Tougher environmental laws do not hurt export competitiveness

Countries that implement stringent environmental policies do not lose export competitiveness when compared against countries with more moderate regulations, according to a new OECD study that examines trade in manufactured goods between advanced and emerging economies.

As governments consider ways to tighten environmental regulations in line with new climate change pledges, this analysis offers evidence that doing so would not hurt trade. It bears out theoretical studies showing that factors like market conditions and workforce quality are likely to have much more impact on trade competitiveness. Tough environmental standards may also drive firms to become more innovative, improving both their economic and environmental performance.

The OECD Environmental Policy Stringency indicator is a composite index based on the explicit or implicit cost of environmental policies related mainly to climate and air pollution. It shows policies have become increasingly stringent in advanced economies since the 1990s, with the highest costs on polluting behaviour in Denmark, Germany, the Netherlands and Switzerland and the UK and US around average. Policies are more lenient in the BRICS.

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