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Climate policy, environmental performance, and profits

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  • Tommy Lundgren

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  • Per-Olov Marklund

Abstract

In this study we investigate how firm level environmental performance (EP) affects firm level economic performance measured as profit efficiency (PE) in a stochastic profit frontier setting. Analyzing firms in Swedish manufacturing 1990–2004, results show that EP induced by environmental policy is not a determinant of PE, while voluntary or market driven EP seem to have a significant and positive effect on firm PE in most sectors. The evidence generally supports the idea that good EP is also good for business, as long as EP is not brought on by policy measures, in this case a CO 2 tax. Thus, the results provide no general support for the Porter hypothesis. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Tommy Lundgren & Per-Olov Marklund, 2015. "Climate policy, environmental performance, and profits," Journal of Productivity Analysis, Springer, vol. 44(3), pages 225-235, December.
  • Handle: RePEc:kap:jproda:v:44:y:2015:i:3:p:225-235
    DOI: 10.1007/s11123-014-0396-9
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    File URL: http://hdl.handle.net/10.1007/s11123-014-0396-9
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    References listed on IDEAS

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    1. Brännlund, Runar & Lundgren, Tommy, 2009. "Environmental policy without costs? A review of the Porter hypothesis," Umeå Economic Studies 766, Umeå University, Department of Economics.
    2. Brännlund, Runar & Lundgren, Tommy, 2009. "Environmental policy without costs? A review of the Porter hypothesis," Sustainable Investment and Corporate Governance Working Papers 2009/1, Sustainable Investment Research Platform.
    3. Bergman, Mats A., 1997. "The restricted profit function and the application of the generalised Leontief and the translog functional forms," International Journal of Production Economics, Elsevier, vol. 49(3), pages 249-254, May.
    4. Fare, R. & Grosskopf, S. & Hernandez-Sancho, F., 2004. "Environmental performance: an index number approach," Resource and Energy Economics, Elsevier, vol. 26(4), pages 343-352, December.
    5. Brännlund, Runar & Lundgren, Tommy, 2008. "Environmental policy and profitability - Evidence from Swedish industry," Umeå Economic Studies 750, Umeå University, Department of Economics.
    6. Yang, Chih-Hai & Tseng, Yu-Hsuan & Chen, Chiang-Ping, 2012. "Environmental regulations, induced R&D, and productivity: Evidence from Taiwan's manufacturing industries," Resource and Energy Economics, Elsevier, vol. 34(4), pages 514-532.
    7. Lundgren, Tommy & Marklund, Per-Olov, 2010. "Climate Policy and Profit Efficiency," Sustainable Investment and Corporate Governance Working Papers 2010/12, Sustainable Investment Research Platform.
    8. Lundgren, Tommy & Marklund, Per-Olov, 2010. "Climate Policy and Profit Efficiency," CERE Working Papers 2010:11, CERE - the Center for Environmental and Resource Economics.
    9. Khanna, Madhu, 2001. " Non-mandatory Approaches to Environmental Protection," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 291-324, July.
    10. Brännlund, Runar & Lundgren, Tommy & Marklund, Per-Olov, 2014. "Carbon intensity in production and the effects of climate policy—Evidence from Swedish industry," Energy Policy, Elsevier, vol. 67(C), pages 844-857.
    11. Adam B. Jaffe & Karen Palmer, 1997. "Environmental Regulation And Innovation: A Panel Data Study," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 610-619, November.
    12. Tommy Lundgren, 2011. "A Microeconomic Model Of Corporate Social Responsibility," Metroeconomica, Wiley Blackwell, vol. 62(1), pages 69-95, February.
    13. Färe, Rolf & Grosskopf, Shawna & Pasurka, Carl Jr., 2010. "Toxic releases: An environmental performance index for coal-fired power plants," Energy Economics, Elsevier, vol. 32(1), pages 158-165, January.
    14. Brannlund, Runar & Lundgren, Tommy, 2009. "Environmental Policy Without Costs? A Review of the Porter Hypothesis," International Review of Environmental and Resource Economics, now publishers, vol. 3(2), pages 75-117, September.
    15. Hamamoto, Mitsutsugu, 2006. "Environmental regulation and the productivity of Japanese manufacturing industries," Resource and Energy Economics, Elsevier, vol. 28(4), pages 299-312, November.
    16. Rolf Färe & Shawna Grosskopf & Carl Pasurka, 2006. "Social responsibility: U.S. power plants 1985–1998," Journal of Productivity Analysis, Springer, vol. 26(3), pages 259-267, December.
    17. Michael Rauscher, 2006. "Voluntary Emission Reductions, Social Rewards, and Environmental Policy," CESifo Working Paper Series 1838, CESifo Group Munich.
    18. Subal C. Kumbhakar, 2001. "Estimation of Profit Functions When Profit Is Not Maximum," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 1-19.
    19. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
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    Cited by:

    1. repec:eee:eneeco:v:71:y:2018:i:c:p:140-148 is not listed on IDEAS
    2. Bostian, Moriah & Färe, Rolf & Grosskopf, Shawna & Lundgren, Tommy, 2016. "Environmental investment and firm performance: A network approach," Energy Economics, Elsevier, vol. 57(C), pages 243-255.

    More about this item

    Keywords

    CO 2 tax; Environmental performance index; Profit technical efficiency; Stochastic frontier analysis; The Porter hypothesis; D20; H23;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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