When federal and state environmental regulations compelled the Dow Chemical Company to shut down certain wastewater evaporation ponds recently, Dow reaped an unexpected benefit. Engineers redesigned the production process to eliminate the need for such ponds, saving $2.4 million a year in reduced waste at a cost of only $250,000.
That kind of potential exists throughout corporate America, say Porter, a professor of business administration at Harvard Business School, and van der Linde, a management specialist at St. Gallen University, in Switzerland. Because reducing pollution often means improving the productivity of resource use, strict environmental regulations, if crafted to encourage innovation, can enhance a firm’s competitiveness. Such arguments are increasingly heard among advocates of "green" business practices.
Palmer, Oates, and Portney, all of Resources for the Future, a Washington-based think tank, are skeptical. "With literally hundreds of thousands of firms subject to environmental regulation in the United States alone, it would be hard not to find instances where regulation has seemingly worked to a polluting firm’s advantage." Officials at Dow Chemical and three other firms Porter and van der Linde cite, for example, each say that despite savings in some instances, environmental protection is "a significant net cost to his company."
That is true in general, as well, Palmer and her co-authors say. In 1992, according to the Commerce Department’s Bureau of Economic Analysis, pollution abatement and control expenditures in the nation came to $102 billion, while the cost "offsets" were estimated to be less than $2 billion. "The underlying message from Porter and van der Linde about environmental regulation is not to worry, because it really won’t be all that expensive. But it will."
"Toward a New Conception of the Environment-Competitiveness Relationship" by Michael E. Porter and Claas van der Linde, and "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?" by Karen Palmer, Wallace E. Oates, and Paul R. Portney, in The Journal of Economic Perspectives (Fall 1995), American Economic Assn., 2014 Broadway, Ste. 305, Nashville, Tenn. 37203–2418.