Development of Methods for Assessing the Impact of Environmental Regulation on Competitiveness

Discussions about whether the improvement of environmental indicators of companies has a positive or negative impact on their competitiveness (i.e., based on their economic indicators) have been conducted for a long time: environmentalists and the public insist on stricter environmental standards, and politicians, economists, and the business community are looking for a compromise between the costs of environmental protection and economic efficiency. Understanding this relationship is important for all disputing parties since two goals are simultaneously pursued: ensuring high quality of the environment, which requires unproductive costs, and obtaining good economic results. This is also important for separating environmental, economic, and political goals: is the policy of “greening” business implemented in developed countries a real fight against climate change and bad ecology, or is it used as a tool for mobilizing the electorate and hidden protectionism? Despite a large number of studies conducted in this area, the question remains open about the direction of the causal relationship: whether environmental investments lead to higher profits or simply act as indicators of firms with high financial results. This article presents a comparative analysis of methods and models for forming relationships between the environmental and economic characteristics of firms in the context of the activation of the international environmental agenda as one of the promising areas for the development of economic analysis. The authors show that the relationship between environmental regulation and competitiveness is not the same and depends on the market structure of the industry, while important problems of analysis are the presence of different approaches to defining the concepts of “competitiveness,” “economic efficiency,” “environmental efficiency,” and “regulatory rigor,” as well as the use of various indicators for their measurement, the complexity of selecting indirect indicators of environmental regulation and competitiveness, and the availability and quality of data. Furthermore,the possibilities and problems of the empirical analysis of the relationship between environmental and economic efficiency according to Russian companies and domestic statistics are studied.

Competitiveness; Economic efficiency; Environmental costs; Environmental efficiency; Methods and models of environmental regulation

Today, the problem of the decarbonization of the economy in the context of climate change forms one of the central topics in the economic and political agendas of developed countries. Leading economic scientists are actively involved in substantiating solutions to this problem. In connection with the EU’s plans to introduce a border carbon tax, environmental policy issues have also come to the fore in Russia: a new goal has been announced within the framework of the Paris Climate Agreement, and the adoption of a low-carbon development strategy and a law on carbon regulation is expected (Davydova, 2021). Thus, the issue of the impact of environmental costs on competitiveness is important for Russian companies today: their competitiveness on the international market and the risks to Russia’s economic development can be closely related to the costs of monitoring greenhouse gas emissions and organizing appropriate accounting and reporting and the introduction of environmental standards and practices that are as close as possible to the best international ones.

The degree of strictness of environmental legislation as a way to reduce the anthropogenic burden on the environment, as well as the tools and mechanisms of environmental regulation, varies from country to country and depends on the level of development of national economies and social institutions. Stricter environmental standards mean for firms a larger amount of environmental costs, consisting of the costs of compliance with environmental standards and the fee for their violation. On the one hand, the inevitable consequence of environmental regulation is that it withdraws part of the capital of firms from production, leads to higher prices, reduces profits, and therefore worsens the competitiveness of both individual firms and the national economy as a whole (Ambec et al., 2010). On the other hand, since environmental pollution is a consequence of inefficient use of resources, stricter environmental regulations will encourage firms to innovate, resulting in saving resources and compensating for environmental protection costs, which will eventually increase their competitiveness (Porter and van der Linde, 1995). One way or another, it is obvious that “environmental safety issues are becoming more and more relevant in regions with a high quality of life and high population density, which leads to the necessity of implementation of various kinds of innovative solutions in this area” (Tatiana andMikhail, 2020).

The peculiarity and novelty of this study consists in the development of a methodology for assessing the direction and closeness of the relationship between environmental costs and the economic results of companies that determine their competitiveness.

Therefore, this study aims to develop methodological approaches to establishing the relationship between environmental regulation and competitiveness through the characteristics of indicators used to measure them, as well as the adaptation of these approaches to use in the Russian economy based on the study, systematization, and comparative analysis of economic models and methods proposed by scientists in the study area.

In the context of climate change and rising resource prices, increasing attention is being paid to finding a compromise between the costs of environmental protection and economic efficiency, which has contributed to the introduction of indicators of the use of natural resources into a large number of neoclassical models of economic growth.

A comparative analysis of the proposed models revealed the following results. The relationship between environmental regulation and competitiveness varies, depending on the market structure of the industry. Improving the environmental performance of the exporting company in conditions of perfect competition clearly leads to a reduction in the manufacturer’s surplus. The levels of environmental efficiency chosen by firms may not be optimal from the point of view of society, which entails the need for the intervention of regulatory authorities. State control over emissions, provided that the restrictions are sufficiently strict, encourages firms to use modern technologies with low levels of pollution, ensuring higher profits and lower pollution levels.

The following basic concepts are used in the management of environmental regulation: “competitiveness,” “economic efficiency,” “environmental efficiency,” and “strictness of regulation,” and various indicators are used to measure them. Important problems of empirical analysis are the selection of indirect indicators of environmental regulation and competitiveness, as well as the availability and quality of data.

The analysis of the data from domestic statistics showed that the problem is to obtain the environmental characteristics of firms. Data on the emissions of specific enterprises are their commercial secrets and are not publicly available. The analysis of the nonfinancial statements of the largest Russian companies in the industrial sector showed the difficulties indicated by foreign researchers: the lack of strict regulation significantly complicates the formation of a sample for analysis. At the same time, most Russian polluting enterprises do not form such reports. Thus, the possibility of collecting data from Russian companies for an empirical study of the relationship between environmental and economic efficiency is limited today.

The development of environmental regulation and the growth of competitiveness are based on the use of modern technologies. A comprehensive assessment of these three components is a new area of research requiring the selection and justification of the applied instruments. As a prospect for further research, it seems interesting to adapt the method of functional cost analysis to the study of this interaction effectiveness.

The research is partially funded by the Ministry of Science and Higher Education of the Russian Federation under the strategic academic leadership ‘Priority 2030’ program (Agreement 075-15-2021-1333 dated 30.09.2021).

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