The Impacts of Environmental Regulations on Competitive Advantage

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The Impacts of Environmental Regulations on Competitive Advantage
Anneke Zwart, Moderator
The study of environmental regulations and its impact on competitive advantage has in the past literature led to inconclusive results. There are two main views that contradict each other:
1. The Traditional View. This view believes in a negative relationship between environmental regulations and innovations and indirectly on competitive advantage. This conventional view makes a trade-off between private costs and social benefits.
Examples of the social benefits of tighter environmental policies include:
- Decreases of morbidity and mortality rates as a result of cleaner air
- Improved ecosystems as a result of agricultural pesticide reductions.
The private costs that arise as a result of stringent regulations were believed to offset the social benefits that arise from those tighter standards. The idea behind those high private costs according to Porter (1995) is "the assumption that both product design and production processes were fixed", so that "improving quality could only be achieved through inspection and rework of the inevitable defects". As a result, those stricter environmental regulations worsen competitiveness and productivity.
2. Revisionist view. This view contradicts the conventional view by arguing that environmental legislation will create competitive advantages through increased productivity and the creation of new market opportunities. Environmental regulations trigger innovation developments in several ways:
- The creation of environmental innovations might lead to a first mover advantage, an at least temporay competitive advantage.
- Those innovations that lead to greener products create competitive advantages in the environment sector while at the same time being beneficial through reducing pollution.
According to this view there is a “win-win” situation in which productivity increases while pollution decreases at the same time. The advantages of environmental innovations will exceed the costs of creating them.

Triebswetter U, Wackerbauer J. 2008. Integrated Environmental Product Innovation and Impacts on Company Competitiveness: A Case Study of the Automotive Industry in the Region of Munich. European Environment Vol 18 Iss 1 pp 30–44.
Porter, M. E., & Van der Linde, C. (1995) “Green and Competitive: Ending the Stalemate” HBR Vol. 73 Iss. 5 pp 120-134


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