Tighter environmental standards don’t hurt competitiveness – OECD

March 29, 2016

Implementing environmental regulations does not weaken an economy’s export competitiveness. That is the finding of a new study by the OECD that looks at trade between countries with strong environmental policies and countries with less stringent regulation. Its conclusion undermines the rationale for the 'better regulation' agenda being pushed by some EU countries.

One of the frequent barriers to environmental legislation is pressure from industry lobbyists claiming that stricter environmental standards would make a country’s – or a bloc’s – companies uncompetitive in the global market place, and would drive investment to countries with more lax environmental standards. It was one of the reasons for the failure to get international aviation included in the EU emissions trading system.

Now the OECD has published a study, Do environmental policies affect global value chains?, which looks at export data from a mixture of polluting industries in 23 established economies and six emerging economies. It uses the OECD’s own environmental policy stringency indicator to determine which countries have strict regulations and which have more lax standards.

‘Environmental policies are simply not the major driver of international trade patterns,’ said the OECD’s chief economist Catherine Mann. ‘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.’

T&E’s better regulation and trade manager, Cecile Toubeau, said: ‘This study is formal recognition for what T&E has been saying for years, namely that stricter EU standards should not be seen as a punishment but an opportunity for EU companies to get ahead. This report is a challenge to the better regulation agenda pushed by some member states and the European Commission in recent years in the misguided belief that slashing through environmental law will make Europe more competitive. Good laws with strong enforcement mechanisms are what Europe needs to remain ahead of the curve.’

The report says any economic disadvantage suffered by countries with strict environmental legislation is at least wiped out by gains from innovation. It therefore concludes that countries where manufacturers already pollute less should gain global market share as tougher domestic laws are put in place. Industries and firms that become cleaner will prosper under more stringent policies, while those that fail to adapt will see their export performance erode.