This thesis is about environmental competition. The underlying question is whether or not countries, or, more specifically, regulators and markets, compete among each other by the means of trading-off environmental assets such as clean air for economic performance. On the balance of the empirical results, the preliminary answer is yes - with some qualifications attached. After a comprehensive review of the literature on approaches towards the analysis of environmental performance across various social sciences, this thesis sets out to construct a proxy indicator for environmental performance, based on the relative performance across EU countries concerning several air pollutants. Using that indicator, this thesis classifies 15 EU member states according to their empirically observed pollution performance during the period 1990 to 1999. The classification produced four distinct clusters: poor and strong pollution performers, as well as two transition clusters. The second part of the thesis evolves around the idea to relate air pollution performance to a number of chemical industry performance variables using panel data. The main hypothesis to be tested is whether strong pollution performance has an impact on chemical industry performance, and if so, what the sign of that relationship would be. The three performance variables are production value, employment, and value of intra-EU exports. The results of the regression analysis show that strong pollution performance has a negative and significant impact on two of the three chemical industry performance variables, namely, on production value and intra-EU exports. On the other hand, this study does not produce evidence that strong pollution performance has an impact on the employment of the chemical industries in the EU.