Jeff Bezos and Porter’s Hypothesis
Accordingly to the latest news, Amazon has committed to become net-zero carbon emissions across its business by 2040. Moreover, “part of this commitment is powering Amazon using 100 percent renewable energy which it is now set to achieve in 2025, five years ahead of their 2030 target“. Since Amazon is one of the most polluting web-services in the world, the impact of this announce on the earth ecosystem is going to be very large. In order to visualize this, one can compare Amazon commitment with public authorities’ ones. In particular, Amazon committed to become carbon-neutral ten years before the Paris Agreement threeshold, ten years before the deadline fixed by the UE and tewnty years before China.
My personal interpretation of this engagement is that Amazon understood that environmental regulation is going to become stricter as time passes. In fact, it doesn’t look casual that this announce has been made after (and not before) Biden’s victory. As a result, preventing the damage and risk of regulation, they plan to become green before regulation intensifies and affect their profits. The scenario they’ve in mind is that in twenty years carbon price will increase as quantity will be restricted by public autorities. What they realized is that it will be optimal for them to not to be caught to use carbon when the latter environmental regulation will be adopted. Technically speaking, the opportunity cost of renewable energy (represented by brown technologies’ cost) is now much lower than in the future, when carbon price will probably be kept artificially high. They also plan to consolidate their dominant position on the market, which indeed is a necessary condition for undertaking green R&D. As Schumpeter explains in the early fourties, the existence of monopoly power guaranteing extra-profits is necessary for firms to innovate and invest in R&D. Hence, Amazon has a competitive advantage compared to other and smaller firms in the field of green R&D. As a result, due to today investments, it’s reasonable to expect Amazon to gain even more monopoly power tomorrow, when stricter regulation will be adopted and its few competitors would have to deal with it.
This interesting story reminds me of a concept formulated by Porter and van der Linden (1995), well-known as the Porter’s hypothesis. In a nutshell, this hypothesis states that environmental regulation, by inducing innovative activity, can enforce environmental performance withouth affecting economic growth (PH in the weak form) or even sustain economic growth (WP in the strong form). This hypothesis has received a lot of attention in the economic theory. Many subsequent papers have tried to prove it either theoretically or empirically. Nonetheless, there’s not seem to be in the data an unanimous consensus about it, especially for the stronger formulation.
In conclusion, the Amazon’s (and of the others 31 signatories of the Climate Pledge) commitment to carbon neutrality until 2040 shows how the (credible) threat of regulation can induce innovative activity in the environmental sector. Fortunately, we can wait for their profits to continue raising and partially confirm the genial intuituion of Porter.
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