سیاست استراتژیک زیست محیطی. محیط زیست- دامپینگ و یا یک استراتژی سبز؟

The Porter hypothesis claims that a strong environmental policy best serves the interests of a nation's export industry. While this hypothesis seems to be based on some form of bounded rationality, this paper argues that governments may have good reasons for setting an especially strong environmental policy even though firms are fully rational. If the available abatement technology turns the environment into an “inferior input”, competitiveness is spurred by a strong environmental policy. The government should take advantage of this, and set an especially strict emission quota or an especially high emission tax. The findings in the paper also has consequences for the desirability of international cooperation with respect to national environmental policy. If a strict environmental policy spurs competitiveness, the environment is better protected without cooperation.

Export firms are frequently given various kinds of subsidies, either openly as production subsidies or, more difficult to discover, as cheap government provided inputs or as tax reductions. One rationale for this line of thought can be found in the strategic trade theory literature. This literature explores how governments can help their national firms to steal profits from foreign competitors by making it possible for their firms to commit to a more aggressive strategy, see for instance [6]. While the literature on this subject dealt primarily with traditional industrial policy tools such as the ones mentioned above, it has during the 90s been extended to the field of environmental policy. The question has been to what extent a government should provide its export industry with a weak environmental policy as a sort of hidden subsidy. Weak environmental policies which purposely seek to promote the competitiveness of the export industry, could be characterized by the term “eco-dumping”. The prospect of eco-dumping has been a major issue in the trade-environment debate, see for example [1] and [26]. Because the current GATT treaty prohibits the use of traditional industrial policy tools like export subsidies and restricts the use of other subsidies like R&D subsidies, eco-dumping could become even more attractive. However, the prospect of eco-dumping presupposes that a strong environmental policy hampers competitiveness. Empirical research indicates that this may not always be the case. An econometric study from Norway by Golombek and Raknerud [9] suggests that a strong environmental policy spurred employment and induced a lower probability of exit from some industries notably pulp and paper and iron, steel and ferroalloys. Porter and von der Linde [17] refer to various case studies where a strong environmental policy lead to decreased production cost and/or higher value products. The idea that a strong environmental policy will improve the general performance of firms is the so-called Porter hypothesis, which we will refer to as a “green strategy”. The Porter hypothesis is disputed among economists, see for example Palmer et al. [16]. Further, Porter and von der Linde [17] do not provide us with an unambiguous definition of the term green strategy. In this paper a green strategy will be defined as an environmental policy where marginal abatement cost exceeds marginal environmental damage, and vice versa, eco-dumping will be defined as an environmental policy where marginal abatement cost falls short of marginal environmental damage.1 Regarding eco-dumping and a green strategy, we will deal with two questions in the paper. Firstly, we will analyze how environmental policy affects marginal production costs, and secondly, we will see how this affects the question of optimal policy. A majority of the articles about eco-dumping do not explicitly treat the issue on how environmental policy affects cost, but assumes that both total cost and marginal cost is increasing in the stringency of environmental policy (see for example [2], [3], [7] and [18]). This paper shows that although total cost increases, it is not necessarily the case that marginal cost increases. If the environment is an inferior input for some levels of environmental policy, marginal production cost will decrease for these levels of policy. The development of a cost model of end-of pipe cleaning further indicates that the inferior input case is likely if there is economics of scale in abatement technology. Economics of scale seems to be a feature of many abatement technologies. In an econometric estimation of abatement cost for the cement, pulp and paper and iron and steel sector Hartman et al. [12] find that “average abatement cost drops sharply as abatement volume increases”. Scale economics in abatement is also suggested by the US Environmental Protection Agency [23] and [24]. Ulph [22], Bradford and Simpson [4] and Ulph and Ulph [21] also contain a model of abatement where marginal production cost may be decreasing in the stringency of environmental policy. In these models the firms undertake environmental R&D before they compete in the market. The result that marginal production cost may be decreasing in the stringency of environmental policy therefore appears to be dependent on the sequential timing of the R&D decision and the output decision. However, this paper shows that this result alternatively can be explained by the inferior input concept independent of the timing of decisions. Regarding optimal policy, all authors find that eco-dumping is optimal when the firms compete in quantities and when abatement is decided simultaneously with output [2], [3], [7] and [18]. For the contributions of A. Ulph [20], D. Ulph [22], Bradford and Simpson [4] and Ulph and Ulph [21] with environmental R&D, the results are more ambiguous, however, no unambiguous support for a green strategy can be found. Hence, the Porter hypothesis is not confirmed in the theoretical literature apart from the Bertrand situation where the government purposely hurts the competitiveness of its firm in order to soften competition (see [3]). This paper shows that if emissions are an inferior input, the government should use a green strategy when abatement and output are decided simultaneously. This is also very likely to hold when abatement effort is decided separately from output. Cases where emissions can be both an inferior and a normal input are explored through a numerical example. In these cases the resulting strategy is sensitive to market size. Since it is scale economics in abatement which leads to the inferior input case, environmental policy will be stronger and emissions smaller the bigger the market.

This paper has not treated other forms of competition. The introduction of Bertrand competition would turn all the conclusions around in the simple two-stage model where emissions are either inferior or normal. However, we would argue that the two-stage version of the game is less appropriate for Bertrand competition. Clearly, prices can be changed a lot easier than abatement technology. An emission cap could therefore work as a capacity constraint. This could yield the Cournot outcome of the Bertrand game as in Kreps and Scheinkman [14]. For a discussion of this case, see the working paper version of this paper [10]. It is argued in this paper that profit may rise as a result of a stronger environmental policy if competition is imperfect (compared to a weak level of environmental policy). The question is then why companies often resist stronger environmental regulation. Does this mean that emissions are very seldom an inferior input? This is probably to jump to conclusions. Firstly, profit is likely to decrease in the whole interval of the emission tax rate even if emissions are an inferior input for some interval of the emission tax rate. In the model total cost always increases. Thus, if the profit shift does not make up for the increase in total cost, profit is hampered.11 Secondly, the firm's point of reference could be no environmental policy, i.e. t=0. Then profit is bound to decrease at least in the end-of-pipe abatement cost model. In this model marginal production cost cannot be lower with regulation than without regulation. Consequently, the maximal profit shift cannot exceed the cost effect. Lastly, the model of a simultaneous game between two firms in both abatement and output may not be a good description of the actual situation. One could think of a lot of other alternative sequences of decisions. If for example one of the firms is told to install end-of-pipe equipment, it could act before its competitors had time to react. Ex post the investments in abatement should sometimes be treated as sunk costs hampering profit, but not altering the Cournot–Nash output levels. The paper should not be regarded as a general recommendation for strategic environmental policy. As the discussion in Section 3 has shown it is very difficult to know a priori whether emissions are an inferior or normal input. Further, we do not know a priori how competition in a particular market works. Thus, the policy implication of the paper is that governments should not distort their environmental policy for strategic reasons. However, given that emissions may be an inferior factor, politicians should a priori be less afraid of introducing a sufficiently stringent environmental policy.