Figure 3. Environmental policy stringency and revealed comparative advantage in CLEG
Revealed Comparative Advantage
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3 Environmental Policy Stringency Index
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Source: Sauvage (2014[5]).
they partly determine the size of the market for EGS, environmental regulations should therefore influence trade in environmental products.
The report found that average tariffs applied to imports of environmental goods were low and actually declined in OECD countries from 1.7% in 2003 to 0.8% in 2016. Tariffs in countries outside the OECD area were significantly higher but have also been declining, from 7.4% in 2003 to 4.1% in 2016. The distribution of tariffs in countries outside the OECD area was found to be generally much wider in OECD countries. A parallel strand of JWPTE work has taken a different perspective on the issue of encouraging trade in EGS: rather than focusing on barriers to trade in EGS, it considers the impact of environmental policies on trade in EGS, through measures such as environmental regulations and support measures for environmental technologies such as renewables and electric vehicles. Previous OECD analysis had suggested that stringent environmental policies go hand-in-hand with increased specialisation and exports in environmental goods (OECD, 2011[14]). This relationship between environmental regulations and specialisation had long been based on qualitative evidence. An OECD Trade and Environment Working Paper brought some rigor to this question by assessing that relationship empirically (Brunel and Levinson, 2013[15]). By providing a methodology for measuring environmental stringency, it provided valuable input for exploring the relationship further and examining the effects on trade: because
The JWPTE’s follow-up 2014 study on the relationship between the stringency of environmental regulations and trade in environmental goods built on this analysis (Sauvage, 2014[5]). The study confirmed that markets for environmental goods are essentially regulationled in the sense that demand for EGS would likely be much smaller absent environmental regulations. The analysis also found empirical evidence that countries with stringent environmental regulations tend to be larger exporters of environmental products because the degree of regulation stringency is therefore a major determinant of market size. Using an index of revealed comparative advantage to measure countries’ specialisation in environmental goods, the results indicate that regulatory stringency is strongly associated with higher exports of environmental products, even after controlling for the influence that characteristics such as factor endowments and export diversification have on exports (Figure 3). These findings are consistent across indicators and sectors, suggesting that environmental regulations play an important part in shaping patterns of trade in environmental goods and that this role is distinct from that of more traditional trade factors, such as factor endowments and trade barriers.
OECD WORK ON TRADE AND THE ENVIRONMENT: A RETROSPECTIVE, 2008-2020 . 23
