Positive environmental change is largely predicated on the need for sufficient legislation. Governments are largely responsible for the steps that need to be taken to achieve their goals of a low carbon emissions economy and legislation will always be the first one. Furthermore, just hearing the words ‘cap and trade’ and ‘carbon taxes’ is enough to make the hairs on your arm stand because what that usually means is:
a) higher costs to operate,
b) lower profits, or
c) loss of competitiveness.
Or at least, that’s what they think. Can you blame them? Who would want to burn more money than they bring in and lose to the next guy who’s burning through coal like the plague and raking in the cash? Sounds like the perfect way to go out of business, if you ask me. However, I’ll show you why that isn’t the case.
Firstly, there are many perfectly good reasons to comply with regulation. The first point being transitioning away from traditional fossil fuels means that companies can find energy alternatives that are cheaper and more cost effective. Additionally, it can also be a factor of differentiation from their competitors. It also fuels the need for innovation while addressing environmental concerns.
Moreover, the Climate Group published a Survey that looked at how European Union Climate legislation affected multiple businesses’ competitiveness. What they found was that:
– The first phase of the legislation, which allocated free emission allowances, did not add to the companies’ bottom line. This could be because companies find it difficult to quantify the exact increases to costs due to changes in the economic climate and constant fluctuation of oil and natural gas prices.
– Companies quickly internalize practices and planning to adapt to the legislation
-They can reduce costs by investing in energy efficiency
-The legislation enabled better monitoring and cost assessment thus, allowing for better emission calculations and anticipation of prices
-It encouraged future investments in renewable energy, such as renewable electricity as well as investments in research and development for diversification of energy supplies.
Now whether or not the legislation impacted competitiveness is unclear. Some companies suggest that it makes them less competitive, however they are unable to point out how. Others say that it has no impact. Regardless, there can be a ‘race to the bottom’ in the effort for environmental protection especially as governments become more stringent with environmental policy and the risk of competitiveness distortions increases (2017, Dechezlepretre and Sato).
Antoine Dechezleprêtre, Misato Sato, The Impacts of Environmental Regulations on Competitiveness, Review of Environmental Economics and Policy, Volume 11, Issue 2, Summer 2017, Pages 183–206
Kenber, M., Haugen, O., & Cobb, M. (2009). The Effects of EU Climate Legislation on Business Competitiveness: A Survey and Analysis. Climate and Energy Paper Series 09.
The Eco-Business 