In developed countries a key concern of the environmental community is the prospect of a "race to the bottom," where countries try to lure investment by lowering or not enforcing their environmental standards. This is the "pollution haven" argument—that under free trade firms will migrate to places where environmental regulations are less stringent and where using "dirty" PPMs will give them a competitive edge.

Researchers have long searched for evidence of pollution havens, and have found little. When relocating, environmental costs are only one of a broad number of factors—including infrastructure, access to inputs, wage costs, labour productivity and political risk—a firm must take into account. Average environmental control costs run around 2 to 3 per cent of total costs, though in certain sectors (for example, aluminum smelting or cement manufacturing) it can run much higher.

The threat of relocation by firms may be more of an issue than actual relocation. The threat, whether made explicitly or just anticipated, may create a "regulatory chill" effect—a climate where government regulators balk at strengthening their environmental laws for fear of driving away existing business, or losing potential business investment.

The same types of concerns about competitiveness underlie the problems that many commodities exporters face in trying to implement appropriate environmental policies. Such policies would help internalize the external environmental costs of production, and would therefore often raise the price of the final good. For most commodities even a slight rise in price may be enough to send buyers to one of the many competitors. And commodities, unlike consumer goods or manufactures, usually cannot create niche markets for greener goods. Buyers of copper, for example, want the cheapest copper that meets their technical specifications, and they typically do not care about the pollution created in its manufacture. This is a serious problem, given the importance of commodity exports to many developing nation economies, and the wide-ranging environmental consequences of most commodity production.

5.3 Environmental standards, science and precaution