Research finds that environmental policy is not always bad for business

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According to an analysis of China’s environmental policy by two Cornell University economists, critics argue that environmental regulation undermines productivity and profits, but the reality is more subtle.

According to analysis, contrary to conventional wisdom, market-based or incentive-based policies actually benefit regulated companies in the traditional “green” energy sector by spurring innovation and improvement in production processes. There is a possibility. On the other hand, policies that require environmental standards and technology can seriously undermine production and profits.

“Conventional wisdom isn’t entirely accurate,” said Shuyang Si, a PhD student in applied economics and business administration. “The type of policy is important, and the effectiveness of the policy depends on the company, industry, and sector.”

Si is the lead author of “The Impact of China’s Environmental Policy on GDP, Output and Profit” in the latest issue of the journal. Energy economics.. C.-Y. Charles H. Dyson is an associate professor of Applied Economics and Business Administration and co-authored by Robert Dyson Sesquicentennial Chair of Environmental, Energy and Resource Economics.

Si mines China’s state government websites and other online sources to provide a comprehensive dataset of approximately 2,700 environmental laws and regulations that came into force in at least one of 30 states between 2002 and 2013. I summarized. This period was just before China declared a “pollution war.” “We have launched a major regulatory change that has changed the long-standing priority of economic growth over environmental issues.

“We really scrutinized the policies and carefully examined their features and regulations,” Si said.

Researchers have categorized each policy into one of four types: “Command and control” such as the obligation to use some of the electricity from renewable energy sources. Financial incentives such as taxes, subsidies and loans. A monetary award for pollution reduction or efficiency and technology improvement. Non-monetary awards such as official recognition.

Using economic indicators and public data on listed companies, they how each type of policy affected China’s gross domestic product, traditional energy industry mining and industrial production, and the interests of companies in the new energy sector. I evaluated it.

Si and Lin Lawell concluded that command and control policies and non-monetary incentive policies had a significant negative impact on GDP, output and profits. However, monetary incentives (loans to increase renewable energy consumption) improved industrial production in the oil and nuclear energy industries, and monetary awards to reduce pollution boosted the profits of the new energy sector.

“Environmental policy does not necessarily lead to a decline in production or profits,” the researchers wrote.

They said the finding was consistent with the “Porter hypothesis.” Harvard Business School Professor Michael Porter’s 1991 proposal is that environmental policy can stimulate growth and development by promoting technology and business innovation that reduce both pollution and costs.

Certain policies have benefited regulated businesses and industries, but research shows that these benefits cost other sectors and the economy as a whole. Nonetheless, Si and Lin Lawell said these costs should be weighed against the benefits of these policies for the environment and society, as well as for regulated businesses and industries.

Economists generally prefer market-based or incentive-based environmental policies, with carbon taxes or tradable permits representing the gold standard, Lin Lowell said. A new study led by Si will provide more support for these types of policies, she said.

“This work will remind people, including companies that may oppose environmental regulations, that these regulations are not always detrimental to their interests and productivity,” said Lynn Lawell. He said. “In fact, there are some that these companies may actually like if the policies that promote environmental protection are carefully designed.”

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For more information:
Shuyang Si et al. Impact of China’s environmental policy on GDP, output and profits, Energy economics (2020). DOI: 10.1016 / j.eneco.2020.105082

Courtesy of Cornell University

Quote: Environmental policy is not always bad for business, survey results (2021, February 22) from 2021 Obtained on February 22

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Research finds that environmental policy is not always bad for business

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