2014.03.10 - NAEC Seminar - Environmental Policies and Productivity Growth
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2014.03.10 - NAEC Seminar - Environmental Policies and Productivity Growth
- 1. ENVIRONMENTAL POLICIES AND PRODUCTIVITY GROWTH Results from the joint WPIEEP/WP1 project From the OECD Environment Directorate and the OECD Economics Department: • Tomasz Koźluk • Silvia Albrizio • Enrico Botta • Vera Zipperer New Approaches to Economic Challenges Seminar on Project B10, 10 March 2014 1
- 2. • Background of the project • Part 1: – Measuring environmental policy stringency (EPS) – Empirics: effects of EPS on productivity growth • Part 2: – Competition-relevant aspects of environmental policies (BEEP) • Part 3: – Sum-up, policy conclusions and follow-ups Outline
- 3. • How to design and implement policies to: – Achieve Green and Growth? – Progress towards competitive, green economies? – Gain acceptability for reform agenda? • Environmental policies will also affect economic outcomes: – Eg. They change relative prices and incentives to innovate and invest. – They can also distort competition. Why?
- 4. • Mainstreaming Green Growth in the OECD, • Joint ENV(WPIEEP)/ECO(WP1), • NAEC B10 – Environmental Policies and Economic Performance • To feed into: – Going for Growth, – EDRC country surveys, – Environmental Performance Reviews, – Green Growth Indicators, etc. Project background
- 5. What are we looking at? Environmental policies Environmental outcomes Economic outcomes
- 6. Economic framework Productivity /Efficiency Environmental policies GDP per capita ???
- 9. • A new cross-country, time series proxy of environmental policy stringency (EPS), – Verify its validity, – Use in empirical analysis to look at effects on productivity growth, • Measure other aspects of environmental policies – Competition-friendliness - can be relevant for productivity growth. Approach taken
- 10. Indicators of “Environmental Policy Stringency” (EPS) • Idea: Proxy overall environmental policy stringency with a composite index. Cross-check with other measures used in literature (for available periods)
- 11. Environmental policy stringency (EPS) indicator structure Composite EPS indicator Market-based policies Non-market based policies • CO2 • NOx • SOx • Diesel Taxes • CO2 • Renewable Energy Certificates • Energy Efficiency Certificates Trading Schemes • Solar • Wind FITs • Deposit & Refund Scheme DRS • Emission Limit Values: • NOx • SOx • PMx • Diesel content limit (Sulphur) • Govt. R&D expenditure on Renewable Energy Standards R&D Subsidies
- 12. Environmental policy stringency in OECD countries * NZL data are currently being revisited.
- 13. Correlations with other measures of stringency 2004 2005 2006 2007 2008 2009 2010 2011 Over the period Perceived stringency (WEF)* .49 (0.01) .42 (0.03) .41 (0.04) .43 (0.03) .42 (0.03) .50 (0.01) .39 (0.05) .34 (.10) .39 (0.00) CLIMI** .54 (.01) *World Economic Forum – Executive Opinion Survey – perceptions of Environmental Policy Stringency. ** Climate Laws, Institutions and Measures Index, EBRD (2011), de jure.
- 14. Empirical applications of EPS measure • Idea: Does environmental policy tightening affect productivity growth? Environmental policies as a burden to activity vs. a source of productivity improvements (Porter’s hypothesis)
- 15. • Panel of OECD countries across time, broadest possible coverage • 3 levels: country, industry, firm • Reduced form model with technological catch-up to leader and technology pass-through, • Environmental dependence/pollution intensity • Various sets of controls, specifications and sub- samples – robustness checks. • Additional hypotheses – flexibility of policies, announcement, EPS levels, double-div., etc. Empirical application
- 16. Empirical results – macro level Negative anticipation effect Positive rebound in productivity Cumulatively no effects on MFP levels EPS tightening (0.1) -> MFP growth (example: Italy)
- 17. Empirical results – industry and firm level EPS tightening (0.1) -> on MFP growth effect depends on technological advancement Country-industry level Firm level
- 18. Empirical results – w.r.t. pollution intensity and technology High pollution, technologically advanced Low pollution, low productivity Spain, pulp, paper and printing (2005)US Coke, chemicals, plastics (2005) EPS tightening (0.1) -> MFP growth
- 19. • No longer-term effects on productivity growth, – All effects fade away within <5 years time, • Effects unlikely to be large on the economy level. • Increase in productivity growth after EPS tightening (macro, industry*, firm**) • Negative anticipation effect (macro). Results: EPS change on MFP growth (I)
- 20. • Short-term effects: – positive for technological leaders (firms, industries) with productivity level gains, – negative for low-productive firms. • Adjustments are likely: – within firms, through changes in production processes, – as well as, due to entry/exit. • Additionally, effects: – don’t depend on EPS levels, – are more robust for market-based instruments, – robust to different samples, specifications, variables Results: EPS change on MFP growth (II)
- 21. Indicators of “Burdens on the Economy due to Environmental Policies” (BEEP)
- 22. • Idea: What are the design and implementation features of environmental policies that can burden entry & competition? Environmental Policy Annex to the Product Market Regulation update
- 23. • Questionnaire: – Annexed to 2013 Product Market Regulation (PMR) – Replies from 30+ countries (2 non-OECD) – One point in time (2013) • Indicator: – De jure indicator – scoring, aggregation and structure similar to PMR (tested) Environmental Policy Annex to the Product Market Regulation update
- 24. Burdens on the Economy of Environmental Policies – index structure Burdens on the economy due to environmental policies Barriers to entry and competition Evaluation of env. policy effects on economy Administrative burdens Evaluation of existing policies Evaluation of new policies Impediments to competition
- 25. • Administrative burdens of permit /license procedures • Integrated permits, single contact points, legal time limits on approval, silence-is-consent rule. Barriers to entry and competition
- 26. • Direct impediments to competition • Vintage Differentiated Regulations (eg ELVs), taxes/subsidies that discriminate against new entrants. Barriers to entry and competition
- 27. • Evaluation of new policies & of existing policies • Are policy makers obliged to evaluate: – effects on competition, entry, administrative burdens, statistics and reporting burdens etc. – the possibility, costs and benefits of using alternative tools (e.g. a tax versus an emission limit). – Possibilities for streamlining obligations imposed. • Evaluation guidelines, stakeholder consultations, • Transparency & communication, Policy evaluation
- 28. Burdens on the Economy of Environmental Policies – index structure Burdens on the economy due to environmental policies Barriers to entry and competition Evaluation of env. policy effects on economy Administrative burdens Evaluation of existing policies Evaluation of new policies Impediments to competition
- 29. BEEP – overall results 0 1 2 3 4 5 6 Administrative Burdens Direct Impediments to Competition Evaluation of policies (new) Evaluation of policies (existing) Sample average
- 30. BEEP and environmental policy stringency
- 31. • Stringent environmental policies are necessary for addressing wellbeing objectives: – but, should not be expected to have, per se, detrimental effects on productivity… • … especially if policies are well-designed: – No trade-off between stringency and „competition friendliness‟ – Market-based instruments more “productivity-friendly” • Ensuring swift reallocation of resources can help assure economic outcomes are in line with productivity gains. Key policy implications
- 32. • Empirical effects of environmental policies on investment, trade, employment, entry/exit etc. – Fuller picture of overall economic effects – Better understanding of effects on MFP growth – ENV/STI – proposed firm survey – ask the other side • Political, structural and other determinants of environmental policies: – Cross-country panel – Better understanding why country A chooses policy X Follow up work/important extensions
- 35. • Environmental policies and productivity growth – insights from new cross-country measures of environmental policies • Literature review (Annex 1) • EPS indicator (Annex 2) • BEEP indicator (Annex 3) • Empirical analysis and results (Annex 4) Project contents
- 36. EPS in OECD countries – market vs. non-market based instruments
- 37. EPS – random weights – robustness
- 38. BEEP – random weights – robustness
- 39. BEEP and environmental performance Note: For both indicators of environmental performance higher values indicate better state of natural environment. A. with the Environmental Performance index (Yale, 2012) B. with WEF perceived quality of natural environment (2012) AUS AUT BEL CAN CHE CHL CZE DEU DNK ESP EST GBR GRC HRV HUN ISR ITA JPN MEX NLD NOR NZL POL PRT SVK SVN SWE TUR ZAF 3 3.5 4 4.5 5 5.5 6 6.5 7 0.5 1.5 2.5 3.5 4.5 total BEEP indicator WEF perceived quality of naturalenvironment (2012) AUS AUT BEL CAN CHE CHL CZE DEU DNK ESP EST GBR GRC HRV HUN ISR ITA JPN MEX NLD NOR NZL POL PRT SVK SVN SWE TUR ZAF 30 35 40 45 50 55 60 65 70 75 80 0.5 1.5 2.5 3.5 4.5 total BEEP indicator Environmental Performance Index (Yale, 2012)
- 40. BEEP and (past) economic outcomes A. With past MFP growth (2001-2007) B. With GDP per capita (PPP, 2012) AUS AUT BEL CAN CHE DEU DNK ESP GBR ITA JPN NLD NZL PRT SWE 0.5 1 1.5 2 2.5 3 3.5 4 4.5 -0.5 0 0.5 1 1.5 2 MFP grow th (average 2000-7) Total BEEP indicator Correlation coefficient: -0.48* AUSAUT BEL CAN CHE CHL CZE DEU DNK ESP EST GBR GRC HRV HUN ISR ITA JPN MEX NLD NOR NZL POL PRT SVK SVN SWE TUR ZAF 10 15 20 25 30 35 40 45 50 55 60 0.5 1.5 2.5 3.5 4.5 Total BEEP indicator GDP per capita, 2012 (2005 PPPs) Correlation coefficient: 0.02
- 41. • Econometric setup – Macro level
- 42. Econometric setup – Industry & firm level
Notes de l'éditeur
- VCs Denmark & Switzerland
- Already a lot of OECD work covering the links between economic outcomes and environmental outcomes (eg CIRCLE, but also surveys, Going for Growth). A lot on the link between environmental policies and environmental outcomes. Little on ECONOMIC EFFECTS of ENVIRONMENTAL POLICIES:+ Increasing role of environmental policies over past decades + observed slowdown in productivity growth
- Equal weights at each level. Scoring – 0 to 6 bins, relative to sample distribution.
- Footnote for NZL!!!
- When outliers excluded (NZL, KOR) – correlation is almost 0.6
- Differently from the macro analysis, the dtf matters for the effect of EPS at industry and firm level.The first chart shows the marginal effect of a tightening of EPS on the productivity growth as function of the frontier: more productive country-industry pairs benefit for an increase in stringency, experiencing a temporarily increase in productivity growth. Zero effect for country-industry pairs that lag behind the frontier. This effect could be due to the additional capability and resource availability of more productive industries to take advantage of the incentives provided by EP – changing production processes, taking advantage of improved market conditions for (some of) their products, reallocating resources within firm (eg to focus on more productive activites) or abroad, outsourcing etc., or it could be the outcome of a composition effect, namely less productive firms which are less efficient exit the market.To disentangle further the channel, we look into firm level:2. Due to some limitations in the dataset available we cannot take into consideration entry-exit behaviours, but we study the effect on the survivors: interestingly only around 30% of the firms in the sample experience a positive MFP growth effect, while for the rest of the sample the temporary effect is clearly negative. Given that most of the small firms lagged behind the frontier, the effect is also heterogeneous in the size: smaller firms on average will have a smaller or negative effect compared to larger ones.
- To quantify this effect and to underline its heterogeneity in the magnitude, we look at two specific examples, like in the macro scenario, but this time we consider two additional dimensions: industry pollution intensity and distance to frontier.First chart: case of a high-polluting sector, such as coke, chemical and plastic at the frontier (namely US). Here a 0.1% tightening in stringency leads to a annual increase of MFP growth by almost 3.3 for the 3 years following the tightening. On the contrary, considering a low pollutant and low productivity country industry pair, such as the pulp and paper sector in Spain in 2005, the effect is null.
- To sum up, we find:A tightening in EPS stringency have short term effects on productivity growth.Generally positive lagged effect, but negative anticipation effect at the macro level (which include not only manufacturing sector, but whole economy…energy sector, which is strongly affected by EPS, might anticipate announced EPS change and invest ahead)Heterogeneous effect in its magnitude, with an overall effect unlikely to be large.
- Heterogeneity with respect to frontier: technological leaders reap opportunities while laggards may need higher investment or some of them may drop out the market. In particular at the firm level there is a significant negative effect for more than half of the firms in our sample.The channels of the effect can be via within firm internal adjustment (improved production processes, capital and labour relocation) or via entry-exit (less productive firms exit the market as it is too costly to comply to environmental regulation.Interestingly these effects do not depend on EPS levels, namely a tightening in stringency has the same impact independently on whether the country has stringent or lack environmental regulation.Mkt based instruments: cost efficiency and flexibility of the instruments. (TENTATIVE)Robustness check worth mentioning: excluding low brown share countries nothing changes.
- Second part of the project, base on survey sent to governments (environmental ministries).
- Examples: Potential barriers due to bureaucratic requirements related to permitting Potential discrimination between incumbent and new comers: Entry barriers and less competition can impede the diffusion of new technologies, ideas and business models and consequently the transition to a greener economy.Potentially necessary costs but size and effects on entry and growth will depend on the details of policy design and implementation.
- -complement to the PMR, which is the most comprehensive measures of anti-competition regulations, but explicitly omit aspects related to environmental policies.-reflecting the legal and procedural requirements rather than actual performance of administration
- tree structure as PMR, 4 topics/domains, ~12 question per domain, simple aggregation strategyScored and aggregated into an index where 0 = least burdensome, 6 highest burden.Test of aggregation suggest that the indicators are fairly robust to different weighting choices.
- capture the administrative complexity related to permitting, which is faced by the entrepreneur when opening a company: ease of access to allnecessary information, forms to be filled-in etc..
- capturing the aspects of environmental policies that can directly discriminate against new entrants, ex: subsidies and tax incentives whichcan be more beneficial for incumbents than for young firms, for instance by being based on past performance or if young firms tend not to have profits
- Idea: lax and less transparent requirements and practice in evaluation of economic effects can potentially lead to higher burdens to economic activity.-information on the process of environmental policy making-evaluation: degree to which economic considerations are taken into account in reviewing the entire setup of existing policies
- Scored and aggregated into an index where 0 = least burdensome, 6 highest burden.
- Caution – the data has been made available to delegates. CHE data is being revised. ISL and FRA will be added. IRL announced they will submit data soon. I add France to the soon to be added ones…IS THIS INFO UPDATED?? NO!!!!-relatively wide range of scores on the indicators. Two groups emerge: more competition-friendly environmental policy stance vs. higher are burdens to competition w.r.t OECD average…[Other results only if asked: OK- prevalence of vintage-differentiated regulations and tax/subsidy measures which tend to discriminated between entrants and incumbents-Good performance on the subcomponents summarizing the evaluation of new (and existing) policies and proposals in terms of potential economic effects does not necessarily go in line with low administrative barriers and impediments to competition(limit of the analysis: excluded voluntary approaches and zoning/land use regulations –data availability constraint and local dimensions of the policies)
- Comparing this indicator with the OECD EPS or the WEF - perceived environmental policy stringency/enforcement - can give interesting insights into policy design effects: none of the two existing international measures of stringency show any correlation with the BEEP indicator or its subcomponents. This suggests that stringent environmental policies can be pursued in a way that does not necessarily impose high burdens to entry and competition, for instance: United Kingdom, Austria, Belgium and the Netherlands.
- -Market-based instrument have proved to be more productivity-friendly than command and control policies-stringent EPS policies can be design without be cumbersome for firms, therefore attention to the design is fundamental to avoid unnecessary barriers to entry and competition.
- Distance to frontier captures technological catch-up and is modelled as distance in level of MFP between the individual country and the leader