Do environmental regulations harm competitiveness?

GLOBE-Net, December 1, 2014 – Environmental regulations only reduce productivity and employment by a small amount, and can boost economic growth by encouraging innovation by businesses, according to a report published last months by the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.

The authors of the report, Dr Antoine Dechezleprêtre and Dr Misato Sato, conclude that although concerns have been expressed since the 1970s about the effect of environmental regulations on businesses, a comprehensive review of the research shows that few studies in the UK, United States and other countries over the past 40 years have found evidence of major negative impacts.

The report summarizes research that shows the benefits of environmental regulations often vastly outweigh the costs. For instance, even when job losses at polluting businesses are taken into account, the estimated health benefits from the introduction of the Clean Air Act in the United States in 1963, and subsequent amendments to it, are more than 100 times greater than the employment costs of the regulation.

The report states: “The costs of environmental regulations need to be weighed up against the benefits they provide and which justify the regulations in the first place. The benefits are often important and severely underestimated.”

It points out: “Environmental regulations can reduce employment and productivity by small amounts, in particular in pollution- and energy-intensive sectors, at least during the transitory period when the economy moves away from polluting activities and towards cleaner production processes. Job effects are more likely to occur within countries, where relocation barriers are low, than across borders. This suggests that government policies encouraging labour mobility, such as flexible labour markets, affordable housing and lifelong training, can help reduce or offset the costs of environmental regulations.”

The report also draws attention to the small impact of green regulations on international competitiveness. It states: “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.”

The report highlights “ample evidence” that environmental regulations encourage businesses to undertake innovation in clean technologies, and discourage research and development in conventional polluting technologies.

It stresses that policies to reduce greenhouse gas emissions can boost the economy because “there is 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”.

It adds: “This makes it plausible that the switch from ‘dirty’ to ‘clean’ technologies could generate economic growth and justifies strong public support for clean technology development”.

The report on ‘The impacts of environmental regulations on competitiveness’ was produced as part of the Grantham Research Institute’s programme on ‘Growth and the economy’, sponsored by the Global Green Growth Institute.

For more information about this media release, and to obtain copies of ‘The impacts of environmental regulations on competitiveness’, please contact Bob Ward on +44 (0) 7811 320346 orr.e.ward@lse.ac.uk.

– Download a PDF of the report (PDF)