Porter Hypothesis now on sound footing, but does it apply to our world?

As a physical scientist, I take a very negative view of the "talk arguments" still common in economics. Qualitative explanation is nice, but one cannot prove or argue anything with mere qualitative work. There is no qualitative scientific methodology.

Michael Porter put forth a few years ago an idea with great appeal: under some circumstances, strict environmental regulations can be a win-win situation, both reining in the negative externality and inducing firms to eliminate waste and innovate, simultaneously increasing profits and R&D spending.

More recent work by Stefan Ambec and Philippe Barla puts this onto more solid footing. Note that the result is parameter-dependent. One would have to be a slob to say that the Porter Hypothesis (which really should now be called the Ambec-Barla Theorem) implies that there is no such thing as a bad environmental regulation.

In a recent review, Ambec and Barla appraise the empirical evidence, and find that, while case studies can be found on either side, most of the time there are no Porter effects. Whether this is an artifact of the existence of pollution havens is one of many open questions.

Win-win environmental regulations remain a tantalizing possibility but not an everyday reality. Perhaps we'll never be able to "have our cake and eat it too". Science, including economics, should inform our policy decisions to the greatest reasonable extent, but problems such as this make it clear that we'll always be caught with value judgements and shades of grey.