ENERGIA

The introduction of environmental policies in industrial economies has been hindered by concerns that their impact on industrial output and on the competitiveness of firms is negative, where competitiveness may be defined as (OECD, 1992, p237):

“the degree to which a country can, under free and fair market conditions, produce goods and services, which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the longer term.”

Reasons for lack of acceptability for environmental policy include (Convery, 2001, pp5-16; EEA, 2006, p8, 16):

1. The perceived lack of need for tax reform, that is current fiscal policy favours labour productivity over resource productivity,

2. The perception that taxes need to be high to be effective,

3. Concerns about inequitable burdens on lower-income groups, that is the ‘regressive effect’ on income distribution,

4. Concerns about impacts on competitiveness,

5. Compliance costs redirect firms’ resources away from other profitable opportunities, which can potentially lead to a rise in costs and prices and

6. The degree of structural dependency, for example with carbon taxes and fossil fuels.

Environmental policy can have an impact on competitiveness if it imposes costs on some firms that are not imposed on their competitors, particularly on the global market (OECD, 1993; Goodbody, 2001a, p22). However, across manufacturing industries, environmental compliance costs amount to less than 1% of the value of gross output and the cost of complying with regulation is only a fraction of the total firm costs and sufficiently small enough to be overridden by differences in labour costs, exchange rate variations and other factors (OECD, 1993).

Indeed, it is argued that environmental policies can encourage long-term economic growth, innovation and competitiveness in win-win scenarios (Goodbody, 2001a, p19). Porter (1990) argues that

environmental policy may be good for competitiveness because the costs of complying with policies may be more than offset by innovations, which may produce competitive benefits in themselves and/or allow firms to gain a first mover advantage in the growing green products or technologies markets. He also argues that innovation is stimulated because environmental policies highlight resource inefficiencies in firms, as they become more informed about the discharges throughout their production process (Goodbody, 2001, p23).

The Porter hypothesis of competitive advantage for environmental policy argues that (Porter, 1990, pp647-649):

“stringent standards for product performance, product safety, and environmental impact contribute to creating and upgrading competitive advantage as they pressure firms to upgrade quality, upgrade technology and provide features in areas of important customer (and social) concern, giving a nation’s firms a head start in developing products and services that will be valued elsewhere.”

Although a ‘pollution haven hypothesis’ has been propagated, which argues that stringent environmental policy may result in competitively-vulnerable industries moving production abroad (Leonard 1988, Repetto 1995), studies into ‘industrial flight’ due to stringent environmental policies have largely been inconclusive and have failed to find a significant relation between environmental regulations and trade performance. Indeed, there are often conflicting explanations for changes in trade patterns and it is difficult to conclude that the migration of ‘dirty industries’ is due to environmental policy (Leonard 1988).

The 2000 Report The Competitiveness and Environmental Impact of Energy Taxation on Irish Industry examined the effect of a number of energy taxes on competitively-vulnerable sectors, which have energy cost to output ratios in excess of 2% and it was found that, even with tax revenues being fully recycled to industry in the form of a wage and salary subsidy, these sectors, which include production and distribution of electricity and manufacture of cement, lime and plaster, basic precious and non-ferrous metals, bricks, tiles and iron and steel, would still suffer significant net losses and the overall impact on GHG emissions would be insignificant (Farrell Grant Sparks, 2000; Boyle, 2000; Bergin et al., 2001). Direct impacts of the EU ETS on industry result from the costs of operating within an overall GHG emissions constraint and are incurred by industry as they either invest in abatement options or purchase allowances to meet the imposed emissions target. Indirect impacts result from the increase in the costs of goods produced by the sectors included in the Scheme as they pass the costs of compliance onto customers as well as a possible loss of competitiveness for inward investment in high-tech sectors compared with developed but lower cost-economies competing for mobile investment in pharmaceutical, healthcare and ICT sectors (ICF and Byrne O’Cleirigh, 2004, p74). It is concluded that alumina, food and drink, semiconductors and paper sectors would be most affected by competition under the EU ETS as these sectors operate in highly competitive, export-oriented commodity markets, where marginal increases in energy prices would likely affect their production-cost landscape (ICF and Byrne O’Cleirigh, 2006, p74).

The costs of waste disposal vary considerably in Ireland and it is estimated that cumulative increases between 2000 and 2004 varied from 9% in Kildare to 380% in Cork, which has serious implications for business competitiveness and for the attraction of FDI and companies’ choice of location. In addition, the 2004 IBEC business costs survey found that waste collection/treatment ranked third in terms of business priorities, highlighting the fact that sufficient investment in waste management infrastructure is of paramount importance (Forfás, 2006, p6).