Do environmental policies matter for productivity growth?

Policy brief:

Green Growth: Environmental policies and productivity can work together

Working papers:

Insights from new Cross-Country Measures of Environmental Policies

Environmental Policies and Productivity Growth - A Critical Review of Empirical

Measuring Environmental Policy Stringency in OECD Countries - A Composite Index Approach

The Indicators of the Economic Burdens of Environmental Policy Design – Results from the OECD Questionnaire

Empirical evidence on the effects of environmental policy stringency on productivity growth

Media

Journal of Environmental Economics and Management - Environmental policies and productivity growth: Evidence across industries and firms (January 2017)

The Economist - Green Tape (3rd January 2015)

Environmental policies have become increasingly stringent in the past two decades

Environmental policies address wellbeing and sustainability objectives, affecting firm and household behaviour. A newly developed OECD indicator (EPS) shows that environmental policies have become more stringent over the past two decades.

Note: Environmental policy stringency is defined as policy-induced cost of polluting by firms. For details on construction of the indicator click here. Underlying data is available here.

Tighter environmental policies have had little effect on productivity growth

Tightening environmental policies have spurred only short-term adjustments to aggregate productivity growth. Nevertheless, they have led to various effects within the economy. The most technologically advanced industries and firms have seen a small increase in productivity, possibly as they were in the best position to adapt. Least productive firms have seen their productivity fall further.

Greener growth requires stringent environmental policies that are flexible and minimise barriers to entry and competition

The choice and implementation of environmental policy instruments is likely to be crucial. Flexible, market based instruments such as taxes and trading schemes are found to be more friendly to productivity growth. Moreover environmental policies can pose barriers to entry and competition – by imposing additional administrative burdens on start-ups or by directly favouring incumbents. A new indicator of Burdens on the Economy due to Environmental Policies (BEEP ) shows that barriers to entry and competition, and the consideration given to economic effects of environmental policies vary notably across countries, but are not related to the stringency of environmental policies. Hence, stringent environmental policies can and should be implemented with minimum barriers to entry and competition.