Government and Regulation Flashcards
How can different types of policy vary?
- policy instrument type
- regulation
- expenditure
- information provision - regulatory target
- government
- firm
- citizens - Stage of activity targeted
- siting
- planing
- acting
- performance
describe old vs. new environmental regulation
“old”
=command and control (punitive)
–> reactive to past damages
“new”
=voluntary (disclosure strategies), market based incentives (cap and trade)
can also do a hybrid
what would be the command and control way to deal with carbon emissions
carbon tax
sets the price of carbon
emissions (amount of carbon emitted is determined by the market)
Question for regulators is : how much should the tax be?
what would be the cap and trade (market-based) way to deal with carbon emissions
sets the amount of carbon emissions
Questions for regulators are:
- How many credit to issue?
- How to distribute them? (auction, grandfathering)
what are the main failures of command and control regulation? (9)
- Not flexible (limitation of government to pick winners” – possibility of lock-in if government encourages a particular technology)
- Slow to respond to fast moving technologies
- No incentives to go above and beyond
- Bias toward end of pipe solution
- Tend to be reactive to past damages instead of precautionary
- Costly to taxpayer
- Discretion over enforcement
- Does not involve all stakeholders in search for best solutions
- Perverse incentives (e.g. Rebates for return of toxic waste leads to production of counterfeit waste)
what are the three main types of climate policy?
- economic signals
- support for research and development
- performance standards
how do economic signals and support for research and development work together
economic signals encourage support for R&D, support for R& D reduces cost of economic signals
how do performance standards and support for R&D reinforce each other
- performance standards create markets for support for R&D
- support for R&D reduces costs of performance standards
how do performance standards and economic signals reinforce each other
- performance standrds reduce price shock of economic signals
- economic signals accelerate uptake of performance standards
what is the porter hypothesis?
Strict environmental regulations do not inevitably hinder competitive advantage against rivals; indeed, they often enhance it
What 5 reasons may the porter hypothesis be true?
- Regulation signals companies about likely resource inefficiencies and potential tech improvements
- regulation focused on information gathering can achieve major benefits by raising corporate awareness
- regulation reduces the uncertainty that investments to address the environment will be valuable
- regulation creates pressure that motivates innovation and progress
- regulation levels the transitional playing field. During the transition period to innovation-based solutions, regulation ensures that one company cannot opportunistically gain position by avoiding environmental investments
describe the theory behind opportunities and the porter hypothesis
(part 1: Regulation signals companies about likely resource inefficiencies and potential tech improvements)
- Opportunities are always picked up by the markets
- For companies it is not as appealing to look into inefficiencies
- Regulations help put these inefficiencies on the top of the list
ex. to change poor eating habits, should tax bad food and subsidize vegetables
describe why reporting could lead to competitive advantage (porter hyp 2)
Reporting not only helps stakeholders grasp what companies are doing; it helps companies themselves grasp what they are doing
- Stakeholder visibility and transparency
–– Investors
––Board members
–– Customers
–– General population - Helps companies assess their risks and what should be
done about it.
––You can’t fix something you do not know about!
ex. “The day it became clear that disclosure was a powerful regulatory tool was June 30, 1988, when Richard J. Mahoney, then head of Monsanto (one of the biggest chemical manufacturers in the U.S.), made a dramatic claim. Mahoney said bluntly that he had been astounded by the magnitude of Monsanto’s annual release of 374 million pounds of toxins. He vowed to cut the release of air emissions 90% worldwide by the end of 1992
describe managing uncertainty as a way to gain competitive advantage (porter hyp 3)
- to manaage uncertainty, need to get certainty
ex. automakers initiating deal with California government to know what to prepare for
ex. “A big power station can take anywhere between four and seven years, so decisions for the 2020s are starting to be formulated now (2012)”
use Denmark as a case study to describe why regulation can motivate progress (porter hyp 4) (7 things)
Denmark will generate 35% of its energy from renewable energy by 2020 and 100% by 2050.
• Incentives for large-scale power plants to convert from coal to biomass and commits funds to promote geothermal energy
• No oil and natural gas boilers in new buildings in 2013 and in existing buildings in 2016, where district heating is available.
• Subsidize energy efficiency investments in industry and the use of renewable energy in production processes.
• Development of a comprehensive smart grid strategy so that renewables can power the grid.
• Expand biogas in industrial processes, the natural gas grid and transportation.
• Energy efficient vehicles, subsidies for electric car charging stations, hydrogen
• Financing mechanisms including tariffs on energy distribution to fund efficiency improvements, a supply tax on space heating to fund biogas, industrial combined heat and power (CHP), and a surcharge on electricity bills to subsidize renewables.
describe the no transition opportunities porter hyp (#5) with an example
fuel efficiency standards
– having them in place means that companies don’t have the option to forgo investing in sustainability
What are 3 main conclusions with the porter hypothesis?
- encourage to think about regulations in a broader sense
- -> they can be applied in a way that influences businesses’ ‘behaviours - Good regulations will lead to better innovation and lead to desired environmental outcomes
- Helps to decouple economic growth from environmental impact.
- ->Most push backs with regards to environmental stewardship comes from economic growth impact. Shows that they are not mutually exclusive.
what are two ways companies try to manage competitors through regulations?
- Joining with similarly positioned companies with
an industry to set private standards.
• Example: Chemical Manufacturers Association – Responsible Care
2. Convincing the government to create regulations that favour your product / use of environmental regulations for strategic purposes • Regulators willing to act • Chance of organised opposition is low • Creates barriers to entry • Example: GMO regulations
describe the idea of tilting the playing field
If successful at changing the “rules of the game”/”tilting the playing field” (typically through regulation) sustainability oriented companies place other companies at a competitive disadvantage
describe differentiation vs. tilting the playing field (i.e. when is it better to do one vs. the other)
• Opposite ends of the spectrum
• Is it better to push my competitors to match my
investment or not?
– Differentiate: if a company’s customers are willing to
reward improved environmental performance;
– Tilt the playing field: if a company’s customers are NOT willing to reward improved environmental performance
describe ways to make innovation-friendly regulation (8)
- OUTCOME Focus on outcomes, not technologies
- STRICT Enact strict rather than lax regulation
- PHASE-IN Employ phase-in periods
- INCENTIVES Use market incentives
- PREDICTABLE Make the regulatory process more stable and predictable
- PARTICIPATION Require industry participation in setting standards from the beginning
- CAPABILITIES Develop strong technical capabilities among regulators
- EFFICIENCY Minimize the time and resources consumed in the regulatory process itself
what are the 5 implications for businesses with regards to regulations
- can have huge impications for the operating environment for business
- If you are ahead of the game, regulations can be good for business - barrier to entry for competitors
- First-mover advantage - can lobby to affect regulation
- Can be extremely costly to comply (both changing practices, and documenting compliance)
- Regulations can incentivize innovation, or regulatory uncertainty may also deter innovation in some cases
