costs of complying with environmental regulation

“…Although these claims are themselves contested (see Williams et al in this issue), there is now increasing evidence that there is a gap between the ex ante cost estimates presented by industry in the negotiation of some environmental regulations and the results of ex post evaluations of the costs of compliance that are conducted after regulations have been applied. Perhaps not surprisingly, ex ante predictions of costs have often been higher than ex post assessments (Haq et al, 2001). This paper explores the reasons for these differences and argues that such a gap should be expected.…”

“…This is an important issue given the emergence of requirements for regulatory impact assessment (RIA) in many policy arenas (see OECD, 1997) and the conclusion of previous research that the predicted costs of compliance with environmental regulations often exceed actual costs (see Haq et al, 2001). Based upon a review of the different stages of the regulatory decision-making process, this paper suggests that the reasons for these differences relate to strategic behaviour by affected parties in the policy formulation stage, problems in anticipating the…”

Implications of REACH for developing countries

“…The contrary view is expressed by the Porter hypothesis, suggesting that regulation may actually stimulate innovation and benefi t the businesses that are quickest to respond (Haq et al, 2001). In particular, it has been argued that REACH is better for innovation…”

Linkages between Environmental Policy and Competitiveness

“…For example, this was the finding of Harrington et al (2000) who compared ex ante and ex post costs of 25 individual regulations in the US. Haq et al (2001) compared the predicted costs and envisaged strategies presented by industry during the negotiation phase, and the actual costs incurred and strategies adopted in the implementation phase, for five environmental regulations (including e.g. the EC Directive on Vehicle Emission Standards and the United States Clean Air Act).…”