Environmental Engineering Reference
In-Depth Information
4
The pollution haven hypothesis
Brian R. Copeland
At the heart of the debate over how globalization a
ects the environment is the question
of whether trade and investment liberalization will cause pollution-intensive industry to
concentrate in countries with relatively weak environmental policy. This is known as the
pollution haven hypothesis.
If the pollution haven hypothesis were correct, the level and incidence of global pollu-
tion would be a
ff
ected. The average pollution intensity of production would increase as
polluting industry moved to those parts of the world with the weakest environmental
standards. Moreover, an exodus of polluting industry from countries with stringent envir-
onmental policy could create a political backlash because of concerns about losses of jobs
and investment. This could lead to a 'race to the bottom' as governments weaken envi-
ronmental policy in response to such pressures. Because the stringency of environmental
regulation is highly correlated with national income, polluting industry would tend to
concentrate in relatively poor countries. This could exacerbate the e
ff
ff
ects of pollution on
health and mortality because poor countries are less able to a
ff
ord the infrastructure and
medical treatments to protect their populations from the e
ects of pollution. Increased
environmental degradation could also lead to long-run income losses for those at the
lower end of the income distribution in poor countries because of their dependence on
natural capital.
To assess the pollution haven hypothesis, it is useful to break it into two parts. First, we
need to know whether more stringent environmental policy adversely a
ff
ects international
competitiveness in polluting industry. We shall refer to this as the competitiveness hypoth-
esis. Second, the pollution haven hypothesis asks whether the e
ff
ect of environmental
policy on competitiveness is strong enough to determine the pattern of trade. The com-
petitiveness and pollution haven hypotheses are closely related, but di
ff
erent conceptual
experiments lie behind each. The competitiveness hypothesis takes the trade regime as
given and ask what happens if we tighten environmental policy in one country. The pol-
lution haven hypothesis takes environmental policy di
ff
ff
erences across countries as given
and asks what happens if we reduce trade barriers.
Most of the literature on the pollution haven hypothesis has focused on production-
generated pollution from manufacturing. However, much pollution is also generated from
consumption. Pollution regulations that target consumption-generated pollution have
very di
ects on competitiveness than pollution regulations targeting production-
generated pollution. Hence it is important to distinguish between these two broad classes
of pollution. A focus on manufacturing pollution has also led much of the literature to
neglect the role of environmental capital. Environmental capital is a critical input in
renewable resources, such as
ff
erent e
ff
sheries, forestry and agriculture. If environmental degra-
dation depletes environmental capital, then the productive capacity of the economy will
be reduced, and this can have an important e
fi
ff
ect on competitiveness. In what follows, I
fi
rst focus on cases where natural capital is not signi
fi
cantly a
ff
ected by environmental
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