Environmental policy and competitiveness

01-10-2007 | Publication

Compared with other countries, the cost of environmental regulation in the Netherlands is high. However, this does not necessarily harm the competitiveness of the Dutch economy. The costs for environmental regulation form but a limited share of the total production costs. Moreover, other factors, such as the favourable location of the Netherlands and the presence of other firms, have a larger impact on competitiveness than environmental regulation.

Environmental regulation not disadvantageous for competitiveness Dutch economy

The cost of environmental regulation is high in the Netherlands as compared with other countries. However, this does not necessarily harm the competitiveness of the Dutch economy, mainly because environmental regulation is but one of the many factors relevant for the competitiveness of firms. In general, other factors have a larger impact on a firm’s competitiveness than environmental regulation does, e.g. the availability and quality of production factors, the presence of other firms, and a market for products. Moreover, the costs of environmental regulation have a limited share in total production cost. Strict environmental regulations may even enhance the competitive advantage of firms, because they can trigger innovations in products and processes.

The favourable location of the Netherlands, for example, makes it an attractive business environment. As a result, the country is confronted with a high density of economic activities and population, causing a relatively large environmental impact. This means that relatively strict environmental regulations are required to meet, for example, environmental targets for air quality. Firms, however, accept the high environmental expenditure, because the cost is more than offset by the opportunities the Netherlands provides in other areas.