In the CERE working paper "Determinants of Environmental Expenditure and Investment: Evidence from Sweden" Jūrate Jaraitė, Andrius Kažukauskas and Tommy Lundgren finds that environmental regulation is a motivating factor for environmental expenditure and investment.
The main goal of the paper is to empirically explore the main determinants of environmental expenditure and investment for Swedish industrial firms, using data covering the period 1999 to 2008.
In the study, the authors first analyzed the factors that influence environmental expenditures especially on R&D (research and development) and secondly the factors that determine investments in environmental protection, which is divided into air and others.
The finding from the paper indicates that firms that use carbon intensive fuels are more likely to spend more on environmental expenditure and investment relative to firms that do not use carbon intensive fuels like oil and gas. In addition, larger, more profitable and energy intensive firms turn to incur more in environmental expenditure. Firms operating under the EU ETS (emission trading system) turn to spend more on environmental R&D and also invest more in reducing air pollution. In conclusion the study finds environmental regulation to be a motivating factor for environmental expenditure and investment.