Costs Of Environmental Regulation Research Articles

Behavioural instruments in environmental law and policy: Potential and challenges

AbstractThe behavioural revolution in law and economics led to the insight that command‐and‐control and market‐based instruments have limitations in bringing about behavioural change. Environmental behavioural instruments use persuasive strategies or techniques rather than direct incentives to encourage environmentally responsible decision‐making. This article investigates the potential and challenges of behavioural instruments in environmental policy based on a survey of theories and examples concerning environmental behavioural instruments. Behavioural instruments can reduce the information costs of environmental regulation while increasing self‐efficacy for environmental compliance. More importantly, behavioural instruments can be cheap and effective by activating various norms in specific contexts. However, the behavioural approach, because of its focus on individual compliance, may not be well suited to address (transboundary) externalities. Behavioural instruments are especially important in generating positive externalities by appealing to social norms. Such mechanisms are, however, less suited to internalising negative externalities. The effects of behavioural instruments may not be easily guaranteed (in the long run), especially when the environmental goal of the behavioural approach clashes with private interests or fails to consider individual differences and contextual factors. We therefore argue that behavioural instruments should be included alongside standard regulatory tools, thus reaching an optimal mix between both.

Spatial Competition and Unevenness in Global Capitalism: Labor, Nature, and the Seesaw of Capital

Critical studies of globalization seek to unmask how this stage of capitalist history reshapes patterns of uneven development around the world. While globalization can reproduce long-standing patterns of North–South unequal exchange, in this paper, I focus on how capital mobility and competition contribute to uneven development. Drawing primarily on Neil Smith’s theory of uneven development, I offer a theoretical discussion of how capital’s capacity to seesaw from place to place in its search for higher profits—and the spatial competition between places that this capacity triggers—constitutes a source of unevenness. Regions, nations, and localities adapt to capital’s seesaw by offering, among others, cheaper labor and lower environmental regulation costs. While this can work for a time, advantages are either eroded by the unfolding contradictions of capitalism or competed away by the emergence of new areas. In the last section, I offer a tentative illustration of this argument with a brief examination of pollution havens and Special Economic Zones.

Environmental Performance of Carbon Emissions Trading Policy: Evidence From a New Comprehensive Analysis Model

Carbon emissions trading (CET) policy is a major institution innovation in promoting green and low-carbon development, but it is still in the initial stage of implementation, and there are many problems to be solved in the research of CET. Therefore, in this article, we aim to design an environmental performance analysis framework integrating various models for CET and conduct an empirical study on the panel data of 30 provinces in China during 2002–2017. The results indicate that, compared with other regions, there is no technology gap of economic–environmental efficiency (EEE-TG) in east China, and Guangdong has the best technology level during the sample period; the CET significantly improves the economic–environmental efficiency under a metafrontier (EEE-M), but it has no significant effect on the EEE-TG; and the external cost of environmental regulation has a mediating effect on the CET and EEE-M, whereas the internal cost of environmental regulation has a masking effect.

How does environmental regulation affect corporate tax burdens? Evidence from China's environmental courts

This research examines how environmental regulation impacts corporate tax burdens. Although the literature argues that environmental policies exacerbate firms' tax avoidance, we offer a new insight from the perspective of government behaviour. Using the difference-in-differences approach and data on Chinese listed manufacturing firms from 2003 to 2019, we find that the establishment of environmental courts in China results in a 1.70 percent increase in corporate effective tax rates. The effect is significant only for private firms and is more pronounced in cities with stringent environmental regulations and fiscal stress. Tougher tax enforcement and the reduction of preferential tax policies are two potential channels. Given that environmental regulation reduces the tax base, local governments implement tougher tax enforcement and reduce preferential tax policies to maintain necessary tax revenues. Our study highlights the role of government in determining corporate tax burdens and evaluates the hidden tax costs of environmental regulation.

Blue sky, cold heart: The political cost of environmental regulations

AbstractThe economic costs of environmental regulations are well documented, but their political cost is still unclear, especially in cases of substantial pollution reduction. This study presents empirical evidence for the unexpected political costs of China's war on air pollution. Using a clean energy regulation as a case, we demonstrate that it significantly reduces air pollutants over a short period; however, exposure to the regulation erodes local political support and trust in government officials. In addition, we show that stringent environmental regulations significantly reduce local political trust when it entails high policy costs for local residents and had weak policy participation. Our results indicate that stringent regulations may improve environmental quality at the cost of local political legitimacy.

Türkiye’nin Enerji ve Atık Sektörü İçin Kirlilik Cenneti Hipotezinin Sektörel Geçerliğinin Test Edilmesi

The increase in environmental standards in developed countries and the efforts of developing countries to attract foreign direct investments (FDI) offer both a theoretical and an empirical research area. In practice, this situation, which can be seen as a shift of investments to countries with looser policies in order to avoid the costs of environmental regulations, is called the pollution haven hypothesis (PHH). In this study, the existence of the mentioned hypothesis for Türkiye's waste and energy sector is investigated. In order to test the hypothesis, linear time series analysis methods are used in the study. When the findings are examined, it is observed that the hypothesis is valid in both sectors.

Does carbon emission trading mitigate firm's default risk? Evidence from China

Reducing greenhouse emissions and mitigating the existential threat of climate change for the environment and ecological well-being have become a global consensus. On one hand, facing certain pressure of carbon emission reduction, the default risk of firms may increase due to higher costs of environmental regulations. On the other hand, firms' default risk may decrease as firms' sustainable development could tradeoff the transition costs of firms. Under such uncertain conclusions, we investigate the impact of carbon emissions trading (CET) system in China on firms' default risk. Using panel data of Chinese listed firms during 2010–2019, the difference-in-differences method (DID) is adopted to study the influence of CET on firm's default risk. The results show that the CET significantly reduces the default risk of firms. Further analysis shows that this improvement of firms' financial stability is affected by industrial heterogeneity, external financing constraint heterogeneity and firms' own characteristics such as innovation capacity. Overall, our findings not only expand the economic consequences of environmental regulations, but also provide implications on how to improve the Chinses CET pilot policy and construct a national CET market.

Unintended effects of water regulation on household livelihood: evidence from China

ABSTRACT This study examines the unintended effects of the water regulation on household livelihood in China, from the perspective of Engel coefficient. Applying county-level water regulation dataset and CFPS household dataset in a difference-in-difference-difference (DDD) specification, the research finds that the regulation increases the Engel coefficient by an additional 2.6%. Mechanism analyses show that water regulation influences the Engel coefficient through increasing household food expenditure, as it also causes local market fluctuations in meat products. Overall, this study sheds new light on the economic costs of environmental regulation.

A Literature Review of the Factors Affecting the Compliance Costs of Environmental Regulation and Companies’ Productivity

Purpose: The aim of the paper is to identify potential factors that influence the relative size of environmental compliance costs through a literature review and propose a conceptual holistic model of the indirect impact of these factors on companies’ productivity levels. In the literature, the connection between costs associated with environmental regulation and companies’ productivity has been thoroughly tested within what is known as the Porter hypothesis, or simply PH.Design/methodology/approach: The paper applies the methods of integrative review of scientific literature and qualitative research with a document study.Findings: The results point to several key findings. First, the identified potential factors can be divided into two main categories, namely internal factors (size, sector, age, environmental awareness, etc.) and external factors (relevance of environmental regulation for businesses, environmental stimulus measures, quality of institutions, etc.). Second, the wide use of compliance costs within the indicators of stringency of environmental regulation suggests that the relative size of environmental compliance costs is likely to affect companies’ productivity.Practical Implications: The identification of factors affecting the size of compliance costs provides valuable insights to policy makers for the implementation of environmental regulation and making it more effective while not being discriminatory in terms of presenting an excessive burden to certain types of companies.Originality/significance: There has been a gap in the literature on environmental regulation compliance costs, as so far no study has comprehensively addressed all the potential factors influencing the relative size of environmental compliance costs for companies.

Estimating the cost of environmental regulations and technological change with limited information

In this paper we develop a modified production model to calculate changes in pollution abatement costs (PAC) when both data on bad outputs and information on the inputs assigned to pollution abatement activities are not available. To calculate the PAC of reducing bad output, we introduce a measure that captures variation in the abatement intensity of technologies used to reduce water discharges. We then decompose the change in PAC into three components to identify their relative contribution to changes in PAC: (1) changes in the level of inputs, (2) changes in pollution abatement intensity, and (3) technological change. We demonstrate how to calculate PAC and these three components using data from 1997 to 2007 on a sample of pulp mills required to comply with the effluent limits for dioxin set by the U.S. EPA's Cluster Rule. We find regulation-induced technological change is consistently associated with declining PAC, while both changes in inputs and abatement intensity are associated with increasing PAC.

Evolutionary game and simulation analysis of enterprise's green technology innovation under green credit policy: evidence from China

ABSTRACT With China's commitment to achieving a carbon peak and carbon neutralisation by 2030 and 2060, respectively, the government's requirements for enterprises to adopt green technology are becoming increasingly urgent. We established a tripartite evolutionary game model of an enterprise, government and bank. We analysed conditions for the existence of stable points and factors affecting the choice of stakeholder's strategy. The influence of the change in each parameter on the evolutionary stable strategy was further studied. We found that the government's reward, subsidy and taxes for enterprise's green technology innovation can increase the willingness of enterprises to implement green technology innovation, and the role of taxes is greater than that of subsidies. The preferential interest rate for green innovation is conducive to stimulating enterprises to engage in green innovation, but the increase in the cost of green credit will reduce the willingness of banks to provide green credit. With the increase in the subsidy, incentives and the cost of environmental regulation, the policy burden of the government will gradually increase, thus reducing the willingness of the government to implement environmental regulation policy. The research presented in this paper furthers work on the theoretical modelling of green credit and environmental regulation policy.

Does the Clean Air Action Really Affect Labor Demand in China?

How to balance resources, environment, and economic growth to achieve sustainable development is a challenge for developing countries. In 2013, China implemented a high-stringency environmental regulation—the Clean Air Action, which has effectively controlled air pollution. To explore the economic cost of environmental regulation, this paper investigates the policy effect on employment in the industrial sector. However, there are still controversies about whether environmental regulations impact employment. Based on the city-level data and firm-level data, this study applied a quasi-natural experiment for policy evaluation and used the mediating effect model for mechanism analysis. The difference-in-difference estimation results show that environmental regulation has a significant impact on employment. The mechanism analysis verifies that output adjustment, capital input, and green innovation are the main channels, by which environmental regulation distresses employment. The findings of this paper could be extended to other countries at a similar stage of development.

Energy Costs of Reducing Industrial Sulfur Dioxide Emissions in China

With increasing environmental pollution, China has instituted corresponding environmental regulations to address environmental challenges. Estimating the costs of such environmental regulations can help governments to formulate rational environmental policies. This review estimates the costs of environmental regulations based on a novel perspective of energy consumption. Using panel data for Chinese provincial regions in 2006–2015, we developed a non-parametric directional distance function and estimated different optimal energy inputs based on data envelopment analysis under two scenarios, namely, those with and without emission reduction constraints. The gap between the two groups of optimal energy inputs facilitated the estimation of the energy costs associated with reducing SO2 (sulfur dioxide) emissions in China’s industrial sectors. The results suggest that approximately 13.40 tons of standard coal were required to reduce SO2 emissions by 1 ton, highlighting the discrepancy between energy savings and emission reduction. The energy costs of SO2 emission reduction were the highest in West China (18.63), followed by those in Central and Northeast China; meanwhile, those in East China were the lowest (9.91). The large differences between the energy costs of emission reduction in different regions indicated that economically underdeveloped areas have scope for improvement with respect to energy structures and innovation in the green technology field.

Opportunity Cost of Environmental Regulation in China's Industrial Sector.

In this paper, we employ a directional distance function to estimate the opportunity cost arising from environmental regulations in China’s industrial sector. The change of opportunity cost is decomposed mathematically into two components including technical change and input change. Our results show that the opportunity cost attributed to environmental regulation is nil in some regions. The change of opportunity cost is marginal at the national level, as the positive effect of technical change is canceled out by the negative impact of input change on opportunity cost. Built on our mathematical decomposition, we further estimate the effects of environmental regulations on opportunity cost using a mediation model. It shows that environmental regulation has a significantly positive direct effect and a significantly negative indirect effect through foreign direct investment on opportunity cost. Our findings suggest, firstly, that inward FDI in China’s industrial sector represents relatively dirty production technology; and, secondly, industrial production has transited towards a less carbon-intensive input mix. This paper, therefore, provides new insights for the recent dynamics of carbon abatement performance of China’s industrial sector with policy implications.

Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market

Abstract This article studies the introduction of an EU-wide emission standard on the automobile market. Using panel data from 1998 to 2011, I find that firms decreased emission ratings by 14%. Firms use technology adoption and gaming of emission tests to decrease emissions, rather than shifting the sales mix or downsizing. I find that the standard missed its emission target, and from estimating a structural model, I find that the standard was not welfare improving. The political environment in the EU shaped the design and weak enforcement and resulted in firms’ choices for abatement by technology adoption and gaming.

Identification of the Factors That Affect the Environmental Administrative Burden for Businesses

Environmental regulations bring social benefits and contribute to lessening environmental damage. At the same time, due to the rapidly changing and complex environmental legislation, businesses incur costs, including administrative burdens. The article presents quantitative evidence on the factors that affect the compliance costs of environmental regulations. For this purpose, we used a binary model of logistic regression with the following predictors: enterprise characteristics, the relevance of environmental regulations for business operations, and the impact of environmental stimulus measures on compliance costs. The results of the study suggest that medium-sized enterprises are less likely to experience the environmental administrative burden than small enterprises. However, no difference has been found between large and small enterprises. Further, we show that environmental consents are an important determinant of the environmental administrative burden and that financial environmental measures can have a positive impact thereon.

Environmental regulation and responses of local governments

In 1998, China approved the setup of two control zones and implemented stringent environmental regulation in these zones. This policy enables us to use the difference-in-difference method to investigate local governments' responses to environmental regulation. We find that tough environmental regulation increases tax rate but does not affect local government expenditure. Among the mechanisms through which environmental regulation positively affects tax rate are the negative effects of environmental regulation on investment of fixed assets, number and total profits of above-scale industrial firms in dirty industries of TCZ cities. In addition, the effect of environmental regulation on tax rate is positively related to policy strength and proportion of the secondary industry. Moreover, tough environmental regulation increases the shares of revenue from enterprises and agricultural taxes in budgetary revenue, but decreases the share of value-added tax in budgetary revenue. These findings highlight additional cost of environmental regulation (aside from those mentioned in literature), including increased burdens of the private sector that would lead to large distortions, and aggravated unfair distribution of taxes. The additional cost should be considered when evaluating the environmental policy.

Exploring the General Equilibrium Costs of Sector-Specific Environmental Regulations

The requisite scope of analysis to adequately estimate the social cost of environmental regulations has been subject to much discussion. The literature has demonstrated that engineering or partial equilibrium cost estimates likely underestimate the social cost of large-scale environmental regulations and environmental taxes. However, the conditions under which general equilibrium (GE) analysis adds value to welfare analysis for single-sector technology or performance standards, the predominant policy intervention in practice, remains an open question. Using a numerical computable general equilibrium (CGE) model, we investigate the GE effects of regulations across different sectors, abatement technologies, and regulatory designs. Our results show that even for small regulations GE effects are significant, and engineering estimates of compliance costs can substantially underestimate the social cost of single-sector environmental regulations. We find the downward bias from using engineering costs to approximate social costs depends on the input composition of abatement technologies and the regulated sector.

Does improved environmental quality prevent a growing economy?

Abstract A major concern for sustainable development is how countries can lower pollution while avoiding adverse output and energy shocks. Since economic activities change with time, we develop a dynamic applied equilibrium model to study the dynamics of CO2 emissions and evaluate how the pursuit of environmental policy objectives can influence output and productivity in a surrogate country in transition. Under an optimal environmental policy which ensures mitigation between 38 and 50%, we show that productivity, projected towards the year 2075, increases slightly from between 3.8 and 6.2% to between 5.7 and 7.6%, respectively. The required carbon tax begins from $ 5.29/ton in 2020 and grows on average by 3.5% reaching up to $ 35.83 per ton carbon towards the year 2075. Even though these tax rates ensure huge benefits for mitigation, they represent marginal productivity growth and substantial output and consumption costs. In other words, improved environmental quality presents opportunities for multifactor productivity (MFP) but this productivity improvement is too marginal to offset the compliance costs of the carbon tax, thereby, causing output to decline. Hence, to ensure maximum economic dividend from carbon pricing especially in transitional economies, measures are required to improve the innovation benefits of carbon taxes towards levels that offset the compliance costs of environmental regulations. Otherwise, caution should be taken by developing countries in their environmental policy designs especially when boosting consumption and economic growth is a major priority.

Measuring green growth performance of China's chemical industry

The chemical industry is a key energy-consuming sector in China. This paper aims to examine total-factor green growth performance, including energy efficiency and carbon shadow price of China's chemical sector from 1980 to 2013. On the basis of no-radial directional distance function, this paper takes into account both desirable and undesirable outputs. To investigate policy effects, we check the Granger causality test between shadow prices of emission and total-factor green energy efficiency. The results demonstrate that increased environmental regulation costs have substantial effect on total-factor green energy efficiency of the chemical industry in the last decade. The latter also causes significant improvement of the former.