Green policies and firms' competitiveness


A major concern in the context of the green transition is the potential impacts of environmental policies, and of green growth policy packages more generally, on the competitiveness of companies affected by these regulations. Businesses and policy makers fear that, in a world characterised by integrated global value chains and capital flows, differences in the stringency of environmental policies across countries could shift pollution-intensive production capacity towards regions with less ambitious regulation. For example, many countries are concerned that their efforts to achieve carbon emission reductions will put their own carbon-intensive producers at a competitive disadvantage in the global economy, and such concerns are often used by policy makers as a justification for not introducing more ambitious environmental policies. Yet, environmental regulations are sometimes viewed as potential drivers of economic growth. For example, the famous Porter hypothesis (Porter and van der Linde, 1995a) argues that more stringent environmental policies can actually have a net positive effect on the competitiveness of regulated firms because such policies promote cost-cutting efficiency improvements, which in turn reduce or completely offset regulatory costs, and foster innovation in new technologies that can help firms achieve international technological leadership and expand market share. The growing importance of this debate among policy makers has given rise to a large number of studies that attempt to quantify the effects of environmental regulations on key aspects of firms’ competitiveness, including trade, industry location, employment, productivity, and innovation. The objective of this briefing note is to review this recent empirical literature in order to inform the political debate concerning the potential economic impacts of the green transition.

OECD Green Growth and Sustainable Development Forum Issue Paper