Environmental regulation and productivity : Empirical evidence on the Porter hypothesis from the Swedish energy-intensive industry

Sammanfattning: This study analyses the potential effects of environmental regulation on productivity growth in the Swedish energy-intensive industry. The study asks whether the so-called Porter hypothesis is valid in the context of the Swedish heavy industry. The implication of Porter’s analysis is that more emission-potent firms will easily spot and address areas of inefficiencies, as such, the positive ripple effect of strict environmental regulation on performance is more vital for such firms.The Solow growth model is used as theoretical framework and TFPG is computed as a measure of productivity growth in the analysis. The study specified TFPG as function of time, CO2 tax and SO2 tax. Time is included in our model to allow TFPG to vary over time independent of regulations. The results from the study’s empirical analysis showed that there is support for a “reversed” Porter effect at least in most of the industries examined in Sweden. That is, total factor productivity growth is negatively affected by the CO2 tax in most of the Swedish energy-intensive industries considered in this study.