Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?

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Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts? Carolyn Fischer September 2010 Carbon TradeEx

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Overlapping Policies for RES-E: Everything but the kitchen sink?

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The Impacts of Environmental Regulations on Competitiveness Antoine Dechezleprêtre* and Misato Sato † Introduction Ever since the first major environmental regulations were enacted in the 1970s, there has been much debate about their potential impacts on the competitiveness of affected firms. Businesses and policy makers fear that in a world that is increasingly characterized by the integration of trade and capital flows, large asymmetries in the stringency of environmental policies could shift pollution-intensive production capacity toward countries or regions with less stringent regula- tion, altering the spatial distribution of industrial production and the subsequent international trade flows. This has caused concern, particularly among countries that are leading the action against climate change, because their efforts to achieve deep emission reductions could put their own pollution-intensive producers at a competitive disadvantage in the global economy. There are two different views in the environmental economics literature on the effects of asymmetric policies on the performance of companies competing in the same market: the pollution haven hypothesis and the Porter hypothesis. The pollution haven hypothesis, which is based on trade theory, predicts that more stringent environmental policies will increase compliance costs and, over time, shift pollution-intensive production toward low abatement cost regions, creating pollution havens and causing policy-induced pollution leakage (e.g., Levinson and Taylor, 2008). This is a particularly troubling problem for global pollutants such as carbon dioxide, because it means that on top of the economic impacts on domestic firms, abatement efforts will be offset to some extent by increasing emissions in other regions. *Grantham Research Institute on Climate Change and the Environment, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom. Tel:þ44 (0)207 852 3626; e-mail: [email protected] lse.ac.uk. † Grantham Research Institute on Climate Change and the Environment, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom. Tel: þ44 (0)207 107 5412; e-mail: [email protected] lse.ac.uk. We would like to thank Milan Brahmbhatt, Raphael Calel, Baran Doda, Damien Dussaux, Carolyn Fischer, Matthieu Glachant, Colin McCormick, and Dimitri Zenghelis for helpful comments on an earlier version of this article. We are grateful to three anonymous referees for very constructive comments and suggestions. Financial support has come from the Global Green Growth Institute, the Grantham Foundation for the Protection of the Environment, the European Union Seventh Framework Programme (FP7/2007-2013) under grant agreement no. 308481 (ENTRACTE), and the UK Economic and Social Research Council through the Centre for Climate Change Economics and Policy. Review of Environmental Economics and Policy, volume 11, issue 2, Summer 2017, pp. 183–206 doi: 10.109.

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