Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2010:11: Climate Policy and Profit Efficiency

Tommy Lundgren () and Per-Olov Marklund ()
Additional contact information
Tommy Lundgren: CERE, Postal: Centre for Environmental and Resource Economics(CERE), Umeå University and Swedish University of Agricultural Sciences, Umeå, Sweden and Umeå School of Business (USBE), Umeå University, Sweden
Per-Olov Marklund: CERE, Postal: Centre for Environmental and Resource Economics(CERE), Umeå University and Swedish University of Agricultural Sciences, Umeå, Sweden and Centre for Regional Science, Umeå University (CERUM), Sweden

Abstract: As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.

Keywords: CO2 tax; efficiency; stochastic frontier analysis; Swedish industry

JEL-codes: D20; H23; Q52; Q55

40 pages, June 2, 2010

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