According to the Porter hypothesis, strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness.
Various studies found that stricter environmental regulation stimulates innovation ("weak" version of Porter hypothesis).
There is mixed evidence whether stricter regulation enhances business performance ("strong" version).
[4] Whether the type of regulation - market-based approaches or requirements and prohibitions - has an impact, is an open question.
Economic theory suggests that market based instruments could be more efficient but there is mixed empirical evidence.