The Stringency of Environmental Regulation and the ‘Porter Hypothesis’

Abstract

Most empirical evidence indicates that the costs of environmental regulation represent a minor fraction of total production costs. This finding is at odds with the assumption of stringent environmental regulation of both propo-nents and opponents of the 'Porter Hypothesis'. A possible explanation may be provided by examining the nego-tiation of environmental regulation in a 'political market'. In this market, stakeholder attempt to ensure their pre-ferred level of stringency through influencing political decision makers. In most cases, the equilibrium stringency will require pollution abatement levels that can be met with best available technology (BAT) or predictable ad-vances over BAT. Accordingly, net benefits from environmental regulation as claimed by a 'strong version' of the 'Porter Hypothesis' are unlikely to emerge. On the other hand, competitiveness is equally unlikely to suffer. How-ever, compliance may impose disproportionate costs on technological laggards. The argument is illustrated with evidence from a study on the techno-economic consequences of Austrian VOC emission standards.

Environmental performance and technical efficiency, is there a link?

“…Our findings do not demonstrate that stricter environmental regulations through specific environmental policies make firms more productive. A possible explanation concerns the compliance costs that cut into revenues blocking their profitability as shown by Xepapadeas and de Zeeuw (1999) and Roediger‐Schluga (2003), who examined a sample of firms from Austria. On the other hand, the productivity gains, which could offset the specific costs do not exist since profit‐maximizing firms would have followed the new policies.…”

Evaluating environmental regulation in Spain using process control and preventive techniques

“…After seeing these ideas, the main sticking point in the debate is Porter's assertion that environmental regulation may systematically confer benefits on the regulated sectors by stimulating efforts to increase resource efficiency and generate cleaner products and processes (Bennett and Yano, 2004;Roediger-Schluga, 2001) may make sense when firms opt for a voluntary normative.…”

“…In the qualitative phase, managers said that environmental compliance had to be technologically feasible, and technological feasibility is only guaranteed if compliance can be achieved with already existing technology or with technology that is within reach of a possibly vigorous R&D effort (Roediger-Schluga, 2001). In other words, environmental regulation is expected to stimulate the diffusion of the already existing technology or, at best, incremental changes over BTAs at the level of the regulated sector.…”

Public policy and corporate environmental behaviour: a broader view

“…Downing and White (1986) fi nd that cost-benefi t motivated regulations lead to private agents doing too little research into clean technologies when compared to the social optimum. Researching why the explicit costs of fi rm compliance as a fraction of production cost are fairly low, Roediger-Schluga (2002) uncovers that the stringency of environmental regulation is determined by the interplay of a number of self-interested stakeholders in a political market. Since environmental hazards tend to be uncertain, the regulations are such that they do not overburden industry, leading to incremental improvements in process parameters and diffusion of existing best available technology.…”