Productivity and environmental regulations - A long run analysis of the Swedish industry

The aim with this study is to evaluate the potential effects on productivity development in the Swedish manufacturing industry due to changes in environmental regulations over a long time period. The issue is closely related to the so called Porter hypothesis, i.e. whether environmental regulations (the right kind) that usually is associated with costs triggers mechanisms that enhances efficiency and productivity that finally outweighs the initial cost increase. To test our hypothesis we use historical data spanning over the period 1913-1999 for the Swedish manufacturing sector. The model used is a two stage model were the total factor productivity is calculated in the first stage, and is then used in a second stage as the dependent variable in a regression analysis where one of the independent variables is a measure of regulatory intensity. The results show that the productivity growth has varied considerably over time. The least productive period was the second world war period, whereas the period with the highest productivity growth was the period after the second world war until 1970. Development of emissions follows essentially the same path as productivity growth until 1970. After 1970, however, there is a decoupling in the sense that emissions are decreasing, both in absolute level and as emissions per unit of value added. A rather robust conclusion is that there is no evident relationship between environmental regulations and productivity growth. One explanation is that regulations and productivity actually is unrelated. Another potential explanation is that the regulatory measure used does not capture perceived regulations in a correct way.Environmental regulations; productivity; Porter hypothesis

Tax or no tax? Preferences for climate policy attributes

Today, many countries around the world respond to the global warming and its consequences with various policy instruments such as e.g. taxes, subsidies, emission permit trading, regulations and information campaigns. In the economic literature, policy instruments have typically been analyzed with respect to efficiency, while little effort has been put on public preferences for these instruments. In this paper, an Internet-based choice experiment is conducted where respondents are asked to choose between two alternative policy instruments that both reduce the emissions of CO2 by the same amount. The policy instruments are characterized by a number of attributes; a technology-effect, an awarenesseffect, cost distribution, geographic distribution and private cost (presented in more detail in the paper). By varying the levels of each of the attributes, respondents indirectly reveal their preferences for these attributes. Half of the respondents are faced with instruments labeled by ‘tax’ and ‘other’, whereas the other half are faced with unlabeled instruments. As for the label, the results show that people dislike the ‘tax’. The results also show that people prefer instruments with a positive effect on environmentally-friendly technology and climate awareness. A progressive-like cost distribution is preferred to a regressive cost distribution, and the private cost is negatively related to the choice. Finally, the results indicate that Swedes want the reduction to take place in Europe but not necessarily in Sweden.preferences; climate policy measures; choice experiment; web-survey

Swedish Industry and Kyoto An Assessment of the Effects of the European CO2 Emission Permit Trading System

We assess the effects on Swedish industry input and output demands of different climate policy scenarios connected to energy policy induced by the Kyoto protocol. A unique data set containing firm level data on outputs and inputs during the years 1991 – 2001 is used to estimate a factor demand model, which is then simulated for different policy scenarios. Sector specific estimation suggests that the proposed quadratic profit function specification exhibit properties and robustness that are consistent with economic theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore, the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the model for 6 different policy scenarios reveal that the effects on Swedish base industry of a EU level permit trade system is dependent on (i) removal or no removal of current CO2 tax, (ii) the established price of permits, and (iii) what will happen to the electricity price. Our analysis show that changes in electricity price may be more important than the price of permits for some sectors.CO2-emissions; factor demand; fossil fuels; tradable permit market

The income-pollution relationship and the role of income distribution Evidence from Swedish household data

The main purpose of this study is to analyze the relationship between pollution and income at household level. The study is motivated by the recent literature emphasizing the importanceof income distribution for the aggregate relation between pollution and income. The main findings from previous studies are that if the individual pollution-income relationship is nonlinear, then aggregate pollution for, say, a whole country, will depend not only on average income, but also on how income is distributed. To achieve our objective we formulate a model for determining the choice of consumption of goods in different types of household. Furthermore we link the demand model to emission functions for the various goods. The theoretical analysis shows that without imposing very restrictive assumptions on preferences and the emission functions, it is not possible to determine a priori the slope or the curvature of the pollution-income relation. The empirical analysis shows that, given the model used, thepollution-income relation has a positive slope in Sweden and is strictly concave for all three pollutants under study (CO2, SO2, NOx), at least in the neighborhood of the observed income for an average household. Further, the results show that the curvature of the relation differs between different types of households. We also show that altering the prevailing income distribution, holding average income constant, will affect aggregate emissions in the sense that an equalization of incomes will give rise to an increase in emissions. One implication is then that the development of aggregate pollution due to growth depends not only on the income level, but also on how growth is distributed.Household demand; Environmental Kuzents curve; Environmental emissions; Income distribution

Modelling Consumer Demand and Household Labour Supply: Welfare Effects of Increasing Carbon Taxes

The main objective of this paper is to analyse consumer response and welfare effects due to changes in energy or environmental policy. To achieve this objective we formulate and estimate an econometric model for non-durable consumer demand in Sweden that utilises micro- and macro-data. In the demand model male and female labour supply is included as conditioning goods. To account for possible changes in labour supply due to increasing carbon taxes we estimate separate labour supply functions for men and women. In the simulations we consider two revenue neutral scenarios that both imply a doubling of the CO2 tax; one that returns the revenues in the form of a lower VAT and one that subsidise public transport. One conclusion from the simulations is that the CO2 tax has regional distribution effects, in the sense that household living in sparsely populated areas carry a larger share of the tax burden.Consumer economics; demand analysis; energy taxation; labour supply

The value of preserving the four large predators in Sweden: Regional differences considered

This paper contributes with an applied policy analysis of the predator preservation policy in Sweden. We estimate the social benefits from preserving the four large predators in Sweden by applying a contingent valuation approach. The vehicle we use to fulfil our objectives is data from a survey that were mailed out in the spring of 2004. We find that the Swedish population is divided in half concerning their support for the predator policy package and that the overall mean WTP for preserving the four large predators in Sweden is approximately SEK 290. We also find that the WTP differ substantially between different regions in Sweden. Respondents in Stockholm have the highest WTP whereas the lowest WTP is found for respondents living in Wolfterritories. Finally we find that our measure of the social value is sensitive with respect to response-uncertainty. When the respondents are allowed to be uncertain about their valuation they state a higher value. The main conclusion is that the social-value of preserving the four large predators in Sweden may be negative since the stated benefits seem to be rather small.Contingent valuation; WTP; endangered species

Environmental policy without costs? A review of the Porter hypothesis

This paper reviews the theoretical and empirical literature connected to the so called Porter Hypothesis. That is, to review the literature connected to the discussion about the relation between environmental policy and competitiveness. According to the conventional wisdom environmental policy, aiming for improving the environment through for example emission reductions, do 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”. Those in the forefront of the Porter hypothesis challenge the conventional wisdom basically on the ground that resources are used inefficiently in the absence of the right kind of environmental regulations, and that the conventional neo-classical view is too static to take inefficiencies into account. The conclusions that can be made from this review is (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, (3) that the empirical literature give 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.Environmental policy; Costs; Porter hypothesis

Climate Policy Measures: What do people prefer ?

Several countries are responding to the climate change threat with various policy measures (e.g., taxes, permit trading, regulations, information campaigns, etc). While the effectiveness of different measures (instruments) has been studied extensively, very little research exists related to public preferences for alternative measures. This paper describes the results of a pilot study to determine whether a choice experiment might be a feasible approach for measuring preferences for carbon dioxide reduction policies, while ensuring careful consideration of the budget constraint facing households. We focus on estimating the public’s marginal utilities and implicit prices for a select group of attributes that describe climate policy measures in general. The results from the pilot study indicate that when respondents trade-off the cost of alternative and unlabeled policy measures, they are willing to pay for those that encourage (1) the development of environmentally-friendly technology and (2) climate awareness among the Swedish population. Finding (1) could be interpreted to mean public support for market-based measures (e.g., taxes and permit trading) while finding (2) seems to support the use of information in the design of climate policy measures in order to encourage carbon dioxide-reducing behavior. Finally, our pilot study assumed that respondents’ preferences for the cost-sharing burden (equity) of measures might be defined in terms of an individual’s ability to pay. Given this assumption, our results indicate weak preferences for non-regressive cost distribution, but progressive cost distribution had no effect on choice. We offer several possible conclusions from this preliminary investigation into climate policy preferences.market-based mechanisms; information effects; equity; choice experiment; preferences

Environmental policy and profitability - Evidence from Swedish industry

The purpose of this paper is to investigate the existence of a “Porter effect” using firm level data on output and inputs from Swedish industry between 1990 and 2004. By utilizing a factor demand modeling approach, and specifying a profit function which has a technology component dependent upon firm specific effective tax on CO2, we are able to separate out the effect of regulatory pressure on technological progress. The results indicate that there is evidence of a reversed “Porter effect” in most industrial sectors, specifically energy intensive industries.CO2 tax; factor demands; induced technological change; Porter argument

Tax or no tax? Preferences for climate policy attributes

Today, many countries around the world respond to the global warming and its consequences with various policy instruments such as e.g. taxes, subsidies, emission permit trading, regulations and information campaigns. In the economic literature, policy instruments have typically been analyzed with respect to efficiency, while little effort has been put on public preferences for these instruments. In this paper, an Internet-based choice experiment is conducted where respondents are asked to choose between two alternative policy instruments that both reduce the emissions of CO2 by the same amount. The policy instruments are characterized by a number of attributes; a technology-effect, an awareness-effect, cost distribution, geographic distribution and private cost (presented in more detail in the paper). By varying the levels of each of the attributes, respondents indirectly reveal their preferences for these attributes. Half of the respondents are faced with instruments labeled by ‘tax’ and ‘other’, whereas the other half are faced with unlabeled instruments. As for the label, the results show that people dislike the ‘tax’. The results also show that people prefer instruments with a positive effect on environmentally-friendly technology and climate awareness. A progressive-like cost distribution is preferred to a regressive cost distribution, and the private cost is negatively related to the choice. Finally, the results indicate that Swedes want the reduction to take place in Europe but not necessarily in Sweden.preferences; climate policy measures; choice experiment; web-survey