Environmental Engineering Reference
In-Depth Information
same regulations, domestic producers need not be put at a competitive disadvantage rel-
ative to foreign producers when domestic regulations are tightened up.
It is possible that tighter domestic pollution regulations aimed at consumption pollu-
tion could give domestic producers a competitive advantage. The logic is the same as that
outlined in Salop and Sche
man's (1983) paper on 'Raising rivals' costs'. If the new reg-
ulations are easier for domestic producers than foreign producers to comply with, then
domestic costs will go up less than foreign costs and domestic market share will increase.
The controversy over European restrictions on genetically modi
ff
ed food is a good
example. A ban would raise costs in both the USA and Europe, but because the use of
such food is much more pervasive in the USA than in Europe, then costs of complying
with a ban are higher for US producers than for European producers.
As yet there has been no empirical work that I am aware of that explicitly distinguishes
between consumption- and production-generated pollution when testing the competi-
tiveness or pollution haven hypotheses. However, theory suggests that it is important to
do so, and that the e
fi
ff
ects of environmental policy on international competitiveness will
be very di
ff
erent for the two types of pollution.
Natural capital
Environmental regulation a
ff
ects competitiveness by a
ff
ecting production costs. But envi-
ronmental degradation can also a
ect competitiveness by depleting natural capital. In
industries reliant on natural capital, it is important to consider both e
ff
ects.
It is useful to focus on two channels via which environmental capital can be degraded.
First, pollution from one industry can harm environmental capital used by a di
ff
ff
erent
industry. For example, water pollution from manufacturing can kill
fi
sh, excessive forest
harvesting can cause soil erosion and
fl
ooding that reduces productivity in agriculture and
fi
shing, and industrial pollution can reduce the appeal of a region for tourists. I shall refer
to these types of examples as cross-sectoral pollution. The second possibility is that activ-
ities in an industry can deplete environmental capital used by that same industry.
Renewable resources are a good example of this: excessive
fi
shing can deplete the
fi
sh stock,
which reduces productivity for the
shing industry. While the case of renewable resources
goes beyond the strict interpretation of the pollution haven hypothesis (since the environ-
mental problem is not caused by pollution), the logic and concerns are very similar.
fi
Cross-sectoral pollution
Copeland and Taylor (1999) study the implications of cross-sectoral pollution for the
pattern of trade. Their analysis implies that cross-sectoral pollution reinforces the e
ects
of weak environmental policy on trade patterns. The following example illustrates the
point. Suppose that pollution damages environmental capital needed for the tourism
sector. A weakening of environmental policy increases the competitiveness of the indus-
trial sector relative to the tourist sector in two ways: production costs in industry fall
because environmental regulations are weak; and increased industrial pollution kills o
ff
ff
more environmental capital in the tourist sector, causing the tourist sector to contract and
free up more resources for use by the industrial sector. Hence, in theory, the presence of
cross-sectoral pollution that depletes environmental capital should reinforce the compet-
itiveness e
ff
ect of environmental policy. This is an issue that has not yet been explored
empirically.
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