THE PORTER HYPOTHESIS
6. SUMMARY AND CONCLUSION FOR GREEN GROWTH
Being environmentally sound does not need to be detrimental to competiveness. A firm can deploy several strategies to reduce its negative effect on the environment, while at the same time securing a competitive advantage in inter-national markets. It can invest in environmental research and development, adopt cleaner tech-nologies, supply environmentally sound technol-ogies and enhance its product’s environmental quality continually. Even if those strategies turn out to be costly, they can be profitable. Investment in cleaner technologies can lead to productivity improvements in the long run, which will then spread through knowledge spillovers. Carbon finance, such as investment in CDM and other carbon offsetting projects, now drives demand.
Renewable energy mandates contribute to this demand, through measures like feed-in tariffs and renewable portfolio standards. In response, firms that specialise in producing climate-ori-ented technologies are expanding, particularly in emerging economies, through the installation of solar photovoltaic panels, wind turbines and other renewable energy sources. Finally, the growth of organic farming and fair trade has created new opportunities in agriculture and the food industry in many developing countries.
Many public policies can help to secure a compet-itive advantage with green business strategies.
First, environmental policy instruments targeted at fostering green innovation should be flexible.
This means implementing economic instruments such as refunded emission taxes or tradable allowances rather than prescribing technologies through specific regulation. Second, industrial policy should make patenting and technological transfer easier and more effective. It should also favour public support for environmental innova-tion to mitigate underinvestment due to knowl-edge spillovers. Third, technological absorption capacity should be improved by investing in education, technological training and infrastruc-tures, such as communication, transportation and energy. Fourth, governments should work with non-government organizations and international organizations to facilitate environmental labelling with transparent criteria and a reliable traceabil-ity of products throughout the supply chain.
To conclude, three issues deserve further mentioning: First, public policies that have been successful in the past in bringing green growth
might not be effective in the future. In the last years, the generous support for wind and solar power through subsidies has been cut in many countries in Europe, with some countries like Germany now switching from a feed-in tariff system that had long been considered successful to a competitive bidding process. For a variety of reasons, CDM projects have become less attrac-tive in recent years. The volume of carbon-off-setting projects has fallen since 2012. In 2015, the market experienced an excess supply of projects.
The average price per ton of CO2 for all projects was US$ 3.3 in 2015, with a record US$ 0.1 for the lowest valued projects (Hamrick and Goldstein 2016). However, the 2015 Paris Agreement might reverse this trend. In Article 6, the Agreement launches a new mechanism that aims at financ-ing carbon-offsettfinanc-ing projects in developfinanc-ing countries through Internationally Transferred Mitigation Outcomes. Importantly, policy instru-ments need to be well suited to the particular context in which they are employed and therefore will require readjustments over time.
Second, policies implemented for enhancing profitable green growth should suit a country’s respective level of development. Less devel-oped countries should prioritise improving their technological absorptive capacity, simplifying and standardising the accreditation process for carbon offsetting projects and building up a reli-able supply of green, certified products for export.
Emerging economy countries can afford to subsi-dise investment in green technologies to support their own industry. They should also strengthen their intellectual property rights to attract tech-nological knowledge from foreign investors and encourage its transfer.
Finally, it is worth mentioning that protecting natural resources and reducing pollution enhance societal well-being through several channels that can be indirectly beneficial to firms. Economic activities rely on ecosystem services provided by forests, soils, rivers, lakes and oceans. Workers are in better health and thus more productive if they have access to clean water and air. All those indirect effects should be included in an accurate cost-benefit analysis of green policies.
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