Theory and Policy in the Context of EU Enlargement and Economic Transition
The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development
Edited by John W. Maxwell and Rafael Reuveny
Chapter 6: Can Environmental Regulations be Compatible with Higher International Competitiveness? Some New Theoretical Insights
* Savas Alpay 1 INTRODUCTION As environmental problems on both the national and the global level get more and more serious, public awareness on this issue is rising, and an increasing number of countries are undertaking environmental regulation. Environmental concerns have also attracted the attention of academic circles, and a lot of new research areas are opening. One of the earliest discussion topics was about the types of regulations which include command and control, eﬄuent fees or taxes, tradable emission permits, and so on. Out of this discussion, incentive-based techniques (eﬄuent fees, tradable emission permits) were shown to be superior to non-incentive-based techniques like command and control. There is a somewhat heated debate on the inﬂuence of incentive-based environmental regulations on the international competitiveness of regulated ﬁrms, and we will explore this debate in this chapter. Conventionally, it has been argued that environmental regulations would lower the competitiveness of the ﬁrms being regulated as compared to those subject to lax environmental conditions. This argument was assumed to apply to all cases, regardless of the type of environmental regulation. Recently, this view has been challenged by a revisionist school. This school argues that properly crafted environmental regulations (that is, incentivebased) not only bring social beneﬁts (like increased environmental quality, a decline in health risks associated with pollution, and so on), but can also increase the competitiveness of the ﬁrms being regulated as higher environmental standards can trigger innovation that may oﬀset compliance costs. This debate is more...
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