Assessing the Economic Impacts of Environmental Policies
Evidence from a Decade of OECD Research
Over the past decades, governments have gradually adopted more rigorous environmental policies to tackle challenges associated with pressing environmental issues, such as climate change. The ambition of these policies is, however, often tempered by their perceived negative effects on the economy. The empirical evidence in this volume – covering a decade of OECD analysis – shows that environmental policies have had relatively small effects on economic outcomes such as employment, investment, trade and productivity. At the same time, they have been effective at reducing emissions from industry. The policies can however generate winners and losers across firms, industries and regions: while the least productive firms from high-polluting sectors are adversely affected, more productive firms and low-pollution sectors benefit. Environmental policies can be designed and combined with other policies to compensate workers and industries that may lose and to emphasise their positive impacts.
Global value chains, environmental policies, and the Pollution Haven hypothesis
Global value chains are the focus of this chapter. The increased fragmentation of production chains around the globe over the last decades, paired with varying efforts of environmental protection across countries, have reinforced fears of policy makers that industrial activity may shift towards jurisdictions with laxer environmental policies – an argument known as the Pollution Haven hypothesis. The empirical evidence on this hypothesis has focused on aggregate trade patterns so far. Using data on gross exports and domestic value added of exports in the manufacturing sector across 23 OECD and 6 BRIICS countries over the period 1990-2009, this study assesses how trade patterns are related to differences in national environmental policies of trading partners based on a gravity model of bilateral trade flows. The results of the study show that an increasing difference between the domestic and the trading partners’ environmental policy stringency does not alter overall trade but it does affect the specialisation of countries: tighter environmental policies in one country are linked to a comparative disadvantage in dirty industries and a comparative advantage in cleaner industries. These effects are, however, small in magnitude, when compared with other policies such as trade liberalisation measures.
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