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Trade and Environment

Theory and Policy in the Context of EU Enlargement and Economic Transition

Edited by John W. Maxwell and Rafael Reuveny

The debate about how best to manage the interplay between trade, industrialization and the impacts of both on the global environment continues to rage, particularly in the context of the introduction and ratification of the Kyoto Protocol. This book deals with a number of important issues surrounding the debate about trade and the environment, but places particular emphasis on the process of EU enlargement.
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Chapter 6: Can Environmental Regulations be Compatible with Higher International Competitiveness? Some New Theoretical Insights

Savas Alpay


* 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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