Triggering business responses to climate policy in Australia

The ‘Porter hypothesis’ predicts that well-designed environmental regulations will stimulate businesses to innovate to reduce their environmental impact for efficiency reasons. This article analyses the impacts and anticipation effects of Australia’s carbon price on firms’ carbon reduction activities, through survey data on 466 medium-to-large Australian businesses. We build upon the Porter hypothesis by demonstrating that the anticipated impact of regulation may be as important as its implementation in triggering environmental innovation, thus developing the notion of a ‘signal’ effect. JEL Classification: D22 and 033