Richard Schmalensee, October 1993
Recently, some have argued that tougher environmental policies can create jobs, stimulate innovation, and enhance competitiveness. On this view, economic side effects make environmental protection a sort of green free lunch. This essay provides an overview of the level and industrial incidence of environmental protection costs in the U.S. and shows why attempts to transmute these substantial costs into benefits are invalid. Environmental policies shift patterns of employment and R&D, but there is no reason at all to think that they create jobs or enhance economy-wide innovation on balance except, perhaps, in the very short run.