A Study on the Effectiveness of Environmental Regulations in Causing Investment in Environmental Projects: Focus on the Korean Steel Industry under GHG Regulations.
|Upon entering the twenty-first century, various bills have been prepared to protect the environment, by regulating industrial activities so firms induce voluntary activities and investments with respect to environmental management. However, since 1990 the correlation between environmental regulation and voluntary corporate environmental investment has been researched with various empirical and theoretical research methods. Due to such methods there has been no clear proof of such a correlation. Recently, the environmental regulation in Korea against greenhouse gas emissions has been changed into an indirect way of controlling emissions – the emission trading scheme, which follows market principles. It is necessary to discover if this new regulation is preferable to the previous direct regulation in driving companies to invest voluntarily in environmental projects to improve their competitive positions as a strategic target, compared to achieving this through regulatory compliance. This research will demonstrate the effectiveness of each environmental regulation on increasing productivity through increased research and development (R&D) investment associated with environmental-related technology by setting up an economic model of two companies (I and J) which will be regulated by environmental law, including direct regulation and Emissions Trading Scheme (ETS). Real data from Korean companies in the steel industry will be used to analyse this effectiveness. According to the result from the analysis model, in case of using ETS with auctioning of permit only, the R&D incentives in environmental projects shows biggest, but direct regulation gives more influence to corporate technological innovation than ETS with free allocating of permit. It is hoped that this research will result in a meaningful reference for environmental policy making in the future.