Determining the costs to industry of environmental regulation

Abstract:

During the negotiation of international and European environmental regulations, the industry sector typically raises the issue of the cost of compliance. It is often maintained that the cost of complying with environmental regulations restricts business profitability and competitiveness. This paper provides an overview of the cost of compliance by considering the arguments, strategies and cost estimates that were presented by industry during the negotiations of several different environmental regulations in Europe and North America, and at the global level. It examines the difficulties associated with comparing costs using pre- and post-regulation cost data and discusses the strategies adopted during the negotiations of the regulation and once the regulation was implemented. The paper concludes that although some proposals for regulation may impose burdens on industry, which it will oppose, industry has come to recognize that environmental regulation does not necessarily mean increased costs at the level anticipated. While regulation cannot guarantee innovation or lead to greater competitiveness and higher productivity for all firms, those that seize the opportunities will usually gain benefits. The paper reinforces the view that the EU should give careful consideration to the costs presented by industry as in the past it has tended to overestimate costs of compliance and underestimate the potential for the development of new technology. The introduction of independent cost assessments and technology assessments may be one way of overcoming this problem.