Countries that implement stringent environmental policies including emission limits do not lose export competitiveness when compared against countries with laxer regulations, according to a new OECD study.
The report, which examined trade between 23 advanced and six emerging economies, undermines arguments put forward that tougher climate policies would trigger carbon leakage.
The findings also suggest that emerging economies with strong manufacturing sectors like China could strengthen environmental laws without denting their overall share in export markets.
The OECD found that big-emitting industries like chemicals, plastics and steelmaking would suffer a small disadvantage from a further tightening of regulations, but this would be compensated by growth in exports from less-polluting activities.
“Environmental policies are simply not the major driver of international trade patterns,” said OECD Chief Economist Catherine Mann, presenting the study at the London School of Economics on Thursday.
“We find no evidence that a large gap between the environmental policies of two given countries significantly affects their overall trade in manufactured goods. 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.”
The study takes the domestic value added in export data and uses an OECD Environmental Policy Stringency indicator that ranks countries according to more or less stringent policies. Denmark, Netherlands and Finland were the top three ranked nations, while Brazil, South Africa and Russia comprised the bottom of those studied.
It shows that countries with stringent environmental laws suffer a very small disadvantage in pollution-intensive sectors such as steel-making, chemicals, plastics and fuel products. This is compensated by an edge gained in cleaner industries like machinery or electronics. Both effects are tiny compared to factors including market size, the lifting of trade tariffs, globalisation and a country’s intrinsic assets.
Countries where manufacturers already pollute less should therefore gain global market share as tougher domestic laws are put in place, the study said, adding that industries and firms that become cleaner over time will prosper under more stringent policies, but those that fail to adapt will see their export performance erode.
By Ben Garside – ben@carbon-pulse.com
