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 proponents and opponents of the ‘Porter Hypothesis’. A possible explanation may be provided by examining the negotiation of environmental regulation in a ‘political market’. In this market, stakeholder attempt to ensure their preferred 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 advances 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. However, 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.KeywordsEnvironmental RegulationPollution AbatementEnvironmental InvestmentDominant DesignPorter HypothesisThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.