Be ready to face this future: Environmental policies are likely to further tighten. Looking forward, governments will have to implement more red tapes, abort liberalization policies, add more constraints on companies that export and halt the deregulation process. It all sounds like companies and industries are about to lose their export competiveness when compared against countries where more red tapes and tough standards are viewed as incentives to pack and do business elsewhere? No, quite the opposite. According to a new OECD study “Do environmental policies affect global value chains” examining trade in manufactured goods between advanced and emerging economies, more stringent environmental policies do not hurt exports.
Here are some of the findings:
- Emerging economies with strong manufacturing sectors like China could strengthen environmental laws without denting their overall share in export markets.
- High-pollution or energy-intensive industries like chemicals, plastics and steel making, whether in the BRIICS or in Europe or North America, would suffer a small disadvantage from a further tightening of regulations, but this would be compensated by growth in exports from less-polluting activities.
Environmental policies are simply not the major driver of international trade patterns. We find no evidence that a large gap between the environmental policies of two given countries significantly affects their overall trade in manufactured goods. Governments should stop working on the assumption that tighter regulations will hurt their export share and focus on the edge they can get from innovation.
This report is myth buster that challenges the pundits’ viewpoint that «regulations to curb pollution and energy use hurt business by creating new costs and that tightening environmental laws and often prompts manufactures to relocate some production stages to countries with laxer regulations»
Indeed, based on the study findings, tough environmental standards may also drive firms to become more innovative, improving their economic and environmental performance.
Cover Photo: Getty/Volker Hartmann