Incentive-based Policies Are A Win-Win: Study

Environmental policies are often met with resistance or reluctance from businesses who’d be expected to employ them. This is usually due to the assumption that such policies, while they may be for the long-term or ‘greater good’, spell bad for business. This may not be true. In fact, some policies may prove to be beneficial for businesses implementing them.

Recently published in the Energy Economics journal, a new study analyzed the effect of several types of environmental policies on China’s GDP. The authors used publicly available data for years between 2002 to 2013. They point out that the data is for environmental laws in about 30 Chinese provinces before the state declared its ‘war on pollution’.

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Taking into consideration about 2,700 environmental laws and regulations, the authors divided them into four categories. The first was ‘command and control’, where policies made implementations mandatory. For example, mandates to use a portion of electricity from renewable sources. The other types were financial incentives, including taxes, subsidies, and loans; monetary awards for cutting pollution or improving efficiency and technology; and non-monetary awards, such as public recognition.

When they studied the impact of these types of laws and regulations on China’s GDP, it was found that ‘command and control’ as well as non-monetary policies impacted the GDP negatively. On the other hand, financial incentives as well as monetary awards worked well for the environment as well as for the industries, creating a win-win situation.

These findings of the study also confirm the Porter hypothesis, which suggests that ‘that environmental policies could stimulate growth and development, by spurring technology and business innovation to reduce both pollution and costs.’

“This work will make people aware, including firms that may be opposed to environmental regulation, that it’s not necessarily the case that these regulations will be harmful to their profits and productivity,” said Lin Lawell, co-author and associate professor in the Charles H. Dyson School of Applied Economics and Management and the Robert Dyson Sesquicentennial Chair in Environmental, Energy and Resource Economics. “In fact, if policies promoting environmental protection are designed carefully, there are some that these firms might actually like.”

The study adds that incentive-based policies may actually benefit regulated firms in the traditional and ‘green’ energy sectors, by spurring innovation and improvements in production processes.

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Terra Love View All →

I am a simple writer who wishes to use her skill to create more awareness about the planet that offers us life.

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