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Climate Policy and Profit Efficiency

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    Abstract

    As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.

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    File URL: http://www.cere.se/documents/wp/CERE_2010_11.pdf
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    Bibliographic Info

    Paper provided by CERE - the Center for Environmental and Resource Economics in its series CERE Working Papers with number 2010:11.

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    Length: 40 pages
    Date of creation: 02 Jun 2010
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    Handle: RePEc:hhs:slucer:2010_011

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    Web page: http://www.cere.se

    Related research

    Keywords: CO2 tax; efficiency; stochastic frontier analysis; Swedish industry;

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    1. van der Vlist, Arno J. & Withagen, Cees & Folmer, Henk, 2007. "Technical efficiency under alternative environmental regulatory regimes: The case of Dutch horticulture," Ecological Economics, Elsevier, vol. 63(1), pages 165-173, June.
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