Effect of Regulatory Uncertainty on Environmental Strategy - a Reason to Postpone Investments?

Based on the literature of regulatory uncertainty, we propose that companies facing a high level of regulatory uncertainty intend to postpone investments. However, drawing on the literatures of the Resource-Based View and Institutional Theory, we identify factors that might change their eventual action: securing competitive resources, leveraging complementary resources or acting as environmental institutional entrepreneurs are reasons not to postpone investments even under strong regulatory uncertainty. We test our hypotheses in a case study covering 80% of the German electric power industry which is currently facing regulatory uncertainty from the introduction of the European CO2 Emission Trading Scheme. Our results confirm that companies intend to postpone investments under regulatory uncertainty. However, there are sufficient reasons to eventually not postpone investments. Moreover, regulatory uncertainty can even accelerate investments if the expected development of planning reliability shows discontinuities over time. Our results suggest that it is important to distinguish between intention and actual behavior when studying decisions that are influenced by perceptions in a flexible regulation.