Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?

TLDR

Stringent environmental measures are argued to spur innovation that can offset regulatory costs. The paper challenges the Porter‑van der Linde claim that benefit‑cost analysis misrepresents environmental problems. Using economic theory and control‑cost data, the authors contend that cost offsets are exceptional rather than general. Data show offsets are negligible compared to control costs, indicating environmental programs must justify expenses through societal benefits.

Abstract

This paper takes issue with the Porter-van der Linde claim that traditional benefit-cost analysis is a fundamental misrepresentation of the environmental problem. They contend that stringent environmental measures induce innovative efforts leading to improvements in abatement and production technologies that offset the costs of the regulations. Drawing both on basic economic theory and existing data on control costs, the authors argue that such offsets are special cases. The data indicate offsets are minuscule relative to control costs. There is no free lunch here: environmental programs must justify their costs by the benefits that improved environmental quality provides to society.