In the last quarter-century, the United States has made
extraordinary progress in environmental protection as a result of
substantial investments by governments and by industry and
through effective public and political advocacy. We now have a
system of regulatory controls and enforcement that has
established a floor for environmental protection.
In some cases, OSHA may be an exception, we may have reached a
point of diminishing returns, in that each incremental
improvement in human health- and environmental-risk reduction
comes only with a large increase in control costs, or benefits of
additional regulation may be slight because so much has already
been invested in environmental risk reduction. In still other
cases, the cost of risk reduction is aggravated by the rigidity
of the underlying command-and-control regulatory system.
Rule-makings and permitting processes become de facto design
standards sanctioning the use of specific technologies for
pollution control. There may not be adequate flexibility for
tailoring remedies to reflect the circumstances of individual
sources and locations, including the relative advantages that
different companies might have in choosing risk-reduction
options. For some, especially small businesses, there may be a
preference for design standards because resources for research
and innovation are limited.
For progress to continue, we must look beyond
command-and-control regulatory programs. The call for
alternatives to command-and-control regulations was particularly
strong in presentations received by the Commission outside of
Washington, D.C. In addition, federal agencies emphasized their
commitment and cited their projects aimed at finding effective
alternatives to command-and-control regulation. This subsection
discusses several analytic tools for identifying when
environmental protection is improved and risk reduced, and
endorses a number of alternatives to command-and-control
regulation that should be considered when there is interest in
going beyond current levels of protection and risk reduction.
FINDING 5.4: Risks to human health and the environment have been reduced over the last 25 years primarily through command-and-control regulations of existing and new sources of emissions and testing requirements for newly developed chemical products. However, serious problems in the regulatory system have developed in some situations: delays in human-health and environmental protection, litigation, and compliance costs that are often out of balance with their benefits. Executive Order 12866 stresses the use of performance goals for environmental protection to increase the flexibility industry has to pursue the most effective and efficient solutions.
RECOMMENDATION: Regulatory agencies and
affected communities should aggressively consider alternatives to
command-and-control regulation using the Commission's
risk-management framework to improve the efficiency and
effectiveness of protecting human health and the environment and
to reduce compliance and litigation costs. A sense of
experimentation and a commitment to evaluation are key elements.
RATIONALE
Government must set environmental protection standards, but
there are important economic and environmental benefits in
allowing companies and communities greater flexibility in
determining how to meet those standards. Greater flexibility must
be coupled with agency monitoring and enforcement, however, to
ensure that the expected level of environmental protection is
being achieved. In addition, the equity of who benefits and who
pays the cost under alternative environmental-protection
approaches should be compared with the equity of who benefits and
who pays the cost under the status quo. Jonathan Howes, Secretary
of the North Carolina Department of Environment, Health, and
Natural Resource, in reporting to the Commission on the work of
the National Academy of Public Administration, said they
concluded that many businesses have found it in their interest to
meet or exceed environmental standards, particularly if they can
use their own strategies to achieve the pollution reduction
targets that are established.
Environmental accounting, industrial ecology and life-cycle
analysis, and environmental audits are emerging analytic tools
that can assist in understanding the consequences of economic
activity and environmental-protection efforts. Alternatives to
command-and-control regulation that are being tested include
market-based incentives, taxes and subsidies, right-to-know laws
and other incentives to encourage pollution prevention,
alternative compliance, and consensus, mediation and dialogue
projects. Those tools are options to be used when and where they
make sense in responding to additional risk reduction
opportunites. As the alternatives are being tested, it is
important to evaluate them for reliability in meeting or
exceeding environmental goals, feasibility of implementation, and
general effectiveness and efficiency.
Environmental Accounting. There is a movement from
traditional accounting systems toward "environmental
accounting" for both national and business accounts. In June
1995, EPA published An Introduction to Environmental
Accounting as a Business Management Tool: Key Concepts and Terms;
many private-sector and private-public partnership forums are
addressing this topic.
In traditional accounting of revenue, expenses, and net income
of businesses, energy costs are lumped in overhead, and effects
on and uses of resources--such as air, rivers, soils, and other
environmental components--are neglected altogether. The challenge
is to incorporate all costs involved in design,
production, use, disposal, and reuse so as to arrive at a
life-cycle analysis of a product or process. Assigning values to
various environmental assets used and to real or potential
environmental effects that have varied probabilities is
problematic, however. Those assigned values may well drive the
results of the analysis. Nevertheless, the process of
environmental accounting can link environmental costs with
activities and products and provide information that results in
win-win opportunities to increase operational efficiency, improve
worker safety, enhance product quality, and meet environmental
protection goals. Bankers and investment advisers have been slow
to encourage up-front investments in those cost-saving
initiatives. The President's Council on Sustainable Development
(1996) recommended that national business associations provide
technical assistance to companies interested in identifying
environmental management costs and innovative ways to increase
profits by reducing energy and materials use while better
protecting public health and the environment.
Industrial Ecology and Life-Cycle Analysis. Proponents
of industrial ecology envision a closed-loop system in which no
resources are depleted; that is, all materials are perpetually
reused, and no waste is produced or discarded. The loops might be
closed within a factory, among industries in a region, and within
national or global economies. Industrial ecology would integrate
the producing and consuming segments of an economy to optimize
the use and recycling of industrial materials and products.
"Benign by design" chemistry, in which synthetic
chemistry is designed to use and generate fewer hazardous
substances, is a step toward achieving a closed-loop system. Quad
Graphics, a Wisconsin based printing business, and Stonyfield
Farm, a yogurt producer located in New Hampshire are trying to
establish eco-industrial parks where companies with compatible
production processes can use resources more efficiently and
reduce waste. Life-cycle analysis is important to the
implementation of industrial ecology, because it provides
information that can be used to understand the consequences of
choices among materials, product designs, and process designs and
to understand the fate of products when they are finally
discarded by consumers. Nevertheless, industry representatives
emphasize that life-cycle analysis relies on many assumptions and
needs further research and development before it can be a
reliable tool.
Environmental Audits. Audits by industry and by third
parties are a powerful tool for influencing corporate compliance
with command-and-control regulations by easing penalties for
self-disclosed violations. Audits also allow emitters to
highlight voluntary reduction of pollutant emissions to the air,
water, and land. Environmental audits have become controversial
with the passage of recent state legislation providing blanket
protection from penalties for self-disclosed violations.
Market-based Incentives. Market-based incentives rely
on economic motivations to encourage environmental protection and
cost effectiveness. A prominent example of market-based
incentives to achieve environmental protection is the use of
tradable sulfur dioxide emission allowances to reduce acid rain.
This program, mandated under the 1990 Amendments to the Clean Air
Act, permits electric utilities to reduce their emission of
sulfur dioxide, the precursor to acid precipitation, below
allowable levels and sell the unused emission allowances to
companies whose cost of compliance is substantially greater. The
program caps aggregate sulfur dioxide emissions well below
historical levels while allowing emission reductions to be
achieved more cost-effectively than by requiring every company to
install the most-expensive sulfur dioxide control technology. The
cost of a ton of sulphur dioxide emission allowances has fallen
below projected costs, presumably reflecting technological
advances. Similar programs are being developed to reduce regional
nitrogen oxide emissions. The use of caps and tradable pollution
allowances may not work well in some cases such as toxic air
pollutants where sources create localized risks.
Right-to-Know and Other Incentives to Encourage Pollution
Prevention. In addition to the use of direct
economic-incentive policies, other positive incentives are
available to encourage pollution prevention, some of which EPA
has implemented. For example, some pesticides that require
approval by EPA before they can be distributed, used, or sold
could be given priority for approval if they were deemed safer
for human health and the environment, and thereby reach the
marketplace faster than other pesticides. If regulations control
the labeling of a product, safer products could receive more
favorable treatment, such as authority to use a special label, to
give them greater prominence in the market. To encourage
pollution prevention by manufacturing facilities, businesses
might be given tax incentives to replace old facilities with new,
cleaner processes that do not generate waste and pollution.
Another example pertaining to Title V permits under the Clean Air
Act is EPA's Pollution Prevention in Permitting Pilot Project (P4
Project) with Intel Corporation, the Oregon Department of
Environmental Quality and the Northwest Pollution Prevention
Research Center. The pilot is now being extended to five other
companies in EPA regions 1, 4, 6, 9, and 10. The aim is to reduce
production of air emissions, rather than control their release in
ways that generate solid waste or waste water.
The Toxic Release Inventory and California Proposition 65 have
proved effective pollution prevention incentives by requiring the
disclosure of information about chemical releases to the
environment and labeling of chemicals in products, respectively.
Those right-to-know laws rely on the public's attitudes toward
toxicants to encourage industry to reduce or eliminate their use
or release. In the case of Proposition 65, the requirement to
warn people about exposures to chemicals known to cause cancer,
birth defects, or other reproductive harm has been an incentive
to businesses to eliminate such chemicals or reduce exposures and
associated risks below the bright lines for cancer and
reproductive risks. Rather than relying on command and control,
Proposition 65 uses disclosure of information and labeling
requirements as risk-management tools. Proposition 65 places the
burden of proof of safety on manufacturers rather than on
government agencies, requiring businesses to present a risk-based
analysis to avoid having to label their products and substances
as cancer-causing or reproductive toxicants. David Roe of the
Environmental Defense Fund informed the Commission that
Proposition 65, once enacted and implemented, has had widespread
support from environmental and business communities and has had
few legal challenges. A key element was the decision by the state
agency, accepted by environmentalists and business, to put the
bright line for cancer risk at 10-5, rather than 10-4
or 10-6, as proposed by contending parties. He
estimated that under this system, the state of California
completed the necessary regulatory work for 282 chemicals at a
cost of about one-tenth of what EPA was spending on risk
assessment during the same years.
Taxes and Subsidies. Tax and subsidy programs that
encourage and discourage economic activity can be powerful
motivators, either encouraging or discouraging use of natural
resources and production or reduction of pollution. For example,
agricultural land-retirement programs have prevented excessive
soil erosion and damage to waterbodies and wildlife habitat, and
promoting agricultural production through implicit and explicit
subsidies for inputs, such as pesticide and water use, can
contribute to environmental damage. Elimination or amelioration
of negative-tax and subsidy programs can have a positive impact
on the protection of human health and the environment, as can
carefully targeted increases in subsidies for the provision of
some environmental benefits. Government purchasing practices can
also encourage the development of markets for products that are
environmentally more sound. Care is needed to avoid excessive
acquisition costs for products with small markets and to avoid
buying products with one attractive attribute but other
unfavorable characteristics.
Alternative Compliance. Alternative compliance provides
greater flexibility to industry by allowing choices of methods
for achieving emission-reduction or risk-reduction
specifications. It is designed to achieve higher levels of
environmental protection at lower cost and to foster integration
of local concerns in environmental risk-management decisions.
Alternative compliance gives regulated entities the ability to
choose among a broad range of management alternatives instead of
being subject to prescriptive command-and-control requirements.
This option can result in substantial savings for industry,
communities, or any regulated entity that participates. For
example, EPA's Project XL allows six companies (Intel
Corporation, Anheuser Busch Companies, HADCO Corporation, Merck
& Co., Inc, AT&T Microelectronics, and 3M Corporation)
and two government agencies (California's South Coast Air Quality
Management District and the Minnesota Pollution Control Agency)
to experiment with different strategies for improving
environmental protection. Government also can provide greater
compliance flexibility for those attempting to use innovative
pollution-reduction and-control technologies. Use of the concept
of a bubble to encompass a facility or geographic area and seek
the best way to reduce a pollutant or pollutants within the
bubble has provided flexibility in compliance, also.
Consensus, Mediation, and Dialogue Projects. Negotiated
rule-making and dialogue projects, such as EPA's Common Sense
Initiative, offer opportunities for stakeholders to design new
standards and solutions that protect human health and the
environment more reliably and with greater cost effectiveness and
public acceptance. With the Common Sense Initiative, begun in
1994, EPA has convened consensus-oriented teams of stakeholders
to look for opportunities to turn complicated and inconsistent
environmental regulations for six major industries--automobile
manufacturing, computers and electronics, iron and steel, metal
finishing, petroleum refining, and printing--into comprehensive
sector-specific strategies for environmental protection. Several
industrial sectors have launched their own initiatives such as
Responsible Care by the Chemical Manufacturers Association.
The Commission joins with the President's Council on
Sustainable Development (1996) in endorsing alternatives to
command-and-control regulations. Wise use of a variety of
alternatives might provide increased human-health and
environmental protection with greater efficiency and lower cost
to regulatory agencies, industry, the economy, and society, than
command-and-control programs.