European Environment Agency

The ”Porter hypothesis” at 20 - reflections from Europe

Prof Mikael Skou Andersen

European Environment Agency

What do we understand by ”competitiveness” ?

“the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the longer term” (OECD, 1993)

European Environment Agency

Porter hypothesis: environmental regulation*) promotes competitiveness

New framework for industry rivalry• directs attention to resource

inefficiencies• raises corporate awareness• more certainty for green

innovators• overcomes inertia and fosters

creativity• improves learning to obtain

long-term gains• induces change

The critics:

- company level gains are small and cannot offset cost increases

- cost-benefit analysis required to identify welfare economic advantages

*) Scientific American, 1991: Requires incentive-based regulations

European Environment Agency

Green innovation and demand:(Enevoldsen et. al. 2009)

European Environment Agency

Environmental tax reform (ETR)revenue as a share of GDP (1995-2003)

Denmark 1,1%

Finland 0,6%

Germany 0,8% Netherlands 0,5%

Sweden 0,9% UK (CCL) 0,1%

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Effect of ETR on total fuel demand

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

Denmark

Germany

% difference from baseline

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Effect of ETR on total fuel demand

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

Denmark

UK

Germany

Finland

% difference

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Effect of ETR on total fuel demand

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

Denmark

Slovenia

UK

Germany

Finland

% difference

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Effect of ETR on total fuel demand

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

Denmark

Slovenia

UK

Germany

Finland

Sweden

% difference

Kin

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Effect of ETR on total fuel demand

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

Denmark

Netherlands

Slovenia

UK

Germany

Finland

Sweden

% difference

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Effect of ETR on GHG emissions

-8

-6

-4

-2

0

1994 1997 2000 2003 2006 2009 2012

Denmark

Netherlands

Slovenia

Germany

Finland

Sweden

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

UK

% difference

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The Effect of ETR on Employment

-0.5

0

0.5

1

1994 1997 2000 2003 2006 2009 2012

Denmark

UK

Germany

Sweden

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

% difference

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Effect of ETR on GDP

-0.5

0

0.5

1

1994 1997 2000 2003 2006 2009 2012

Denmark

Netherlands

Slovenia

UK

Germany

Finland

Sweden

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

% difference

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Without Revenue Recycling:Effect of ETR on GDP

-1

-0.5

0

0.5

1994 1997 2000 2003 2006 2009 2012

Denmark

Netherlands

GermanyFinland

Sweden

% difference

Note(s) : % difference is the difference between the base case and the no revenue recycling case.Source(s) : CE.

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Why should we have faith in E3ME results ?

• Ex-post approach• Macro-econometric model based on time-series

data• Good representation of fuel carriers; high sectoral

disaggregation• ETR modelled with official figures for revenues, not

nominal tax rates• Technological progress indicator represents impact

via improved R&D

• Standard impact assessment tool for EU

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Why energy taxes differ from energy prices ?

• increased energy prices also have an impact on unit costs via prices on imported raw materials

• from an increased energy price no revenue can be recycled to lower distortionary taxes

• psychologically the signalling effect of tax is probably stronger than of price

• accompanying policy measures differ

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Kaldor paradox on competitiveness

• Increase in technological capacity (R&D) and productivity correlate better with increased market shares than unit labour costs

• If carbon-energy taxes improve R&D and productivity it may help explain how the test of international markets are met

National Environmental Research Institute & Aarhus University, DENMARK

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28

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European Environment Agency

Thanks foryour

attention