Environmental Regulation and Competition

Environmental protection and competitive markets are two of the highest policy priorities. In June 2006 the Competition Committee held a roundtable discussion on potential restrictions to competition due to environmental protection. Environmental regulations can constitute substantial barriers to entry in some markets, can provide a basis for predatory behaviour in some markets and can be harmful to competition and welfare through a variety of other channels. Environmental rules can thus raise prices to consumers by reducing competition in the market. Any assessment of the costs and benefits of an existing or proposed environmental rule is incomplete without an analysis of the costs generated by any resulting reduction in competition. On the other hand, there is no firm empirical evidence that environmental policy affects the competitiveness of firms and countries. Ideally, environmental policies should be effective and among equally effective policies, the policy that is least restrictive of competition should be chosen. Environmental policy makers should ensure that environmental benefits continue to outweigh costs, including the indirect costs associated with effects on market structure. Environmental policy is first and foremost about securing public environmental goods which are demanded in their own right and which are fundamental to a well-functioning market.