Journal of Cleaner Production 13 (2005) 733e745 www.elsevier.

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The impact of environmental regulation on competitiveness in the German manufacturing industryda comparison with other countries of the European Union
Ursula Triebswettera,), David Hitchensb
b a Ifo Institute, Poschingerstr. 5, D-81679 Munich, Germany Queeens University Belfast, School of Management and Economics, BT71NN, Belfast, Northern Ireland

Received 7 June 2003; accepted 21 January 2004

Abstract This article examines, through three case studies, whether German industrial plants suer from a negative impact on competitiveness caused by stringent environmental legislation. A micro-level analysis showed that abatement initiatives had, in general, been implemented without economic damage and did not touch on the core business. Moreover, German sample plants ranked environmental pressure as relatively unimportant compared with other competitive pressures. Finally, the low absolute levels of compliance costs, at least in two of the case studies, explained why environmental regulations cannot have a great inuence on competitiveness in the chosen sectors. High productivity levels were not among the essential factors explaining our ndings. It implies for our case studies that also plants with lower productivity can withstand high compliance costs. 2004 Elsevier Ltd. All rights reserved.
Keywords: Environmental legislation; Competitiveness; Industry studies

1. Background, aims and method There is research evidence that environmental regulations trigger considerable social and economic benets (see [1,2] for extensive German studies and e.g. [3] for the US). However, these same regulations have also initiated a debate regarding their direct costs for industry and their indirect and often uncertain impacts on economic growth, productivity and international competitiveness (see the US research by Jae et al. [4,5], Jorgensen and Wilcoxen [6] and Portney [7]). Essentially, there are two opposite views on the impact of environmental legislation on competitiveness. The conventional view fears that the private costs initiated through stringent environmental policy impair competitiveness and productivity [8]. Conversely, some commentators have argued that environmental regulations spur innovation in a number of ways and that there are
) Corresponding author. Tel./fax: C49-89695884. E-mail addresses: utriebswetter@aol.com (U. Triebswetter), triebswetter@ifo.de (U. Triebswetter), d.hitchens@qub.ac.uk (D. Hitchens). 0959-6526/$ - see front matter 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.jclepro.2004.01.009

winewin opportunities available through environmental regulations, where simultaneously pollution is reduced and productivity increased (Porter hypothesis or revisionist view [9]. In the most well-known variant of the revisionist view, rms can create a type of rst mover advantage by the development of environmental technology from which they can benet in later times when other countries also have to adopt stricter environmental regulations [10,11]. However, Porter and van der Linde [9] have also stressed that innovation caused by regulations can directly benet the user sector of environmental technology and its wider network of suppliers and customers. The dierences between the traditional and the revisionist views can only be measured through empirical studies. Then the question arises what indicators are available for the measurement of competitiveness. There are factors related to the input and output side. Concerning the input side (the likely explanations of competitiveness), these are physical and human capital, R&D spending, etc.; on the output side (illustrating the consequences of the relative competitiveness of a rm),

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the essential factors are protability, market share, productivity and so on [12]. Labour productivity has always gained special attention as an indicator of competitiveness. The long debate on competitiveness, in particular in the US, has shown that in the long run increases in living standards measured as GDP per capita, can almost always only be achieved by an increase in labour productivity (see [13e15]). Moreover, most economists would stress the need to evaluate the competitiveness impact of environmental regulations by measuring the eect on productivity [16]. Given this background, also in this study, labour productivity has been chosen as the main indicator of competitiveness and rm performance (see case studies). From an empirical point of view, in general terms, a negative impact of environmental regulations on the output and employment of rms will be larger the greater the rise in costs following compliance, the greater the dierential cost penalty relative to domestic and foreign competitors, the more signicant the compliance costs are in total costs and the greater the degree of price competition between rms and the greater the sensitivity of demand to price increases [17]. A useful typology of available empirical studies is undertaken by Stewart [18]. He separates the studies in research on productivity, location and trade. Results of productivity studies show that the eect on measured output, and hence competitiveness, varied widely by industry [18]. Studies on the locational impact of environmental regulations examine whether a movement from nations with stringent standards to those with lower standards is observable. US and also international studies have found that the costs of environmental regulations are only of minor importance in the decision making process concerning the siting of new production facilities (see [19e22]). The locational studies are closely linked to the trade studies. If a country has to face high compliance costs with the production of certain goods, the country would try to export goods with relatively cheaper compliance costs and tend to import the goods with relatively higher abatement costs. The older trade studies are mainly based on data from the 1960s and 1970s and show that there are no signicant eects for most industries (see [23]). The newer studies from the 1990s nd even less evidence to suggest that stringent environmental standards lead to a loss of competitiveness (see [24,25]). A shortcoming of all types of studies is that no systematic search for the impact of the type of environmental abatement measure was undertaken. In most cases, the impacts of end-of-pipe technologies were measured, but not those of clean technologies. It should also be noted that much of the evidence has been US based, with only little attention paid to the European case. For Germany, the stringency of environmental regulations has been evaluated in cross-national com-

parisons to be above average in comparison to other industrialised countries (see [26]). This is also reected in the environmental expenditure which reaches about 3% of German GDP [27]. Therefore, the central aim of this research is to examine, through which environmental measures German rms have adjusted to this fairly stringent regulation, at what costs and how their competitiveness was aected. To this end, a case study approach was chosen in which the impact of three dierent environmental policy areas was examined for various industries. German data were contrasted with that in similar (matched) rms in Ireland, the UK and Spain where environmental regulations still tend to be less stringent. For a robust testing of the potential eects of environmental regulation on competitiveness, the need for a detailed production of empirical data was recognised. Therefore, the matched plant comparison was selected as the research method; it is an interview-based sample survey technique which is comparable to a benchmarking exercise (e.g. [28e31]). It systematically compares supply-side features of the rm after controlling for size, ownership and product type. While no formal model is used for the specication of a production function, the technique has yielded robust measures of the importance of a range of factors inuencing relative competitiveness in a variety of industries across the EU. The matched plant technique allows access to sometimes condential data on environmental costs and economic performance. This is particularly important since the focus of the study was on the cost and environmental eects of clean technology solutions which are not covered in the census data. With the co-operation from management of industrial enterprises net costs of compliance can be calculated and their importance relative to other factors of competitiveness can be determined.

2. Sample data: countries, industries and environmental regulations under study The competitiveness eects of environmental regulations are represented by sampling rms in Germany where environmental practise can, on average, be assumed to be rather strict within the EU. The results for Germany are contrasted with the ndings in similar (matched) rms in Ireland, the UK and Spain. At the time of the study, Spain and Ireland were documented to have a softer environmental regime than Germany [32]. The case-by-case approach to regulations in the UK also shows a tendency to be less strict. Moreover, rms in the selected sample countries represent contrasts in productivity, skills and R&D input, which are likely to be helpful factors in the ecient adjustment to regulation. The study is based on a total of ca. 160 faceto-face interviews undertaken in three industry case

U. Triebswetter, D. Hitchens / Journal of Cleaner Production 13 (2005) 733e745 Table 1 Overview of industries and countries Sector Meat and dairy Packaging (food and retail) Environmental focus Efuent Level of compliance costs in %a About average: 3 Specics of the sector Consists of SMEs Countries Germany, Rep. of Ireland and North Ireland Germany, Rep. of Ireland and the UK No. of interviews

735

Solid waste

Lower than average: e.g. 1.6 in metal, e.g. 1.5 in plastics, higher than average: e.g. 4.3 in paper Higher than average: 3.3

Supply chain analysis, strong demand position of retailers

Cement
a

Air pollution

Oligopoly

Germany, Spain, UK

20 in Germany, 20 in Rep. of Ireland and North Ireland; total: 40 25 in packaging, 15 in dairy/drinks, 10 in retail, 50 each in Germany and Rep. of Ireland/the UK; total: 100 8 in Germany, 5 in Spain, 5 in the UK, total: 18

Figures for Germany in 2000; environmental investment as percentage of total investment.

studies, which are the food sector, the packaging industry with the respective supply chain links in the food and retail sector and the cement industry. The three sample industries and related elds of regulations were chosen in a way to cover a variety of environmental problems (namely waste water, solid waste and air pollution), dierent levels of compliance costs and certain sector specics which may aect adjustment to environmental legislation in a particular way (see Table 1). All three areas are regulated to varying degrees in the above named EU countries on a national level. In addition, upcoming European Directives like the Urban Waste Water Directive, the Packaging Directive and the Directive on Integrated Prevention and Pollution Control (IPPC) have to be taken into consideration.

3. Main hypothesis The sample data were analysed according to the following key hypothesis concerning the eects of adjustment to environmental pressure: 3.1. Productivity and cost of compliance It was hypothesised that the proportional cost of environmental compliance relative to turnover incurred by the rms is likely to be a negative function of the productivity level [33,34]. This would be because rms with the capabilities to achieve high productivity will also nd it easiest to implement environmental initiatives without the penalty of reduced output and employment. 3.2. Case study 1: meat and dairy industry The main environmental problem area studied in the dairy and meat sector is waste water (referred to as euent) following national legislation and EU Direc-

tives. At the time of the study, the national German waste water legislation already met the limit values of the European Urban Waste Water Directive. This implies that biological oxygen demand (BOD) and chemical oxygen demand (COD) pollution must not be higher than 25 or 110 mg/l on a national level. In the EU only Germany, Austria, Flanders (Belgium) and France follow an approach of national emission standards for the implementation of the Urban Waste Water Directive. The case-by-case approach in the Republic of Ireland and Northern Ireland implies that licences would be sometimes more and sometimes less strict than the German values. For the case study, a total of representatives of 47 dairy and meat rms were interviewed between the summer of 1995 and the spring 1996, with more interviews in the Republic of Ireland and Northern Ireland in order to facilitate appropriate matching with German rms. The 20 German interviews were conducted in East and West Germany, in equal proportion. Sample plants could be broadly matched across the chosen countries, especially concerning size distribution, legal form of business and products. It was the aim of the study to nd out whether the stringent German legislation had a detrimental impact on competitiveness.

4. Firm performance and waste water initiatives in the food case study Sample rms were classied in best practice and average practice rms. Best practice rms are dened by output performance as internationally competitive plants, i.e. those plants performing equally or better than their matched comparators in other countries; rms with relatively high levels of value added per head, at least 25% above the sample average; rms with high levels of physical productivity, at least 25% above the sample average; high relative exports, minimally 25% above the sample average; growing rms in the period

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U. Triebswetter, D. Hitchens / Journal of Cleaner Production 13 (2005) 733e745 Table 3 Waste water costs (running costs) as a percentage of turnover in relation to rm performance: output measures in dairy and meat sample For rms with above national average on this criteria International comparative productivity Value added per head Physical productivity Exports Plant growth Sample average Germany Dairy 0.69 0.87 1.56 0.69 1.43 0.87 Meat 1.28 1.08 1.07 0.39 1.70 1.02 Ireland Dairy 0.07 0.1 0.37 0.21 0.04 0.26 Meat 0.4 0.26 0.28 0.55 0.21 0.44

Table 2 Number of waste water initiatives in relation to rm performance: output measures in dairy and meat sample For rms with above national average on this criteria International comparative productivity Value added per head Physical productivity Exports Plant growth Sample average Germany Dairy 4.8 4.6 5 4.8 4.5 4.3 Meat 3.8 3.3 4.8 3.5 4.2 3.8 Ireland Dairy 3.3 3.3 3 3 2.3 3 Meat 3 3.3 4 3.3 3.5 3.2

1990e1995. Likewise, on the input side, best practice plants were dened as rms with high levels of skill and R&D endowment, at least 25% above the sample average; with low age of plant, i.e. age of machinery at least 25% lower than the sample average. Waste water initiatives were similar for both meat and dairying. The number of dierent initiatives (e.g. reduction of euent by cleaning in place, water recycling, steam segregation and water recovery through waste water and by-product separation, euent plants) was highest in German plants. Among the Irish dairies, there were four cases of extremely modern and active plants (two in Northern Ireland and two in the Republic of Ireland). In Table 2 the relationship between output measures of rm performance (competitiveness) and the number of waste water initiatives in each sample country is presented. It is shown that there is, in general, a positive association between achieving average or above average use of waste water initiatives and above average competitiveness. When input measures of rm performance (plant age, skill level and R&D activities) are examined, a similar positive pattern emerges. Therefore, the hypothesis that high productivity plants are in a position to use a high number of environmental initiatives is generally conrmed. The number of initiatives is higher in Germany than in Ireland.

son given for installing an euent treatment plant instead of using the municipal sewer was to reduce costs. In Germany, sewer charges amounted to a 49% higher cost than the cost of self-treatment. Also, in Ireland, sewage fees were variable and on average substantially lower than in Germany. Table 3 shows the relationship between waste water costs and best practice performance using output measures of eciency. It shows that the hypothesis that competitive plants incur low environmental costs is not generally conrmed. It can be supported for the Irish industries, but not for Germany. Moreover, no clear relationship emerged between waste water costs and input performance. However, the lack of any clear evidence leads to the conclusion that a rm can hold a competitive position without being favoured by nationally or internationally low waste water costs. The question now arises whether the actual number of waste water initiatives could be cost driven. Linking waste water costs to initiatives, a positive relationship emerged across all sample countries and a correlation of 0.3 was calculated. Similar small and positive correlations were found for the relationship between average water prices and average number of waste water initiatives. However, the statistically signicant correlation disappeared, when the data were disaggregated to within country comparisons for any of these measures.

5. Waste water costs and rm performance In the food case individual rms undertaking the same activity in each country face a range of waste water treatment costs with German rms incurring the highest costs per m3. Where possible, running costs per m3 to rms treating their own euent were compared with sewer charges.1 Costs for discharging to municipal sewers were variable and were not necessarily greater than the costs of self-treatment, although the usual reaSeventy-ve per cent of the euent plants found in the sample were fully depreciated. Where necessary, depreciation costs of euent plants were included in the running costs.
1

6. Drivers and economic eects of waste water initiatives The motivation for waste water investments was principally reported to be legislative requirements with German sample plants expressing more of this type of pressure than Irish plants. The second source of drivers was found in cost reduction aspirations with an almost even distribution between industries and sample countries. However, often the cost considerations followed legislative requirements and consequent costs and charges.

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Also, customer pressure, managerial attitude, safety reasons and public image were frequently quoted as reasons for undertaking environmental initiatives. Interviewees were also asked what the productivity, employment and cost eects were of undertaking waste water initiatives. In total, 25% of plants indicated a positive labour productivity eect. This was normally based on the recognition of plants that more work was carried out by existing sta in order to undertake an environmental initiative with the extra work being absorbed within the company. Also, environmental initiatives gave rise to a better understanding of how the company worked and productivity enhancing spinos were a by-product of these initiatives. However, there were few implications by way of productivity for the core business. Concerning the cost eects of water initiatives, it was found that the widespread use of clean technology measures in Germany like recycling/reuse of water including water monitoring and recovery of valuable resources from waste water led to a much lower usage of water per litre of milk or kg of meat produced than in the Irish sample plants. Thus, German managers sought to minimise environmental costs and could at least partly compensate for the relatively high fresh and waste fees.

7. Environmental pressure relative to other competitive pressures It could also be shown that dairy and meat companies are subject to strong national and international competitive pressures. With the exception of companies located in East Germany where environmental costs are a new and important cost of transition, environmental costs were not reported to inuence competitiveness. There was no supply chain pressure concerning waste water initiatives. 7.1. Summary It was found that productivity varied widely and also fresh and waste water costs depending on whether a rm owned its own water resources and the way of euent treatment. Environmental costs were not found to be an important factor inuencing the survival or growth of sample rms. Running costs measured as percentage of turnover were very small and insignicant.

example chosen) and retailers had any impact on competitiveness. As in the waste water study, sample countries were Germany, the Republic of Ireland and Northern Ireland. In addition, retailers and packaging rms in Great Britain were visited. At the time of the study packaging legislation varied widely in the sample countries. In particular, there were large dierences between collection quotas and material specic recycling targets. While the global recovery target was 65% in Germany, it was allowed to vary between 50% and 65% in the Republic of Ireland. Concerning material specic recycling targets, Germany was also ahead. For example, 75% of all glass and 70% of all paper packaging had to be recycled, while the respective quotas for Ireland were only 54% and 31% [35]. For the case study, in 1997e1998, representatives of a total of 54 rms were interviewed in Germany and 57 in the Republic of Ireland, Northern Ireland and Great Britain (with more than half of the interviews in packaging rms of dierent kinds like paper, metal, plastics, glass). When it comes to the production of packaging and its disposal, the EU packaging hierarchy stresses the superiority of packaging reduction, reuse, recycling and recovery above that of landlling. The research has classied the solid waste initiatives found in the sample plants under broadly the same headings and further dierentiates them in a total of 10 dierent packaging initiatives. From the 10 packaging initiatives in the packaging study, seven can be classied as clean technologies and only three as end-of-pipe technologies. The percentage of German plants involved in six of the seven clean technology initiatives was much larger than in the Republic of Ireland or the UK. This indicates that there is more pressure in Germany to avoid and reduce packaging waste in a cost ecient way.

9. Firm performance and number of packaging initiatives Table 4 compares the average number of initiatives undertaken by those rms in the top quartile of the output performance variable in each country with the average number of waste initiatives undertaken by sample rms as a whole. Also, an international comparison was made between matched pairs of rms (see Table 5). This poses the question whether there is a relationship between initiatives and measures of comparative success. Table 4 shows that e.g. in the case of Germany dairy/drinks rms in the top quartile of rm performance, on average, do undertake more solid waste initiatives than all German rms sampled (e.g. for value added 8.25 initiatives in the top quartile vs. 7.47 for all German plants), and there is a signicant positive correlation shown between plant growth and numbers

8. Case study 2: packaging industry in a supply chain It was the aim of this research to determine whether dierences in packaging regulations in a supply chain of packaging producers including forward and backward pressures from the llers (food industry again in the

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U. Triebswetter, D. Hitchens / Journal of Cleaner Production 13 (2005) 733e745 Table 6 Comparison of solid waste costs (landll and recycling) measured as % of turnover (mean) between the sample countries Sector r Dairy/drinks Retailing Packaging
a

Table 4 Number of solid waste initiatives in relation to rm performance: output measures in dairy/drinks and packaging Firms in top quartile measured by Dairy/drinks Solid waste initiatives 8.25 8.75 7.80 7.47 4.25 6.00 4.50 5.93 r Packaging Solid waste initiatives 0.25 0.65* 0.26 7.57 6.86 7.88 8.00 4.20 3.80 3.50 3.30

Germany 0.050 (0.61) a 0.11 (0.12) a 0.36

Rep. of Ireland/UK 0.040 0.10 0.12

Germany Value added per head Plant growth Exports All Republic of Ireland/UK Value added per head Plant growth Exports All

0.08 0.37* 0.07

Including DSD.

0.56* 0.089 0.56*

0.38 0.30 0.02

Notes: *Signicant at 5% level (two-tailed p-value). Table 5 Correlations between comparative productivity and comparative numbers of initiatives for matched pairs, ROI/UK: Germany Sector Correlations between comparative productivity and comparative numbers of solid waste initiatives e0.35 0.06 0.41

Dairy/drinks Packaging Retail

of initiatives undertaken in the dairy/drinks industry. No consistent relationship is shown with output measures of performance for the Republic of Ireland/ UK. The matched pairs comparison of dierences in performance with dierences in initiatives undertaken in the dairy/drinks sector between the Republic of Ireland/ UK and Germany, shown in Table 5, shows that there is a negative correlation, but it is not statistically significant. The relationship between economic performance and numbers of initiatives employed by competitive retailing rms is especially positive in Germany, but is not statistically signicant. When retail and packaging rms are matched, there are also generally positive correlations between dierences in productivity performance and numbers of initiatives adopted (see Table 5).

10. Firm performance and solid waste costs Average solid waste costs measured as a percentage of turnover and consisting of net recycling costs and landll costs were found to be higher in Germany than in Ireland or the UK (see Table 6). In Germany, waste costs inclusive of the so-called green dot fees paid to the Duales System Deutschland (DSD) company for the collection, sorting and reprocessing of used sales
2

Similar costs were not yet paid in the other sample countries.

packaging materials, raise total solid waste costs, particularly in the dairy/drinks sector.2 This is the case because the licence fees mainly fall on the packer/ller. Excluding DSD costs, the mean cost dierential between Germany and the Republic of Ireland/UK is small for the dairy/drinks sector and retailing, but greater in the packaging sector. In Germany, a shift away from landll to recycling has taken place in the new waste policy. Since landll costs in absolute terms have risen greatly in Germany, recycling activities are still cheaper for an individual rm than sending the waste to landll. Table 7 shows the relationship between waste costs and plant and rm performance using output measures of eciency in the dairys/drinks and packaging sector. Solid waste costs are shown for rms and plants in the top quartile of each measure of eciency. It shows that in the dairy/drinks sector, there is a clear tendency in the Republic of Ireland and the UK for better-performing rms to be associated with lower waste costs in the majority of comparisons made. This is much less frequently the case for Germany. But correlations between solid waste costs and performance are generally not statistically signicant, or are ambiguous or small. Similar conclusions apply to input measures of performance. Overall, there is support for the hypothesis where well performing rms (in the top quartile of that performance measure) have in many cases lower than average waste costs, but the relationships lack statistical signicance except for export propensity in the Republic of Ireland and the UK. The packaging industries are a heterogeneous group of industries. Table 7 shows that average solid waste costs are higher for German rms in the top quartile compared with those of all rms in that sector, whereas they are lower in the Republic of Ireland/UK. More instances of the hypothesised relationship in each country are found for input indicators of performance, but stronger in Germany. However, none of these relationships is supported by statistically signicant correlations. German retailers, in the top quartile of retail rm performance, have lower waste costs than the average, but there is no statistically signicant relationship. And Table 8, which correlates dierences in productivity performance with dierences in waste costs between matched pairs of rms, shows an insignicant and positive, rather than a negative relationship, as hypothesised. For the dairy/drinks industry, the correlations

U. Triebswetter, D. Hitchens / Journal of Cleaner Production 13 (2005) 733e745 Table 7 Average solid waste costs as percentage of turnover in relation to rm performance: output measures in dairy/drinks and packaging Firms in top quartile measured by Dairy/drinks Solid waste costs 0.68 0.16 0.97 0.61 0.03 0.005 0.02 0.05 r Packaging Solid waste costs 0.08 0.15 0.03 0.46 0.37 0.25 0.33 0.05 0.10 0.05 0.12 r

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3. How much did it cost to implement this initiative? (a) Capital costs? (b) Running costs? 4. Quantify the cost savings (general or unit cost) from this initiative (e.g. DM per annum). 5. What are the wider economic eects of investigating this initiative in terms of: (a) (b) (c) (d) Competitiveness eects? Productivity eects? Price eects? Eects on market share?

Germany (incl. DSD) Value added per head Plant growth Exports All Republic of Ireland/UK Value added per head Plant growth Exports All

0.09 0.12 0.21

0.56* 0.09 0.57*

0.38 0.3 0.02

Notes: *Signicant at 5% level (two-tailed p-value). Table 8 International comparisons: correlations between comparative waste costs and comparative rm performance, all matched pairs Industry Costs as % Productivity of turnover (incl. DSD) Exports Growth

Dairy/ Solid waste 0.15, n 17 e0.25, n 7 e0.37, n 11 drinks Retail Solid waste 0.04, n 6 e e Packaging Solid waste e0.31, n 17 0.07, n 12 e0.22, n 12

between solid waste costs and measures of performance are not statistically signicant. Indeed, when individual cases are examined (for the set of matched pairs of rms), it can be shown that the contrary is true: relatively better productivity, growth and export performance can be achieved with relatively greater waste costs (and vice versa). No statistically signicant results were found in the packaging industry.

11. Drivers and economic eects of packaging initiatives The most important driver in each of the sample countries was cost, followed by legislation and customer pressure. But stringent German legislation is responsible for signicantly more initiatives than legislation in the Republic of Ireland/UK; customer or supplier pressure is also relatively more important in Germany and is itself often driven as a consequence of regulations. Managers were also asked the following questions about the economic eects of individual initiatives undertaken: 1. Did this initiative change machinery along your production line? 2. Did this initiative have an impact on your employment situation?

The statistical analysis of the manager responses showed that in total there were 990 eects from 480 initiatives in Germany and 346 eects arising from 190 initiatives in the Republic of Ireland/UK. These gave rise to 2.06 and 1.82 eects, respectively. Among other things, it was found that a higher percentage of economic eects in Germany compared with the Republic of Ireland/UK are attributable to resource inputs like employment, machinery and capital cost (47.8 in Germany vs. 39.3 in the Republic of Ireland/ UK). Fewer eects of initiatives are associated with cost savings (29.4 in Germany vs. 41.6 in the Republic of Ireland/UK), while a similar percentage give rise to competitiveness eects (22.8 in Germany vs. 19.7 in the Republic of Ireland/UK). There is a general implication of a requirement for additional or modied machinery and of additional costs with the need for more machinery in Germany being about three times as strong as in the Republic of Ireland/UK, and the requirements for capital costs being even 4.5 times as strong. Unit cost savings are less frequent than general savings (though the two can overlap). Interestingly, almost half of all German solid waste initiatives were accompanied by general savings, in general of landll and/or recycling costs through reduced amounts of waste. This again reects the fact that there is more pressure in Germany to avoid and reduce packaging waste in a cost ecient way, e.g. through the more frequent use of clean technology initiatives than in the Republic of Ireland or the UK. Managements view of the competitiveness eects of initiatives are, in many cases, positive and supported by price reductions and improved market shares. Where there is an eect on productivity this is generally negative in the Republic of Ireland/UK, while in Germany it is on average benecial, reinforcing the positive competitiveness eects reported.

12. Packaging pressure relative to other competitive pressures In the packaging case study, most advantages were related to product quality and variety, but emphasis was also put on design and presence in niche markets as

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competitive advantage. Several German packaging companies stated that their environmental initiatives triggered important competitive advantages. No packaging rm cited environmental regulations or costs as a constraint on growth. With respect to external pressures, price, quality and service were not only more frequently cited, they were also considered to be stronger and more important pressures than environmental factors. 12.1. Summary In the packaging case study, at the micro-level, there was some evidence of competitiveness benets arising from regulations and external pressures in Germany, but these advantages were not evident at the rm level. Probably, the most important reason is that the impact of packaging regulations and the cost of complying with these regulations is relatively insignicant in relation to other factors which inuence the competitive performance of rms.

interviews were undertaken in dry process plants in Germany, Spain and the UK. From the eight plants visited in Germany, six were located in West Germany and two in East Germany. The latter plants were visited in order to reect the special situation in East Germany where after the German reunication, cement plants were rapidly modernised with high capacity dry kilns. From the ve Spanish plants, three were located in Andalusia, one close to Madrid and one in Catalunia. The ve UK plants were located throughout the country. Sample plants were matched by size and environmental category.

14. Number of clean air initiatives, emission levels and sample classication In contrast to the food and packaging case study, it was possible to gain access to detailed data on the emission situation of sample plants. This had an impact on the analytical approach insofar as a concise classication of the cement sample according to environmental parameters was possible. Within this framework, it was possible to ask the question whether the top environmental performers were economically any dierent from their counterparts with a lower environmental performance. As a background for the interviews, a recently published list of best available technologies (BAT) for the cement industry was used [36]. This list was developed as a reference document for the European cement industry within the framework of the Council Directive 96/61/EC on integrated prevention and pollution control. During the interviews it was asked which of the possible technologies for NOx, SOx and dust abatement were implemented in sample plants and what were their economic and environmental eects. Both clean technology measures and end-of-pipe technologies were examined. Concerning the number of environmental initiatives, the clear picture emerged that German sample plants undertook more activities than their counterparts in the other sample countries. The analysis of emission data revealed that, on average, German plants had the lowest dust and NOx emissions. The lowest SO2 emissions were found in the Spanish sample. The number of clean air initiatives together with the actual emission levels served as a classication model for the environmental quality of sample plants. The total of 18 cement sample plants could be divided into three groups of dierent environmental quality (see Table 9). As expected, German plants fell into the groups with higher environmental quality (two plants in group 1 and six in group 2). Four of the ve Spanish plants were classied as group 3 performers. In the UK, sample plants were in almost equal parts both group 2 and 3 performers.

13. Case study 3: cement industry The aim of this industry study was to examine whether the implementation of techniques for the reduction of air pollution has an impact on competitiveness of cement plants in Germany. A comparison was drawn with cement plants in Spain and the UK, where environmental legislation is on average less stringent than in Germany. The three main pollutants of the cement sector are dust, NOx and SOx emissions. Especially, the German national dust and NOx emission limits, both for new and existing plants, are among the most stringent emission limit values in the EU. The German NOx limits are 500 mg/Nm3 for new installations and 800 mg/Nm3 for existing installations. In comparison, Spanish legislation is, in many provinces, still quite soft. In 1998, Spanish NOx emission limit values were still xed between 2400 and 6000 mg/Nm3. However, there is tremendous regional variation in Spain with a tendency of the North being more progressive than the South. In the UK, permits are given on a plant by plant basis. Any emission limit values are understood as benchmark values, i.e. they are among the strictest in the industry, but are not applicable for existing plants. Furthermore, the cement industry is a very energy intensive industry. Therefore, waste (e.g. tyres, rubber, paper waste and sludge) have been used as a fuel for more than 10 years and to varying degrees in the Member States. The burning of these alternative fuels is more widespread in Germany than in the UK and Spain. It leads, in all countries, to additional maximum emission limits for heavy metals. In total, between May 1999 and April 2000, 18

U. Triebswetter, D. Hitchens / Journal of Cleaner Production 13 (2005) 733e745 Table 9 Number of cement plants in dierent environmental categories and size classesa Environment. category Germany No. of plants Group 1 Low emissions and medium number of env. measures Low emissions and high number of env. measures Group 2 Medium emissions and low number of BATs Medium emissions and medium number of BATs Medium emissions and high number of BATs Group 3 High emissions and low number of BATs High emissions and medium number of BATs Total number of plants
a

741

Spain Size class Small No. of plants 0 Size class e

UK No. of plants 1 Size class Large

Large

Large

Mediumb

Small

Medium

4 mediumc, 1 large

2 large

2 medium

1 large, 1 medium

Size classes are dened as follows: small size: !600,000 tonnes of cement per year; medium size: 600,000e1,000,000 tonnes of cement per year; large size: O1,000,000 tonnes of cement per year. b This plant has lower emissions than the average of all medium sized plants. c One of these plants has lower emissions than the average of all medium sized plants. These two medium sized required a further dierentiation of group 2 later on and were analysed in a group called group 2a, whereas the other three medium sized plants are called group 2b.

Table 10 Number of individually matched pairs in the cement samplea Env. group/ size Small Medium Large Total Germany: Germany e 2:3 1:1 3:4 Germany: Spain 1:1 5:2 2:2 8:5 Germany: UK e 5:2 2:2 7:4

a First number always refers to plants in higher environmental category than second number.

The number of individually matched pairs is shown in Table 10. A full set of comparisons were possible between Germany and Spain; due to the lack of small sample plants in the UK, no comparison of small British and German plants was possible.

15. The relationship between economic and environmental performance In this section, the relationship between economic and environmental performance is explored. To this end, data on output and input measures of competitive perfor-

mance are linked with the environmental performance on a matched pairs basis. The environmental performance is already captured in the classication of plants as group 1, 2 or 3 performers (emission levels and numbers of environmental initiatives are the decisive criteria for the classication). As output indicators of competitive performance, data on productivity, capacity utilisation, sales and prices were used. Input measures of competitive performance mainly consisted of age of machinery (mainly of the cement kiln), use of expert systems with related skill levels and lastly investment levels. Furthermore, environmental and economic performance were put in relation to the level of compliance costs measured as environmental investment. Finally, the possibility to oset environmental compliance costs through the use of alternative fuels was examined. In summary, the German plants with low emissions and many pollution abatement measures classied as group 1 and 2 performers, show in some respects, a better economic performance than their national and/or foreign counterparts with less favourable environmental performance, but not in all aspects. The details are as follows: In a national comparison, the German small and large plants in group 1 and 2a reach a higher productivity

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Table 11 Average productivity in tonnes of cement per employee and yeara Country Env. category Small plants Medium plants Large plants Total number of matches
a b

Germany Average of group 1 and 2a e 6500b 9600 3

Germany Average of group 2b e 10,200c 9000 4

Germany Average of group 1 and 2 (total) 6500 8700 9300 8

Spain Average of group 2 and 3 5000 9100 12,600 5

Germany Average of group 1 and 2 (total) e 8700 9300 7

UK Average of group 2 and 3 e 11,300 13,500 4

Figures are calculated as the output per employee in the kiln and cement area incl. maintenance; gures are rounded to the next hundred. Average of group 1 and 2a. The latter are medium sized plants with remarkably lower emissions than the average of the total group 2. c Average of remaining three medium sized plants of group 2 called group 2b. For ease of illustration, group 2b also includes the remaining large plant of group 2 with average emissions.

Table 12 Environmental investment in primary NOx measures and secondary measures for NOx, SOx and dust reduction measured as % of salesa Country Env. Category Small plants Medium plants Large plants Total number of matches Germany Average of group 1 and 2a e 4b New plant 3 Germany Average of group 2b e 8c New plant 4 Germany Average of group 1 and 2 (total) n.a. 6.4 New plants 8 Spain Average of group and 3 5.4 1.6 0.8 5 Germany Average of group 1 and 2 (total) e 6.4 New plants 7 UK Average of group 2 and 3 e 6 14.1 4

a The investments under concern were undertaken between 1988 and 1998, were converted into prices of 1998 and put into relation of sales in 1998. b Average of group 1 and 2a. The latter are medium sized plants with remarkably lower emissions than the average of the total group 2. c Average of remaining three medium sized plants of group 2 called group 2b. For ease of illustration, group 2b also includes the remaining large plant of group 2 with average emissions.

level and their kilns tend to be more modern than in German plants of group 2b (see Table 11). However, in an international comparison, neither production costs, price per tonne nor sales per head give the German plants an economic advantage over the plants in groups 2 and 3 of other countries. Concerning capacity utilisation, German plants even have the worst performance of the sample. All German plants tend to have higher investments in the past and plan higher future investments than their foreign counterparts. Moreover, environmental investment levels3 are highest in the German sample (see Table 12).

16. Drivers and economic eects of clean air initiatives Interviews asked for the drivers of clean air investment and also recorded the economic eects of these initiatives. Capital and running costs of all abatement techniques were measured at plant level and it was examined whether there are factors which can oset part or all of the additional costs of environmental control. German rms have on average implemented more abatement measures than their counterparts in Spain and the UK. As in the other two case studies, German cement plants have also exploited the potential for the use of clean technology with associated cost savings to the largest extent possible: 13 of the total number of 18 environmental measures are reckoned to be primary measures with some potential for cost savings. These measures include general reductions in energy consumption: for instance, German plants have reduced their energy consumption drastically relative to other countries and need on average about 12% less energy per tonne of clinker than for instance their British counterparts. Also, the share of energy costs in total production costs in Germany is lowest in the entire sample. German plants spent more on expert systems and also regarded this initiative as a clean technology measure with both economically and environmentally

3 Detailed data for all environmental investments undertaken during the last 10 years were asked. Data were scarce for general primary measures. However, investments for NOx primary (processintegrated) measures and secondary (end-of-pipe) measures for the reduction of NOx, SOx and dust emissions were well recorded. Since secondary measures and also NOx primary measures are much more expensive than general primary measures, they reasonably reect the additional burden created by environmental regulations and can be regarded as a proxy of total compliance costs. Most of the environmental measures under concern were undertaken during the last 5e10 years, were converted into prices of 1998 and put into relation of sales in 1998.

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benecial results for the business. Plants in other countries also invested in expert systems, but mainly only for process eciency reasons and reached less improvements than the German sample plants. However, in order to decrease emissions down to the German standards, the use of secondary (i.e. end-of-pipe) measures with additional compliance costs is inevitable. Secondary abatement measures are more frequently in place in German sample factories and lead to the result that German sample plants reach the lowest emission levels of all sample countries. Concerning the purely legislation driven end-of-pipe measures like selective non-catalytic reduction (SNCR), multi-stage combustion and absorbent addition which are undertaken only in the German sample and nowhere else, no loss of competitiveness was found in the German sample plants. With regard to SNCR and absorbent addition, those plants with the highest investment costs achieved the largest reduction in emissions. All plants using these secondary abatement techniques, also used alternative fuels and achieved savings in energy costs which sometimes came close to the level of compliance costs (see also Box 1). That is why all sample plants using alternative fuels have obtained the necessary permits in times of increasing environmental investment.

Box 1 Examples of costs savings through the use of alternative fuels in Germany and the UK Because of its high energy costs, the cement industry has been searching for alternative fuels. Among the types of alternative fuels most frequently used are used tyres, rubber, paper waste and paper sludge, waste woods, waste oils, sewage sludge, plastics and spent solvents. The change from primary to secondary (alternative) fugitive materials is technically relatively easy, although the use of alternative fuels triggers more stringent environmental standards. This has been found in all the German cement sample plants which were already fairly stringently regulated before they introduced alternative fuels. Still, the cost reduction through alternative fuels is suciently large to be osetting the compliance costs for clean air standards in the cement industry. The German waste market is such that if a company uses tyres, it receives about 30 Euros per tonne from the supplier. Moreover, it saves 75 Euros per tonne of coal which would have been needed instead of the tyres. This leads to an enormous annual saving of fuel costs depending on the amount of fuel substitution. Some German companies planned to substitute up to 75% of their fuel by secondary materials until the year 2001. Individual examples of cost savings in the German sample are as follows: A large German plant obtains on average 37.5 Euros per tonne of alternative fuel. About 2 tonnes of alternative fuels are needed to reach the same heat value as produced by a tonne of coal which costs about 50 Euros per tonne. Consequently, per tonne of replaced coal the plant saves 125 Euros (2!37:5C50). Altogether the plant can save energy costs amounting to 7.5% of its annual turnover. The plant was modernised and incurred the highest compliance costs in the sample. It was planned to reduce energy costs down to zero through the increased use of alternative fuels. Another large German plant uses 17% of alternative fuels and obtains 10 Euros per tonne. Price for brown coal costs usually lies around 25 Euros per tonne. The plant can save energy costs amounting to 1.7% of its annual sales. A large British plant used 20,000 tonnes of tyres and obtained revenues of 18 Euros per tonne. Coal would cost the plant 57 Euros per tonne. It was reported that savings through alternative fuels sum up to 93 Euros per tonne of replaced coal and to 2.5% of turnover.

17. Environmental pressure relative to other competitive pressures Concerning competitive advantages, only one German cement plant clearly declared the ability to full strict environmental standards as a competitive advantage. Several other German plants stated that low energy costs and modernity of the plants to be the most important competitive features. Indirectly, however, these aspects are connected to favourable environmental performance. In Spain and the UK, nearness to raw material, low transport costs and consistency of product quality were the most frequently stated competitive advantages. With respect to competitive disadvantages, German cement plants stressed that environmental requirements were said to be high. But the top environmental performers did not complain about environmental costs, only the managers of one large German plant felt that it was suering from a competitive disadvantage through environmental costs. Simultaneously, this plants personnel stated that problems related to infrastructure and plant design as more important. In Spain and the UK, current environmental requirements and costs were hardly mentioned at all. 17.1. Summary High clean air standards in the cement case study have caused a cost to the individual plants, which diverts

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resources for other investment projects, but which can be partially compensated for by process changes and a reduction of energy costs. Overall, gains in environmental performance have not damaged economic performance, but have also not led to an increase in economic performance.

18. Conclusions and policy implications This study employs a methodology that measures how environmental regulations inuence industrial plant competitiveness. Our results show that environmental policy with respect to the regulation of waste water, packaging waste and clean air has led neither to an improvement nor to a loss in overall competitiveness in the German manufacturing industry. However, it was also found in this study, the relationship between environmental regulations and competitiveness is a story with many facets and as such it should be addressed by policymakers. Although, environmental costs varied widely both at the national and international level and from sector to sector, there was no evidence that existing levels of regulations prevented any rm from achieving internationally competitive performance. Irrespective of country, there was a positive correlation between the number of environmental initiatives and high productivity levels. That implies that best practice rms will try to be environmental forerunners as well. But there was no evidence that above average productivity rms achieved the lowest compliance costs, although good management may well seek to minimise these costs. In this study, it was found that environmental policy generated only very small traces of a double dividend: some positive employment and productivity eects were reported together with environmental benets. However, the economic eects never touched on the core business. In this context, it could be asked whether new, less rigid and more exible policy instruments could be used for better results. Also, both national and EU environmental policy should promote environmental awareness and the use of cleaner technology. More stringent EU policy is likely to require a transition period (as granted in the EC Directives under concern for this study).

very narrowly focused on the impact of environmental regulation on competitiveness in Germany instead of the European perspective taken in the original research. This piece of research would not have been possible without the help of numerous persons. I am particularly grateful to Prof. David Hitchens who supervised my thesis. Special thanks are also contributed to Prof. Karin Wagner from the Fachhochschule fur Technik und Wirtschaft in Berlin. Invaluable research assistance was given to me by Roland Kiewitz, Karin Dressel, Udo Wartha and Claudia Wenzl at Ifo Institute for Economic Research in Munich. Of course, I am also indebted to all the companies which co-operated during this study.

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