International Review of Environmental and Resource Economics > Vol 3 > Issue 2

Environmental Policy Without Costs? A Review of the Porter Hypothesis

Runar Brännlund, Department of Forest Economics, Swedish University of Agricultural Sciences, Umeå, Sweden, Tommy Lundgren, Department of Forest Economics, Swedish University of Agricultural Sciences, Umeå, Sweden,
 
Suggested Citation
Runar Brännlund and Tommy Lundgren (2009), "Environmental Policy Without Costs? A Review of the Porter Hypothesis", International Review of Environmental and Resource Economics: Vol. 3: No. 2, pp 75-117. http://dx.doi.org/10.1561/101.00000020

Published: 15 Sep 2009
© 2009 R. Brännlund and T. Lundgren
 
Subjects
Environmental Economics
 
Keywords
D20H23Q52Q55Q525Q56
Environmental policyThe Porter hypothesisProductivityProfitability
 

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In this article:
1 Introduction
2 Envirionmental Regulations and Competiveness, What Did Porter Mean?
3 What are the Arguments, a Review of the Literature
4 Conclusions and Directions for Future Research
References

Abstract

This paper reviews the theoretical and empirical literature connected to the so-called Porter hypothesis; that is, it reviews the literature connected to the relation between environmental policy and competitiveness. According to the conventional wisdom environmental policy, aiming for improving the environment through, for example emission reductions, does imply costs since scarce resources must be diverted from somewhere else. However, this conventional wisdom has been challenged and questioned recently through what has been denoted the "Porter hypothesis". Advocates of the Porter hypothesis challenge the conventional wisdom on the ground that resources are used inefficiently in the absence of the right kind of environmental regulations, and that the conventional neoclassical view is too static to take inefficiencies into account. The conclusions that can be drawn from this review are: (1) that the theoretical literature can identify the circumstances and mechanisms that must exist for a Porter effect to occur, (2) that these circumstances are rather non-general, hence rejecting the Porter hypothesis in general, and (3) that the empirical literature gives no general support for the Porter hypothesis. Furthermore, a closer look at the "Swedish case" reveals no support for the Porter hypothesis in spite of the fact that Swedish environmental policy the last 15–20 years seems to be in line the prerequisites stated by the Porter hypothesis concerning environmental policy.

DOI:10.1561/101.00000020