According to the Porter hypothesis, strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness. The hypothesis was formulated by the economist Michael Porter in an article in 1995.
The hypothesis suggests that strict environmental regulation triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production processes and products more efficient. The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs directly attributed to new regulations and the innovation costs.
In the first mover advantage, a company is able to exploit innovation by learning curve effects or patenting and attains a dominating competitive position compared to companies in countries where environmental regulations were enforced much later.
^Wagner, M.: The Porter Hypothesis Revisited. A Literature Review of Theoretical Model and Empirical Test. Lüneburg: Centre for Sustainability Management, 2003, p.2 CSM Lüneburg
^Chemicals Regulation and the Porter Hypothesis: A Critical Review of the New European Chemicals Regulation Torsten Frohwein, Bernd Hansjürgens Journal of Business Chemistry January 2005 open access publication
Michael E. Porter and Claas van der Linde, "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, Vol. 9, No. 4 (Autumn, 1995), pp. 97–118 (JSTOR).