Paper/Speech Details of Conference Program for the 30th NISPAcee Annual Conference Program Overview WG5: Public Finance and Public Financial Management Author(s) Žiga Kotnik University of Ljubljana Ljubljana Slovenia Lenart Milan Lah (PhD student) Title Environmental compliance costs: A comparison of methodological approaches File Paper files are available only for conference participants, please login first. Presenter Abstract The main purpose of environmental regulation that normally takes the form of taxes, duties or standards is to decrease or limit negative externalities that operations of companies have on environment. Complying with regulation represents additional costs for companies, including compliance costs. The latter are the costs incurred by regulations in addition to the actual paying of tax and complying with standards, i.e., the time spent to comply with the obligation, the cost of consultants, as well as the cost of equipment used to treat measure or dispose of emissions and wastes from production. Literature labels them also hidden costs as accounting systems often do not separately capture them as costs of environmental compliance. By being “hidden”, it makes it more difficult to accurately measure them, while results of research may vary significantly according to the methodology used. In the past, several studies have been published on the costs of complying with environmental regulations, while there has been a vast literature related to Porter hypothesis (PH) as well. The hypothesis claims that environmental regulation can ultimately increase productivity of regulated companies, while the size of compliance costs could be used as a proxy of environmental stringency. Research on measuring compliance costs or testing Porter hypothesis differ in several aspects: period of data collection, country or area of costs estimates, methodological approaches, different legislative framework, sample size, etc. Therefore, methodological approaches can be crucial in ensuring the reliability and validity of final estimates. The purpose of this paper is to identify different methodological approaches used in literature to evaluate the costs of compliance with environmental regulations. Based on a critical assessment of the results, we propose that measuring compliance costs of environmental regulation is an important determinant when testing PH, which is why these costs need to be measured comprehensively. Deriving from the literature on measuring compliance costs, we believe that smaller sample detailed surveys could present an alternative way of measuring environmental stringency in PH analyses, as opposed to using other proxies of environmental stringency usually in the form of composite indexes or business survey data, that have been prevailing indicators in the PH literature so far.
