Since the implementation of environmental regulations in the 1970s, there has been much debate about their potential effects on affected firms. Policymakers and firm representatives fear that incomplete regulation could harm the competitiveness of domestic firms or shift pollution-intensive production processes to less strictly regulated parts of the world. The so-called Porter hypothesis, however, rejects these fears. It argues that a stricter environmental policy can actually have a net positive effect on the competitiveness of regulated firms because such a policy can promote cost-reducing efficiency gains and foster innovation.