Environmental policies are often vilified as economical agents of destruction. From the Clean Power Plan, to methane rules, to the Paris Agreement, every time a new environmental policy is proposed detractors argue that new rules drive costs up, kill jobs, and hamper trade. But a new study is challenging the idea that curbing pollution hurts business to the point of stifling export trade.
The study, published Thursday by the Organisation for Economic Co‑operation and Development, found that countries with more stringent environmental policies remain competitive compared to more polluting nations.
High-polluting or energy-intensive industries like chemical, plastic, and steel manufacturers only suffer a “small” disadvantage in their exports, the study says. But that disadvantage is offset by growth in less-polluting activities. This finding is significant in the wake of the Paris Agreement. One big concern for developing countries is that adhering to strict environmental standards could hamper their growth. But that’s not so, the study says, and notes that emerging economies with strong manufacturing sectors like China or India could strengthen environmental laws without denting their export markets.
Kimberly Elliot, a senior fellow at the Center for Global Development, said OECD findings are consistent with past studies. That’s because “in general companies and firms are able to adapt,” Elliot told ThinkProgress.
The OECD study analyzed historic export data in high- and low-pollution industries in 23 advanced countries and six emerging economies. It found that countries with strong environmental policies like Denmark, Germany, and Switzerland lost some 3 percent of export gains from 1995 to 2008, only to gain the same amount of market growth from cleaner industries. Countries where manufacturers already pollute less gain global market share as tougher domestic laws are put in place, the study found. Moreover, industries that become cleaner over time will prosper under more stringent policies. In contrast, the more stubborn industries will see their export performance erode. This comes as the trend over the past several years has been towards more strict environmental policies — at least in developed countries — a tendency the report says will continue.
“Governments should stop working on the assumption that tighter regulations will hurt their export share and focus on the edge they can get from innovation,” said OECD Chief Economist Catherine L. Mann in a statement.
The way environmental laws influence innovation is somewhat simple. When a government introduces an environmental policy like the Clean Power Plan that places strict emissions standards, the industry has to figure out how to comply. Green policies create “incentives to be more efficient or to develop technologies to reach those standards,” Joshua P. Meltzer, senior fellow in global economy and development at the Brookings Institution, told ThinkProgress. Once that happens, he said, the firm or industry often becomes more efficient and gets ahead of competitors.
This has happened in the past. More than 25 years ago countries agreed to the Montreal Protocol, to phase out chemicals found in refrigerators and other machines that were destroying the ozone.
Meltzer said the industry fought back, but with time it adapted. “The industry found a way,” he said.
That’s not to say all firms can adapt, or that policies don’t create costs, the study said. Policies create winners and losers. One good example in the United States is the coal industry, which has been losing business and jobs, in part because of ever more stringent laws as well as other factors.
The OECD study also found that governments have been subsidizing polluting industries, instead of giving cleaner industries a chance to grow. In 2014, for instance, $600 billion went to subsidies for fossil fuels, according to OECD figures, while renewable energy received slightly over $100 billion.