Environmental regulation and environmental self-regulation Flashcards
2 major types of enforcement:
Command and control (also known as hard law) State: use of a particular process or technology specified by the regulator; and
“Market” or “incentive based” (also known as soft law) Self : allowing the regulated entity to determine the best way to reduce pollution.
Principles of environmental (hard) law
- The ‘polluters pays’ principle: those who produce pollution should bear the costs of managing it to prevent damage to human health or the environment. A factory that produces a potentially poisonous substance as a by-product of its activities is usually held responsible for its safe disposal.
- This principle underpins most of the regulation of pollution affecting land, water and air.
- Pollution (defined in UK law): contamination of the land, water or air by harmful or potentially harmful substances.
The proximity principle
Waste should be treated, and if possible eliminated, at the source.
• Recycled, burnt, landfills
• Waste should not be exported
• Why not? Economist: Minimize costs of treatment/disposal/ Promote trade.
• Disadvantage: Corruption in receiving country
We as EU export our waste, e.g. electronic equipment which is very toxic. Most countries we export to are corrupted.
Why was The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal adopted?
It was adopted on 22 March 1989 by the Conference of Plenipotentiaries in Basel, Switzerland, in response to a public outcry following the discovery, in the 1980s, in Africa and other parts of the developing world of deposits of toxic wastes imported from abroad (Basel Convention, 2011).
Examples of command and control regulation
- WEEE directive: waste electric and electronic equipment directive.
- RoHS directive: Restriction of hazardous substances (RoHS) directive.
- The registration, evaluation and authorization of chemicals (REACH) regulation.
- National laws: Environmental Protection Act (1990).
Market based regulation
- Neo-liberal economic models, promoting shrinking of the state and transfer of economic, social and environmental responsibilities into the private sector.
- Market can self-regulate itself.
- Voluntary.
- Private sector knows or will find out how to manage negative externalities extending from their activities. It gets v political because argument in favour of state, and counter argument in favour of the market as a safeguarded. Because the market can self-regulate the Gov should not intervene and should leave market to own devices.
Examples of market based regulation?
- fairtrade logo
- GRI logo
- ISO14001 logo
- Green tourism logo
- Marketable Pollution Permits
Marketable Pollution Permits?
Give a firm the right to emit a specific number of units of pollution.
- Polluters are free to buy and sell these rights to pollute.
- A marketable pollution permit system can both minimize total abatement costs, provide flexibility in the choice of mechanisms used to meet pollution goals, and achieve the desired level of pollution emissions.
- We have small, medium and large polluters. Whoever pollutes less can trade their less pollution permits to companies than pollute more, to weigh out total pollution.
- Not very effective, doesn’t actually reduce pollution, it just moves responsibility between companies/countries.
- pollution is static because if we sell some permits to China, the world is still being polluted the same amount.
Positives and negatives of “Command and control” (State regulation)?
Negative:
- more expensive for the regulated community because state regulation is funded by tax payers.
- Increased red tape and could be said to be bureaucratic.
- At times companies might find it more attractive to pay fine than to adopt investment into environment initiatives that are costly to implement.
Positive:
- easier to enforce and administer because no compliance will threaten survive of firm due to the severe sanctions the firm may face.
Positives and negatives of “Incentive regulation” (self-regulation)?
Positive:
- much cheaper for the regulated community because its paid by private actors e.g. companies not taxpayers.
- Logos are more effective than state intervening, argument for private sector to be left alone and take advantage of the market-based regulation schemes.
Negative:
- difficult to administer or enforce - lack of central authority to monitor performance e.g. when people don’t correctly report to GRI or Global compact, or ISO 14001.
- If you are found out doing correctly then you lose your certification and not be able to use the logo anymore.
- Voluntary mechanisms may fail under certain circumstances, such as when there is an incentive to cheat (rewards from cheating (cheaper to implement the mechanism symbolically than substantially) > penalties if caught).
- “ISO 14001 certified firms may emit just as much air pollution as non-certified companies” (Europa, 2011)
Are they (state vs self) truly adversaries?
- On one hand, previous studies, in line with the Porter hypothesis (Porter, 1991), indicate that strict environmental regulation complements self-regulation by triggering the adoption of voluntary self-regulatory tools for environmental protection (Berrone, Fosfuri, Gelabert, & Gomez-Mejia, 2013).
- On the other hand, scholars view the rise in the adoption of environmental self-regulatory tools as a shift from “government” to “governance” where non-state actors, such as corporations, increase their participation in the regulatory actions (Hysing, 2009).
- Porter hypothesis: strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness.
- Certification is used by various stakeholder groups as a solution to information asymmetries and collective action problems stemming from “naming and shaming” activist initiatives (King, Lenox, & Terlaak, 2005; Potoski & Prakash, 2009), and in an attempt to regulate global supply chains and correct market failures (Bartley, 2007; Guthman, 2007). Hence certification plays a crucial role in corporate environmental performance. Certification is used to deter from their negative externalities of environmental impact.
- Signals we get from literature are quite contradictory, e.g state regulation enables innovation if implemented correctly, which allows them to differentiate themselves form others and in addition state regulation compliments self-regulation.
- Counter argument – scholars worried about rise of self-regulation due to its political nature. We have seen shift from private actors with the aim to profit maximise and actively participate in self-regulation and form a regulatory framework. Shift of government to governors.
A more detailed focus is needed
Focus on three important dimensions of an environmental regulatory regime:
(a) “direct” instruments (i.e. environmental regulations)
(b) “indirect” instruments (i.e. environmental taxes), and
(c) the stringency of environmental policies.
“Direct” Instruments
Existing argument: Firms use such self-regulatory tools in order to avoid sanctions stemming from direct instruments.
Direct regulation is seen as an enabler and a moulding force for the formation of corporate environmental governance regimes and therefore a driver for firms to self-regulate their environmental impact
In-house adoption more effective in ensuring improvements in environmental performance as there is little regulatory relief to certified firms.
We also noticed that following Brexit, and the subsequent weakening of the regulating environment, there is an increase in certifications
UK used to be great and v environmentally friendly. Following Brexit and its uncertainty following it, regulation has weakened. It will be revised but due to uncertainty caused by Brexit companies know it won’t happen any times soon. So now they adopt for certification and gone back their old ways because uncertainty causes backlash. So if they don’t come up with a strong signal then they won’t be able to differentiate themselves.
“Indirect” Instruments
• Opposite views on effectiveness of environmental taxes; some argue that there is a positive relationship between such taxes and environmental self-regulation others have found a negative relationship.
• Due to high costs of certification and marginal legitimacy benefits in strong regulatory environments, one would expect that taxes might deter certification.
• While the theoretical literature postulates that indirect instruments stimulate environmentally responsible practices, empirical research does not necessarily endorse that view. This inconsistency could imply that indirect instruments are applied more laxly than direct regulation instruments
- Setting taxes at an appropriate rate is critical as the tax rate needs to reflect not only the externality aspect of taxes (e.g. costs imposed on the global climate), but also the environmental opportunities that taxes may engender (e.g. adoption of EMS or investment in clean technologies) (Grubb, Hourcade, & Neuhoff, 2014).
Stringency of Environmental Regulation and adoption of self-regulation
• Environmental regulation stringency is defined as “the explicit and implicit, policy- induced price of environmental externalities” (OECD, 2015: 22).
• Evidence from advanced and emerging economies shows that under more stringent policy schemes, self-regulation can offer higher value to a firm by controlling its environmental impact and reducing the risk of non-compliance that can result in unwanted sanctions.
• We lack knowledge of self-regulation. We found that in heavily regulated markets that state regulation compliments in house adoption. The adoption of self-regulatory tools is expensive and the bigger the company the higher the cost.
• In week regulation markets, certification plays a significant role. Due to the lack of clear legal requirements, companies need a guidance. In this case, e.g. EMS or GRI are the outcome of a wider stakeholder consultation, is sufficient to improve their performance on environmental and performance against other companies.
- Berliner and Prakash (2013) and Prakash and Potoski (2013) state that certification is used to generate a distinction via “brand name recognition”, which assures stakeholders that the firm is “clean”. When regulatory regimes are lax, firms tend to certify their self-regulatory approaches in order to differentiate themselves from rivals in the marketplace.
- The potential marginal benefits of certification decline with increased regulatory pressures and more stringent monitoring (Prakash and Potoski, 2012: 127). Hence we propose that stringency of environmental regulation has the opposite effect on certified forms of self-regulation.
- There is less room for self-regulation certification to act like a brand name in distinguishing a firm from its competitors in such heavily regulated industrial settings (Neumayer & Perkins, 2004).
