Do countries fail to raise environmental standards? An evaluation of policy options addressing "regulatory chill"

It is an important prerequisite of sustainable development that countries are able to raise their environmental standards. Environmentalists are concerned, however, that with enhanced international capital mobility the fear of capital loss might induce countries not to raise standards — a phenomenon commonly described as "regulatory chill". This article argues that while it is difficult to prove the validity of this claim, there exists substantial anecdotal evidence that "regulatory chill" is relevant with respect to one issue at least: global warming. Several policy options are evaluated to deal with this problem according to a specified set of criteria. It is found that upward harmonisation of environmental standards and multilateral trade restrictions as part of multilateral environmental agreement are the preferred policy options.