Environmental Economics: Environmental regulations have always been an easy target

January 23, 2017

Environmental regulations have always been an easy target

There is theory to suggest that constraints on economic activity (e.g., regulations) will reduce economic activity. But, in a very large and dynamic macroeconomy, the negative impacts are likely to be small. From Jaffe et al. (1995) in the Journal of Economic Literature:

More than two decades ago, the first Earth Day in 1970 marked the beginning of the modern environmental movement. Since that time, the United States has spent more than $1 trillion to prevent or reduce environmental damages created by industrial and commercial activities. During the latter part of this period, the U.S. economy has moved
from a position of approximate trade balance on a long-term basis to a position of chronic trade deficit. The coincidence of these two major trends has led many to suspect that environmental regulation may be playing a major causal role in impairing the "competitiveness" of U.S. firms. (pp. 132-33)

...

Overall, there is relatively little evidence to support the hypothesis that environmental regulations have had a large adverse effect on competitiveness, however that elusive term is defined. Although the long-run social costs of environmental regulation may be significant, including adverse effects on productivity, studies attempting to measure the effect of environmental regulation on net exports, overall trade flows, and plant-location decisions have produced estimates that are either small, statistically insignificant, or not robust to tests of model specification. (pp. 157-58)

I don't know of a more recent review articles (suggestions?) but would be surprised of the results have changed (Note: not a review article but Aldy and Pizer is on my reading list).

Reference:

Adam B. Jaffe, Steven R. Peterson, Paul R. Portney and Robert N. Stavins, Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us? Journal of Economic Literature 33(1) (1995): 132-163. [http://www.jstor.org/stable/2728912]

Aldy, Joseph E., and William A. Pizer. "The competitiveness impacts of climate change mitigation policies." Journal of the Association of Environmental and Resource Economists 2(4) (2015): 565-595. [http://www.journals.uchicago.edu/doi/abs/10.1086/683305]

Posted by John Whitehead on January 23, 2017 at 10:05 AM | Permalink

Comments

More than two decades ago, the first Earth Day in 1970 marked the beginning of the modern environmental movement. Since that time, the United States has spent more than $1 trillion to prevent or reduce environmental damages created by industrial and commercial activities. During the latter part of this period, the U.S. economy has moved
from a position of approximate trade balance on a long-term basis to a position of chronic trade deficit. The coincidence of these two major trends has led many to suspect that environmental regulation may be playing a major causal role in impairing the "competitiveness" of U.S. firms. (pp. 132-33)

...

Overall, there is relatively little evidence to support the hypothesis that environmental regulations have had a large adverse effect on competitiveness, however that elusive term is defined. Although the long-run social costs of environmental regulation may be significant, including adverse effects on productivity, studies attempting to measure the effect of environmental regulation on net exports, overall trade flows, and plant-location decisions have produced estimates that are either small, statistically insignificant, or not robust to tests of model specification. (pp. 157-58)

I don't know of a more recent review articles (suggestions?) but would be surprised of the results have changed (Note: not a review article but Aldy and Pizer is on my reading list).

Reference: