Implementing stricter environmental regulations on the private sector has been ballyhooed by conservative politicians and businesses since the issue first arose in the 1970s, yet a recent study reveals that energy efficiency is less costly than is popularly believed.
The study’s authors, Dr. Antoine Dechezleprêtre and Dr. Misato Sato, analyzed decades of reports on the link between stricter environmental policies and companies’ employment and productivity across international boundaries.
The analysis shows that rules governing the environmental impacts of businesses have become more prevalent and more strict since the 1990s, yet “the costs of complying with environmental regulations represent a relatively small share of production value for most sectors.” In the main, while productivity and employment could be slightly reduced over a transitional period, researchers found that there is great potential and significant evidence that regulations boost economic growth by encouraging business innovation.
One example was a 2001 report on refineries located in the Los Angeles Air Basin area. Despite more stringent air pollution policies in California, and Los Angeles in particular, these refineries “enjoyed significantly higher productivity than other refiners in the U.S.” Meanwhile, a 2002 study on the Mexican food-processing industry shows that its productivity actually increased after local regulations took effect. The study even suggests that Mexico’s food sector has become more competitive relative to the less regulated U.S. sector.
On the subject of international competition, the authors conclude that market conditions and employees had much greater influence on productivity than the environment.
According to the study, “The effect of current environmental regulations on where trade and investment take place has been shown to be negligible compared to other factors such as market conditions and the quality of the local workforce.”
Furthermore, analysis reveals “evidence that low-carbon innovations induce larger economic benefits than the ‘dirty’ technologies they replace because they generate more knowledge in the economy, which can be used by other innovators to further develop new technologies across various sectors.”
The study, “The impacts of environmental regulations on competitiveness,” was published in November 2014 by the Grantham Research Institute on Climate Change and the Global Green Growth Institute.