Strict Environmental Regulation can assist industries to achieve competitiveness. Would you argue against or support this statement and how would you do so? Competition and environmental regulation are compulsory. Both environmental regulation and competitiveness policies are two of the highest policies that are taken into great consideration. They both aim to prevent market failures and enhance social welfare (“Environmental Regulation and Competition” 2007). The purpose of this essay is to find out whether strict environmental regulation can assist industries to achieve competitiveness followed with arguments in favour of or against.The main aim of strict environmental regulation is to correct environmental damages while the aim of competition policy is to prevent distortions due to the exploitation and misuse of market power. Environmental regulations can constitute some form of barriers to entry in certain markets.
It actually provides a predatory behavior in certain markets which are harmful to competition (“Environmental Regulation and Competition” 2007). Strict environmental regulation usually results in a price rise to consumers by reducing competition in the market.Strict environmental regulation can however reduce competition in a market through various channels like mention above by raising price they make it difficult for other firms to enter the market and compete and thus such regulation increases concentration on the part of firms (“Environmental Regulation and Competition” 2007).
Strict environmental regulation also leads to innovation industries try to find new ways to differentiate them from other industries and thus increasing its competitiveness.The form of environmental regulation used includes eco-taxation, emissions trading and pollution charges (Brueckner 2010, 85). Eco-taxes are also known as green taxes. This form of policy has been introduced in various countries. Emission trading is a market-based scheme that enables the polluters to buy permits for their emissions or sell credits for a reduction in the emissions of their pollutants.
Pollution charges are now being used everywhere and they are levied on actual source emissions (Brueckner 2010, 85).These are the form of environmental regulations that are used and they help firms in achieving competitiveness. In fact strict environmental regulation provides substantial benefits like improve human health, healthier eco-system together with reduced costs in these areas. Such regulations in fact create opportunities for companies to gain competitive advantages both in domestically and internationally. So, it can be found that strict environmental regulations can assist industries to achieve competitiveness. Having strict environmental policy in a country can lead to both advantages and disadvantages.
Strict environmental regulation can harm the competitiveness of domestic firms while a lenient environmental regulation can lead to the creation of “too much pollution”. However a lenient one can be more attractive as it does not lead to ecological capital flight where some firms tend to leave the country and settle in places where the regulation are less severe (“Environmental Regulation and Competition” 2007). Strict environmental regulation does not only lead to ecological capital inflight but it can also result in firms opting for ecological dumping and regulatory “chill” in the environmental standard.So, it can be clearly found that strict environmental regulation can sometimes be disadvantageous and that it does not always assist industries to achieve competitiveness. Strict environmental regulation has largely been seen as a threat to industries where many people tend to lose their jobs as industries move to other countries where the regulation are lenient.
However, Porter and Van der Linde argued that such regulation help industries to innovate by abiding to the rules and offsetting the costs into gains in companies’ competitive advantage over companies that do not abide by the regulations (Brueckner 2010, 85).Netherland is an example of a country which has actually become an international leader in the manufacture of pollution control equipment by following the strict environmental regulations. To conclude we have seen that strict environmental regulation can sometimes be detrimental to the competitiveness of industries but it sometimes it also triggers industry towards innovation and thus increasing its competitiveness. So, strict environmental regulation can help industry to achieve competitiveness and it can also hinder them to be competitive.