The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?
TL;DR: The authors provides an overview of the key theoretical and empirical insights into the Porter Hypothesis, draws policy implications from these insights, and sketches out major research themes going forward, as well as highlights the major research topics going forward.
Abstract: Twenty years ago, Harvard Business School economist and strategy professor Michael Porter stood conventional wisdom about the impact of environmental regulation on business on its head by declaring that well-designed regulation could actually enhance competitiveness. The traditional view of environmental regulation held by virtually all economists until that time was that requiring firms to reduce an externality like pollution necessarily restricted their options and thus by definition reduced their profits. After all, if profitable opportunities existed to reduce pollution, profit-maximizing firms would already be taking advantage of those opportunities. Over the past 20 years, much has been written about what has since become known simply as the Porter Hypothesis (PH). Yet even today, we find conflicting evidence and alternative theories that might explain the PH, and oftentimes a misunderstanding of what the PH does and does not say. This paper provides an overview of the key theoretical and empirical insights into the PH to date, draws policy implications from these insights, and sketches out major research themes going forward.
Citations
More filters
National Center for Atmospheric Research1, Potsdam Institute for Climate Impact Research2, University of Washington3, Stockholm Environment Institute4, International Institute for Applied Systems Analysis5, University of Denver6, Netherlands Environmental Assessment Agency7, Utrecht University8, University of Stuttgart9, Wageningen University and Research Centre10, Columbia University11, Hunter College12
TL;DR: The SSP narratives as discussed by the authors is a set of five qualitative descriptions of future changes in demographics, human development, economy and lifestyle, policies and institutions, technology, and environment and natural resources, which can serve as a basis for integrated scenarios of emissions and land use, as well as climate impact, adaptation and vulnerability analyses.
Abstract: Long-term scenarios play an important role in research on global environmental change. The climate change research community is developing new scenarios integrating future changes in climate and society to investigate climate impacts as well as options for mitigation and adaptation. One component of these new scenarios is a set of alternative futures of societal development known as the shared socioeconomic pathways (SSPs). The conceptual framework for the design and use of the SSPs calls for the development of global pathways describing the future evolution of key aspects of society that would together imply a range of challenges for mitigating and adapting to climate change. Here we present one component of these pathways: the SSP narratives, a set of five qualitative descriptions of future changes in demographics, human development, economy and lifestyle, policies and institutions, technology, and environment and natural resources. We describe the methods used to develop the narratives as well as how these pathways are hypothesized to produce particular combinations of challenges to mitigation and adaptation. Development of the narratives drew on expert opinion to (1) identify key determinants of these challenges that were essential to incorporate in the narratives and (2) combine these elements in the narratives in a manner consistent with scholarship on their inter-relationships. The narratives are intended as a description of plausible future conditions at the level of large world regions that can serve as a basis for integrated scenarios of emissions and land use, as well as climate impact, adaptation and vulnerability analyses.
1,606 citations
TL;DR: In this paper, the authors examine whether shareholders are sensitive to corporations' environmental footprint and find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease.
Abstract: This study examines whether shareholders are sensitive to corporations' environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of “environment-as-a-resource,” I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment―which has increased dramatically over recent decades―exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the ...
955 citations
TL;DR: In this article, a review of the recent literature on the geography of sustainability transitions is presented, which takes stock with achieved theoretical and empirical insights and synthesises and reflects upon insights of relevance for sustainability transitions following from analyses of the importance of place specificity.
Abstract: This review covers the recent literature on the geography of sustainability transitions and takes stock with achieved theoretical and empirical insights. The review synthesises and reflects upon insights of relevance for sustainability transitions following from analyses of the importance of place specificity and the geography of inter-organisational relations. It is found that these contributions focus on the geography of niche development rather than regime dynamics, and that there is an emphasis on understanding the importance of place-specificity at the local level. While there is a wide consensus that place-specificity matters there is still little generalisable knowledge about how place-specificity matters for transitions. Most contributions add spatial sensitivity to frameworks from the transitions literature, but few studies suggest alternative frameworks to study sustainability transitions. To address this, the review suggests promising avenues for future research on the geography of sustainability transitions, drawing on recent theoretical advancements in economic geography.
616 citations
TL;DR: In this article, an empirical investigation of the "weak" and "strong" Porter Hypothesis (PH) focusing on the manufacturing sectors of European countries between 1997 and 2009 was presented.
Abstract: This paper represents an empirical investigation of the “weak” and “strong” Porter Hypothesis (PH) focusing on the manufacturing sectors of European countries between 1997 and 2009. By and large, the literature has analyzed the impact of environmental regulation on innovation and on productivity generally in separate analyses and mostly focusing on the USA. The few existing studies focusing on Europe investigate the effect of environmental regulation either on green innovation or on performance indicators such as exports. We instead look at overall innovation and productivity impact that are the most relevant indicators for the “strong” PH. This approach allows us to account for potential opportunity costs of induced innovations. As a proxy of environmental policy stringency we use pollution abatement and control expenditures (PACE), which represent one of the few indicators available at the sectoral level. We remedy upon its main drawback, that of potential endogeneity of PACE, by adopting an instrumental variable estimation approach. We find evidence of a positive impact of environmental regulation on the output of innovation activity, as proxied by patents, thus providing support in favor of the “weak” PH in line with most of the literature. On the other front, we find no evidence in favor or against the “strong” PH, as productivity appears to be unaffected by the degree of pollution control and abatement efforts.
540 citations
TL;DR: In this paper, the authors examine if the strong version of the Porter Hypothesis is supported in China by investigating how different regulatory instruments and the relative stringency impact "green" productivity.
507 citations
References
More filters
TL;DR: In this article, the authors argue that the trade-off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress, and that instead of simply adding to cost, properly crafted environmental standards can trigger innovation offsets, allowing companies to improve their resource productivity.
Abstract: Accepting a fixed trade-off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress. Studies finding high environmental compliance costs have traditionally focused on static cost impacts, ignoring any offsetting productivity benefits from innovation. They typically overestimated compliance costs, neglected innovation offsets, and disregarded the affected industry's initial competitiveness. Rather than simply adding to cost, properly crafted environmental standards can trigger innovation offsets, allowing companies to improve their resource productivity. Shifting the debate from pollution control to pollution prevention was a step forward. It is now necessary to make the next step and focus on resource productivity.
8,154 citations
01 Sep 1995
TL;DR: The Dutch flower industry has responded to its environmental problems by developing a closed-loop system to reduce the risk of infestation, reducing the need for fertilizers and pesticides, and improving product quality as mentioned in this paper.
Abstract: The need for regulation to protect the environment gets widespread but grudging acceptance: widespread because everyone wants a livable planet, grudging because of the lingering belief that environmental regulations erode competitiveness. The prevailing view is that there is an inherent and fixed trade-off: ecology versus the economy. On one side of the trade-off are the social benefits that arise from strict environmental standards. On the other are industry's private costs for prevention and cleanup -- costs that lead to higher prices and reduced competitiveness. With the argument framed this way, progress on environmental quality has become a kind of arm-wrestling match. One side pushes for tougher standards; the other tries to roll them back. The balance of power shifts one way or the other depending on the prevailing political winds. This static view of environmental regulation, in which everything except regulation is held constant, is incorrect. If technology, products, processes, and customer needs were all fixed, the conclusion that regulation must raise costs would be inevitable. But companies operate in the real world of dynamic competition, not in the static world of much economic theory. They are constantly finding innovative solutions to pressures of all sorts -- from competitors, customers, and regulators. Properly designed environmental standards can trigger innovations that lower the total cost of a product or improve its value. Such innovations allow companies to use a range of inputs more productively -- from raw materials to energy to labor -- thus offsetting the costs of improving environmental impact and ending the stalemate. Ultimately, this enhanced resource productivity makes companies more competitive, not less. Consider how the Dutch flower industry has responded to its environmental problems. Intense cultivation of flowers in small areas was contaminating the soil and groundwater with pesticides, herbicides, and fertilizers. Facing increasingly strict regulation on the release of chemicals, the Dutch understood that the only effective way to address the problem would be to develop a closed-loop system. In advanced Dutch greenhouses, flowers now grow in water and rock wool, not in soil. This lowers the risk of infestation, reducing the need for fertilizers and pesticides, which are delivered in water that circulates and is reused. The tightly monitored closed-loop system also reduces variation in growing conditions, thus improving product quality. Handling costs have gone down because the flowers are cultivated on specially designed platforms. In addressing the environmental problem, then, the Dutch have innovated in ways that have raised the productivity with which they use many of the resources involved in growing flowers. The net result is not only dramatically lower environmental impact but also lower costs, better product quality, and enhanced global competitiveness. (See the insert "Innovating to Be Competitive: The Dutch Flower Industry.") This example illustrates why the debate about the relationship between competitiveness and the environment has been framed incorrectly. Policy makers, business leaders, and environmentalists have focused on the static cost impacts of environmental regulation and have ignored the more important offsetting productivity benefits from innovation. As a result, they have acted too often in ways that unnecessarily drive up costs and slow down progress on environmental issues. This static mind-set has thus created a self-fulfilling prophecy leading to ever more costly environmental regulation. Regulators tend to set regulations in ways that deter innovation. Companies, in turn, oppose and delay regulations instead of innovating to address them. The whole process has spawned an industry of litigators and consultants that drains resources away from real solutions. POLLUTION = INEFFICIENCY Are cases like the Dutch flower industry the exception rather than the rule? …
4,056 citations
TL;DR: Multilateral productivity comparisons of firms producing multiple outputs, some of which are undesirable, are obtained by making two modifications to the standard Farrell approach to efficiency measurement.
Abstract: Multilateral productivity comparisons of firms producing multiple outputs, some of which are undesirable, are obtained by making two modifications to the standard Farrell approach to efficiency measurement. The restriction that production technology satisfy strong disposability of outputs is relaxed to allow for the fact that undesirable outputs may be freely disposable, and the efficiency measures are modified to allow for an asymmetric treatment of desirable and undesirable outputs. Performance measures that satisfy these requirements are calculated as solutions to programming problems. The methodology is applied to a sample of mills producing paper and pollutants.
1,748 citations
Posted Content•
TL;DR: For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade as mentioned in this paper, which has been hampered by the lack of a common language and also suffered from little recourse to economic theory and empirical evidence.
Abstract: For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The debate has often been unproductive. It has been hampered by the lack of a common language and also suffered from little recourse to economic theory and empirical evidence. The purpose of this essay is set out what we currently know about the environmental consequences of economic growth and international trade. We critically review both theory and empirical work to answer three basic questions. What do we know about the relationship between international trade, economic growth and the environment? How can this evidence help us evaluate ongoing policy debates? Where do we go from here?
1,731 citations