Compliance in environmental markets

One of the reasons given for compliance with environmental programmes is th at firms want to project an environmentally friendly image, as this would h ave a positive effect on their sales and eventually on their market share. This paper tries to test the effect of environmental friendliness on compli ance behaviour using data from a tradable emissions programme currently run ning in Los Angeles. A large fraction of the firms comply with the environm ental regulations. To study the reasons for this compliance behaviour, vari ables are created that represent the environmentally friendly characteristi cs of the firms. These variables are: how close the firm is to the final co nsumer and whether the firm has employed a manager to look after its enviro nmental policies. Of all the firm characteristics, the capital level of the firm is seen to be significant in explaining non-compliance. Contrary to e xpectations, the environmental friendliness variables do not have significa nt explanatory power. Environmental consciousness as an explanatory variabl e for compliance therefore needs to be reconsidered in this kind of a pollu tion prevention programme.