Pollution Haven

8 Key excerpts on "Pollution Haven"

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  Trade and the Environment

  Theory and Evidence

  • Brian R. Copeland, M. Scott Taylor(Authors)
  • 2013(Publication Date)
  • Princeton University Press

    (Publisher)

  2. This chapter will focus on Pollution Havens induced by relatively weak environmen- tal policy. Copeland and Taylor (1999) consider an alternative channel through which trade can result in a country having both low income and a concentration of dirty indus- Pollution Haven Models 143 The purpose of this chapter is to investigate the economic logic be- hind Pollution Havens. We define a Pollution Haven as a region or coun- try with a concentration of pollution-intensive activity that has been in- duced by pollution policy that is weak relative to its trading partners. 3 We first demonstrate how differences in pollution policy create a basis for trade. We consider not only cases where policy differences are exogenous, but also cases where they arise endogenously. 4 We show how Pollution Havens can arise when countries differ in income levels, when there are differences in institutions and when countries differ in their environments’ carrying capacity. We focus on two key questions throughout the chapter. First, is trade driven by environmental policy differences necessarily bad for the environment? Second, what are the welfare effects of this trade—do rich countries benefit at the expense of poor countries? Pollution Haven models rest on two assumptions. The first is that differences in pollution regulation are a key determinant of production try, even in a world with ex ante identical countries. If pollution from one industry harms another industry, then even in the absence of policy, the clean industry has an incentive to move away from the dirty industry. Trade can facilitate this separation of incompati- ble industries and lead to a concentration of dirty industry in one country. Moreover, because of the negative production externality, an expansion of the dirty industry lowers productivity in the clean industry and so in some cases, the country with a high concen- tration of dirty good production may suffer a real income loss from trade.

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  Greening Trade and Investment

  Environmental Protection Without Protectionism

  • Eric Neumayer(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  In spite of the popularity of the hypothesis, the term Pollution Haven is rarely defined. Public opinion seems to favour the belief that any country with less strict environmental standards than its own is guilty of providing a Pollution Haven, but such a definition is misleading as all the countries of the world cannot be expected to have the same environmental standards independently of whether or not they want to attract foreign capital (see below). A more sophisticated definition, but one that is inspired by the same kind of reasoning, is provided by Eskeland and Harrison (1997, p4):

  The Pollution Haven hypothesis is, perhaps, best seen as a corollary to the theory of comparative advantage: as pollution control costs begin to matter for some industries in some countries, other countries should gain comparative advantage in those industries, if pollution control costs are lower there (for whatever reason)

  .

  Again, in focusing on cost differentials as such and ignoring the reasons for these differentials, this definition does not capture what seems to be the essence of the Pollution Haven hypothesis: that countries set inefficiently low environmental standards or set efficient standards, but fail to enforce them in order to attract foreign capital. In the following I will therefore employ the following definition: a country provides a Pollution Haven if it sets its environmental standards below the socially efficient level or fails to enforce its standards in order to attract foreign investment from countries with higher environmental standards or countries that enforce their standards more rigorously. In formal economic terms, environmental standards are at their socially efficient level if for each different pollutant the standard is set such that the marginal social benefit of an increase in pollution is just equal to the marginal social cost of such an increase.2

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  The Princeton Encyclopedia of the World Economy. (Two volume set)

  • Kenneth A. Reinert, Ramkishen Rajan, Amy Joycelyn Glass, Lewis S. Davis, Kenneth A. Reinert, Ramkishen Rajan, Amy Joycelyn Glass, Lewis S. Davis, Kenneth Reinert, Ramkishen Rajan, Amy Glass, Lewis Davis(Authors)
  • 2010(Publication Date)
  • Princeton University Press

    (Publisher)

  Handbook of International Economics , vol.3, edited by G. Grossman and K. Rogoff. Amsterdam: North-Holland, 1457–94. An often-referenced survey of the political economy of trade policy with a theoretical focus.

  Schattschneider, Edward Elmer. 1935. Politics, Pressure, and the Tariff . Englewood Cliffs, NJ: Prentice Hall. A classic work on the political economy of trade policy that emphasizes the role of groups in lobbying for protection.

  Tullock, Gordon. 1967. “The Welfare Costs of Tariffs, Monopolies, and Theft.” Western Economic Journal 5 (3): 224–32. Classic paper arguing that resources used in the pursuit of a political goal must be counted in the cost of that policy.

  DOUGLAS NELSON

  Pollution Haven hypothesis

  A Pollution Haven is a country or region that attracts pollution-intensive industry because its environmental policy is less stringent than that of its trading partners. A key issue in the debate over the effects of trade on the environment is whether globalization leads to the emergence of Pollution Havens: that is, does trade and investment liberalization cause pollution-intensive production to relocate from (mostly high-income) countries with stringent environmental policy to (mostly low-income) countries with weak or loosely enforced environmental regulations? The Pollution Haven hypothesis posits that the answer is yes.

  If this hypothesis is correct, there is reason for concern about the effects of trade on global environmental quality. If production shifts from a region with stringent environmental policy to one with weak policy, the average pollution intensity of global production rises, increasing global environmental degradation. Moreover the shift in the incidence of environmental harm from rich to poor countries could increase human suffering, both because poorer countries are less able to afford to respond to the health effects of environmental damage and because poor countries are much more reliant on natural capital (which is vulnerable to environmental damage) to sustain their income. Finally, an exodus of pollution-intensive production from rich to poor countries could lead to a political backlash against stringent environmental policy. This possibility is sometimes referred to as a “race to the bottom”—governments may weaken or fail to enforce environmental policies due to fear of job loss as firms threaten to leave for countries with weaker policy.

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  International Environmental Governance

  • Peter M. Haas, PeterM. Haas(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  There has been a persistent fear that trade liberalization would promote measures to capture the economic benefits of unpolluted environments or to trade long-term environmental harm for short-term financial gain. Such a fear would seem, at least theoretically, a direct outgrowth of the theory of comparative advantage—that is, a “pollutable” environment or a “Pollution Haven” would be considered little more than an economic good waiting to be culled. The result would be a “race to the bottom” as countries came under competitive pressure to lower environmental standards. In practice, the search for Pollution Havens and for companies that relocate to escape environmental restrictions has come up empty. In most cases, other factors predominate in location decisions, particularly such classic factors as market access, availability of (skilled) labor, and availability of raw materials. In some instances, more careful consideration of the evidence has shown that the environment is used to cover up other problems, such as managerial failure. The remaining considerations are too few to constitute a reasonable basis for assuming that Pollution Havens exist. Moreover, no correlation can be shown between vigorous environmental protection measures and economic decline; if anything, the opposite appears to be the case. In focusing on manufacturing and new investments, the debate about Pollution Havens may in fact have been looking at the wrong things. The steady move to developing countries of commodity extraction and commodity manufactures may have been promoted by less stringent environmental controls —in addition to low wages and poor protection of worker rights.

  Commodities Trade

  The global trade regime was constructed to meet the needs of trade and industry. The concerns of commodity producers, however, were largely left out of the regime. Commodity production entails inescapable environmental impacts because commodities are by definition primary economic goods extracted directly from the environment. The existence of international markets and trade has been crucial to the continuing process of reducing the price of natural resource inputs to market economies. Markets focus exclusively on the characteristics of the commodities, generally defined as narrowly as possible to facilitate trade; they do not recognize whether production occurred in an environmentally sound (i.e., sustainable) manner or not. They thus effectively exclude themselves from the “polluter pays” principle, leaving the primary producer to carry the entire environmental burden of extraction and shielding subsequent consumers from the costs. The polluter pays principle is frequently understood to mean that environmental protection comes at the cost of manufacturing profits. More accurately, however, it is a principle of cost attribution that assumes costs will be passed on to the ultimate polluter, the consumer, thereby creating appropriate incentives not to pollute. Where this price mechanism is interrupted, as in the commodity trade, the polluter pays principle does not apply.

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  Greening China : The Benefits of Trade and Foreign Direct Investment

  • Joshua Eastin, Ka Zeng(Authors)
  • 2011(Publication Date)
  • University of Michigan Press

    (Publisher)

  Do foreign firms deliberately seek out Pollution Havens in China? Do Chinese provincial governments engage in competitive environmental deregulation in order to attract foreign investment? Before elaborating our hypotheses, we first provide a brief survey of the existing PH and RTB literature. We argue that in addition to the criticisms leveled against these propositions, proponents of both views have largely ignored the dynamics of firm self-regulation, the effects of environmental technology transmission and spillover, and the fear of reduced export market accessibility on government officials' environmental policy calculations. The following section provides a basis for the theoretical development that follows.

  An Industrial Flight toward Pollution Havens

  The pollution-haven hypothesis posits that changes in comparative advantage induce variation in trade flows and industrial location.2 It also suggests that differences in the stringency of environmental regulation may result in an “industrial flight” of dirty industries from environmentally regulated markets to areas of lax enforcement to reap the benefit of lower pollution abatement costs.3 Theoretically, the formation of Pollution Havens is a consequence of an environmental race to the bottom among political jurisdictions that compete by lowering environmental standards to promote trade and attract foreign investment.4 For government officials, the potential economic benefits of FDI offered by relaxation of environmental regulations are expected to compensate for the resulting damage. Supporters of these propositions argue that in addition to the environmental injury resulting from the expansion of production, consumption, and transportation of goods, trade liberalization could lead governments to privilege market shares over environmental protection.5 Accordingly, industrialists in an open economy concerned about competition from abroad should fear that stringent environmental regulation may increase their costs, leading to loss of sales, employment, and investment, as well as loss of competitiveness against foreign firms. Under these circumstances, it is expected that domestic producers will apply pressure on their governments to relieve the burden of regulation, and foreign investors will follow suit through investment location decisions.6 When national governments respond to these pressures by setting marginal abatement costs below marginal damage costs, it can result in environmental dumping, without compensation for environmental damage. Further, as both source- and host-country governments recognize the potential benefits of FDI, critics stress that irreversible environmental and social deterioration will outweigh the benefits provided by economic growth.7

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  The Economics of Tourism

  • Mike J. Stabler, Andreas Papatheodorou, M. Thea Sinclair(Authors)
  • 2009(Publication Date)
  • Routledge

    (Publisher)

  A variant of this case is where a country promotes economic growth domestically by investing in an industry in which it envisages it has a comparative advantage. The investment is likely to generate environmental degradation and pollution that represents a social cost, that is, one falling on everyone in the country if the industry is not required to internalize that cost. Should the country enact environmental policies, then the outcome is the same as previously argued. It should be noted that trade theory posits that reductions in the production of the good for which a country has a comparative advantage reduces the gains from trade.

  Another scenario is to consider the international mobility of productive activity. If a firm producing a good that generates pollution is subject to stricter environmental policies in a country, it may decide to ‘export’ its pollution by locating in another country that has no such restrictive policies. This is known as the ‘Pollution Haven’ hypothesis. By this action the firm is likely to maintain its competitive position and market share, also increasing its profits, as it avoids the pollution regulation or charge, thus reducing its costs. Moreover, another incentive is that labour costs are almost certain to be less if relocation is to a developing country with much lower wage levels.

  A disturbing feature of this, as posited in Perman et al. (2003) and Tietenberg (2006), is that the relocation from the developed to a developing country is welcomed, as the industry would contribute to its growth and improvement. The problem for the developing country is that the industry imported by it is likely to be a capital intensive one and so more polluting, as opposed to its domestic industries, which are most probably labour intensive. Notwithstanding this drawback, it may be reluctant to introduce environmental policies, as this might be a disincentive to the relocation that holds the prospect of increased employment. Another reason for its reluctance might be that it is competing with other developing countries to attract industrial investment. Competition between countries of this nature has been dubbed ‘the race to the bottom’, the theory being that countries progressively lower regulatory standards likely to disadvantage them economically, such as taxes on businesses, which raise revenue for the country. The end result, if all regulation is abandoned in order for developing countries to survive, is that poverty occurs; the World Bank (Dasgupta et al., 1995) has considered the relevance of the concept to environmental problems.

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  Trouble in Paradise

  Globalization and Environmental Crises in Latin America

  • J Roberts Timmons(Author)
  • 2003(Publication Date)
  • Routledge

    (Publisher)

  112 But there is a large body of anecdotal evidence and several studies that have directly challenged the Pollution Haven hypothesis—specifically one well-cited 1988 study by Jeffery Leonard, which found no tendency of polluting industries to move across borders. Low and Yeats of the World Bank conducted a study showing that pollution control represents a tiny fraction of the costs of doing business in almost all industries. Only in cement manufacturing did it reach 1–2 percent of total costs. There are some terrible cases of firms seeking Pollution Havens, but the Pollution Haven hypothesis remains unproven overall.

  One reason this may be so is that a few high-profile lawsuits such as those seen earlier in this chapter have made firms nervous about getting in trouble down the line, even if immediate enforcement is unlikely. Since the disaster at the Union Carbide plant in Bhopol, India, in 1984, larger multinational corporations also fear public relations nightmares if they were to cause a deadly disaster in Mexico.113

  However, there are two other issues here. First, whether or not firms move to avoid regulation, they may decrease spending once overseas out of the control of U.S., Canadian, Japanese, or European regulators. There are some anecdotal reports on this for U.S. firms on the border. However, there are also some pressures on firms to maintain the same standards of production once overseas: Some “downstream” purchasers of products want to be assured that the components of products are being produced in an environmentally sound fashion. They therefore seek some labeling or formal certification (see Chapters 3 and 4 ).

  Second, if Mexico were to ever reach a higher tier of international environmental and labor regulations, we have every indication to believe that firms would seek out another “salary sanctuary” elsewhere on the globe. “Salary sanctuaries” and “Pollution Havens” do not just exist in Mexico; so-called toxic colonialism is present throughout the world everywhere there is the right combination of social inequality, political cooperation, and public indifference.

  We conclude, then, that although environmental considerations may not be the primary factor luring firms to Mexico, they may be a secondary motivator. For example, one study reported that 26 percent of companies that relocated to Mexico admitted that lax environmental regulation was an important factor in their decision to relocate.114

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  A Course in Environmental Economics

  Theory, Policy, and Practice

  • Daniel J. Phaneuf, Till Requate(Authors)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  As a result, the ideas long debated in academic jour-nals regarding the advantages of economic incentive approaches to pollution regulation began to be noticed by policy makers – to the point that the use of, for example, cap and trade approaches to emission reductions are now commonly discussed. Likewise cost- benefit analysis for environmental rule making has become more accepted (though still controversial) as the tools available for measuring the non-market value of environmen-tal changes have matured. The general acceptance of economics as relevant for environ-mental policy meant that research topics became even more closely aligned with policy needs. For example, the 1989 Exxon Valdez oil spill in Prince William Sound, Alaska, motivated two decades of research on how compensation for non-market environmental damages can be estimated for litigation purposes. Our discussion thus far of the connections between environmental policy and envi-ronmental economics has focused almost entirely on the developed country context. This is because most of the problems that occupied environmental activists and spurred environmental regulation were “rich-country” issues – i.e. problems that have salience only after a certain level of income is achieved. During the rise of the environmental movement in wealthy countries, developing-country environmental issues remained closely connected to poverty alleviation goals, and hence their study was primarily the job of development economists. For example, access to safe drinking water was Part I: Economics and the Environment 20 20 (and continues to be) the main health problem in many developing countries. Water pollution problems were therefore viewed primarily as a threat to productivity and income growth rather than for their amenity consequences. Similarly, a major air pollution problem in many developing countries is access to clean fuel for cooking.

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