Climate policy, environmental performance, and profits
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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.
KeywordsCO2 tax Environmental performance index Profit technical efficiency Stochastic frontier analysis The Porter hypothesis
JEL ClassificationD20 H23
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.
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