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Environmental policy and profitability: evidence from Swedish industry

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Abstract

This study investigates the effect of a CO2 tax on profitability by using firm-level data on output and inputs from Swedish industry between 1990 and 2004. The purpose of this exercise is to investigate the validity of the so-called Porter hypothesis. By utilizing a factor-demand modeling approach, and specifying a profit function that has a technology component dependent upon firm-specific effective tax on CO2, we are able to separate out the effect of regulatory pressure on technological progress. The results indicate that there is evidence of a “reversed” Porter effect in most industrial sectors, especially in energy-intensive industries; that is, after controlling for the fuel price effect, technological progress and consequently profits are further negatively affected by the CO2 tax.

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Authors and Affiliations

  1. Centre for Environmental and Resource Economics (CERE), Umeå, 901 87, Sweden

    Runar Brännlund & Tommy Lundgren

  2. Department of Forest Economics, Swedish University of Agricultural Sciences, Umeå, Sweden

    Runar Brännlund & Tommy Lundgren

  3. Department of Economics, Umeå University, Umeå, Sweden

    Runar Brännlund

  4. School of Business, Umeå University, Umeå, Sweden

    Tommy Lundgren

Authors
  1. Runar Brännlund
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  2. Tommy Lundgren
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Brännlund, R., Lundgren, T. Environmental policy and profitability: evidence from Swedish industry. Environ. Econ. Policy Stud. 12, 59–78 (2010). https://doi.org/10.1007/s10018-010-0163-8

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  • DOI: https://doi.org/10.1007/s10018-010-0163-8

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