Advertisement

Journal of Productivity Analysis

, Volume 44, Issue 3, pp 225–235 | Cite as

Climate policy, environmental performance, and profits

  • Tommy Lundgren
  • Per-Olov Marklund
Article

Abstract

In this study we investigate how firm level environmental performance (EP) affects firm level economic performance measured as profit efficiency (PE) in a stochastic profit frontier setting. Analyzing firms in Swedish manufacturing 1990–2004, results show that EP induced by environmental policy is not a determinant of PE, while voluntary or market driven EP seem to have a significant and positive effect on firm PE in most sectors. The evidence generally supports the idea that good EP is also good for business, as long as EP is not brought on by policy measures, in this case a CO2 tax. Thus, the results provide no general support for the Porter hypothesis.

Keywords

CO2 tax Environmental performance index Profit technical efficiency Stochastic frontier analysis The Porter hypothesis 

JEL Classification

D20 H23 

Notes

Acknowledgments

The authors gratefully acknowledge financial support from the Swedish Energy Agency (STEM), and the Swedish Research Council for Environment, Agricultural Sciences and Spatial Planning (FORMAS). Participants at the Agricultural & Resource Economics seminar at UC Berkeley (December, 2012), the Asian Pacific Productivity Conference (Bangkok, July, 2012), the EAERE meeting 2013 (Toulouse, June/July), and Dr. Lammertjan Dam (Groningen) are thanked for insightful comments and suggestions. The usual disclaimer applies.

References

  1. Battese GE, Coelli TJ (1993) A stochastic frontier production function incorporating a model for technical inefficiency effects, Working Papers in Econometrics and Applied Statistics, No 69, Department of Econometrics, University of New England, ArmidaleGoogle Scholar
  2. Battese GE, Coelli TJ (1995) A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empir Econ 20(2):325–332CrossRefGoogle Scholar
  3. Bergman MA (1997) The restricted profit function and the application of the generalised Leontief and the translog functional forms. Int J Prod Econ 49(3):249–254Google Scholar
  4. Brännlund R, Lundgren T (2009) Environmental policy without costs? A review of the Porter hypothesis. Int Rev Environ Resour Econ 3(2):75–117CrossRefGoogle Scholar
  5. Brännlund R, Lundgren T (2010) Environmental policy and profitability—Evidence from Swedish industry. Environ Econ Policy Stud 12(1–2):59–78CrossRefGoogle Scholar
  6. Brännlund R, Lundgren T, Marklund P-O (2014) Carbon intensity in production and the effects of climate policy—evidence from Swedish industry. Energy Policy 61:844–857CrossRefGoogle Scholar
  7. Coelli TJ (1996) A guide to FRONTIER Version 4.1: A computer program for frontier production function estimation, CEPA Working Paper No 7/96, Department of Econometrics, University of New England, Armidale, AustraliaGoogle Scholar
  8. Dam L, Koetter M, Scholtens B (2009) Why do firms do good? Evidence from managerial efficiency, SSRN working paperGoogle Scholar
  9. Färe R, Grosskopf S (2003) New directions: efficiency and productivity. Springer, New YorkGoogle Scholar
  10. Färe R, Grosskopf S, Hernandez-Sancho F (2004) Environmental performance: an index number approach. Resour Energy Econ 26(4):343–352CrossRefGoogle Scholar
  11. Färe R, Grosskopf S, Pasurka CA Jr (2006) Social responsibility: U.S. power plants 1985–1998. J Prod Anal 26(3):259–267CrossRefGoogle Scholar
  12. Färe R, Grosskopf S, Pasurka CA Jr (2010) Toxic releases: an environmental performance index for coal-fired power plants. Energy Econ 32(1):158–165CrossRefGoogle Scholar
  13. Hamamoto M (2006) Environmental regulation and the productivity of Japanese manufacturing industries. Resour Energy Econ 28:299–312CrossRefGoogle Scholar
  14. Hay B, Stavins R, Vietor R (eds) (2005) Environmental protection and the social responsibilities of firms—perspectives from law, economics, and business. Resources for the future, Washington, DC, USAGoogle Scholar
  15. Jaffe AB, Palmer K (1997) Environmental regulation and innovation: a panel data study. Rev Econ Stat 79(4):610–619CrossRefGoogle Scholar
  16. Khanna M (2001) Non-mandatory approaches to environmental protection. J Econ Surv 15:291–324CrossRefGoogle Scholar
  17. Kumbhakar SC (2001) Estimation of profit functions when profit is not maximum. Am J Agric Econ 83(1):1–19MathSciNetCrossRefGoogle Scholar
  18. Kumbhakar SC, Lovell CAK (2000) Stochastic frontier analysis. Cambridge University Press, CambridgeMATHCrossRefGoogle Scholar
  19. Lundgren T (2011) A micro-economic model of corporate social responsibility. Metroeconomica 62(1):69–95MATHCrossRefGoogle Scholar
  20. Lundgren T, Marklund P-O (2010) Climate policy and profit efficiency, CERE Working Paper, 2010:11, Department of Economics, Umeå UniversityGoogle Scholar
  21. Orlitzky M, Swanson D (2008) Toward integrative corporate citizenship: Research advances in corporate social performance. Palgrave MacMillan, LondonCrossRefGoogle Scholar
  22. Orlitzky M, Siegel S, Waldman D (2011) Strategic corporate social responsibility and environmental sustainability. Bus Soc 50(1):6–27CrossRefGoogle Scholar
  23. Paul C, Siegel D (eds) (2006) Special issue on corporate social responsibility (CSR) and economic performance. J Product Anal 26(3): 207–87Google Scholar
  24. Porter ME (1991) Americas green strategy. Sci Am 264:168CrossRefGoogle Scholar
  25. Porter ME, van der Linde C (1995) Toward a new conception of the environment-competitiveness relationship. J Econ Perspect 9(4):97–118CrossRefGoogle Scholar
  26. Rauscher M (2006) Voluntary emission reductions, social rewards, and environmental policy. CESifo Working Paper No. 1838Google Scholar
  27. Waddock S, Graves S (1997) The corporate social performance-financial performance link. Strateg Manag J 18:303–319CrossRefGoogle Scholar
  28. Yang C-H, Tseng Y-H, Chen C-P (2012) Environmental regulations, induced R&D, and productivity: evidence from Taiwan’s manufacturing industries. Resour Energy Econ 34(4):514–532CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Centre for Environmental and Resource Economics (CERE)SLU/Umeå UniversityUmeåSweden
  2. 2.Centre for Regional Science (CERUM)Umeå UniversityUmeåSweden

Personalised recommendations