Time is running out: the UN recently stated that the measures foreseen by the Paris Climate Accord need to be implemented quickly in order to avoid a potentially disastrous global warming of more than three degrees centigrade. While technologically feasible, implementation is a sensitive political task. Mandatory environmental measures, or so it is said, negatively affect the competitiveness of firms. On the other hand, many entrepreneurs take an interest in CO2-reduction technologies and could well benefit from their adoption. In a project funded by the Austrian Science Fund FWF, a research team headed by Michael Peneder tried to approach this issue using scientific methodology, with sometimes surprising results.
“There are two opposing hypotheses here. One says that the conversion to green energy would harm competitiveness because it engenders additional costs. Another view, known as the Porter hypothesis, maintains that companies that implement stricter regulations and stricter environmental rules sooner and faster will be rewarded by a competitive edge”, says Michael Peneder in the interview with scilog. His team is now trying to verify which of these two contradictory scenarios is closer to the truth. They sent out a questionnaire to 4600 companies in Austria, Germany and Switzerland, asking about the impact of measures to increase energy efficiency and CO2 savings. In this cross-border cooperative effort Peneder was in charge of the Austrian sub-project. Based on these data, the scientists developed a model: “We set up a system of several equations, trying to mirror cause-effect relationships and identify them as unambiguously as possible.”
“Essentially, we found that success lies primarily on the ecological side: the companies’ energy efficiency was improved. At the same time, their competitiveness was not measurably compromised. Hence, contrary to both hypotheses, the overall effect is neutral.”
Peneder has several explanations for this somewhat surprising result: “In most of the companies, energy cost is a substantial but not major share of total costs”, he says. Moreover, additional expenditures engendered by environmental measures, such as increases in the price of electricity, were to some extent identical for competing firms. “Many sectors, including the service sector, operate locally. In that case, an increase in the price of electricity affects everyone in the same way, meaning there is no competitive disadvantage.” Last but not least, energy efficiency leads to savings in the long term: “When there is a hike in costs, due to building renovations, for instance, this is partly compensated by lower energy outlays”, notes Peneder.
The researcher emphasises that the result is an overall view that covers many different business sectors. For individual sectors, there might well be competitive disadvantages. “It is a critical issue in very energy-intensive industries, such as the steel industry or the transport sector, and wherever the respective companies are additionally facing strong international competition.” According to Peneder, existing regulations offer exemptions to cater to this situation. “At the same time, one sees the result, in locations such as Austria, where environmental standards are stringent, of some companies – Voest Alpine for instance – becoming trailblazers in terms of energy efficiency. The additional costs caused by the development of innovative methods and processes are mitigated by public funding, in order to provide a certain balance”, emphasizes Peneder.
The methods used in the study belong to the field of micro-econometrics, which is the name given to economic research that employs statistical methods to investigate situations at company level or even the level of individuals.
In this context, the studies that were conducted are completely new, as Peneder explains: “This has never been done before with such a big sample of companies from three different countries, surveyed according to a standard method with the same questions. Before, research mainly focused on aggregate data, such as energy consumption”, notes Peneder. Evidence gathered at company level had been lacking. “Now, for the first time, a reliable link was established between the technological side and economic success.” The results of this basic-research project have been published in several journals.
Michael Peneder is an economist at the Austrian Institute of Economic Research (WIFO). His research focuses on industrial economics, entrepreneurship and innovation, as well as structural change, growth and competitiveness.