Upload
others
View
4
Download
0
Embed Size (px)
Citation preview
Do Voluntary Approaches WorkDo Voluntary Approaches Workfor Environmental Protection?
Prepared for the 2010 Energy and Environmental Summit of the States
Bren School, UC Santa BarbaraMarch 5, 2010
Prof. Charles D. KolstadDepartment of Economics &
Bren School of Environmental Science & Management
University of California, Santa Barbara
1
The Issues
Conventional regulation: state passes rules that polluters must follow or face penforcement action
Economic incentives: state rewards andEconomic incentives: state rewards and punishes behavior but does not prohibit (e.g., cap and trade or emission tax)cap and trade or emission tax)
Voluntary actions: firms voluntarily agree to be good citizens (individually or in groups)
Bren SchoolUC Santa Barbara
be good citizens (individually or in groups)2
1. Dupont’s Decision to Stop P d i CFC (F )Producing CFCs (Freons)
CFCs invented in 1920s by GM & DupontSafe alternative to refrigerants then in use
Use expanded over the decades
In 1970s discovery that CFCs were depleting the stratospheric (high) ozone layer
Initially, Dupont vigorously resisted restrictions CFCon CFCs
In 1988 Dupont announced it was phasing out CFC d ti
Bren SchoolUC Santa Barbara
CFC production3
Dupont: Why did Dupontl t il t d i CFC ?voluntarily stop producing CFCs?
Explanation #1: Good citizen
Explanation #2: Good business (if so how?)Explanation #2: Good business (if so, how?)
Bren SchoolUC Santa Barbara
4
Dupont: Why did Dupontl t il t d i CFC ?voluntarily stop producing CFCs?
Explanation #1: Good citizenOfficers and employees are people too
E l i #2 G d b iExplanation #2: Good businessPatents had expired on CFCs
Production had become competitive – a commodity – with low profit margins
Dupont felt that it was particularly good at innovation
Dupont welcomed returning to patent‐protected productionDupont welcomed returning to patent protected production
A legal ban on CFCs would protect Dupont’s foray into CFC substitutes.
Bren SchoolUC Santa Barbara
5
2. Sustainable Forest Products C tifi tiCertification
Forest Stewardship Council emerged from 1992Forest Stewardship Council emerged from 1992 Rio Earth Summit (UN Conference)
FSC offers verification and a label to affix to woodFSC offers verification and a label to affix to wood from “sustainable forests”
Home Depot (and others) offer FSC certifiedHome Depot (and others) offer FSC certified wood products (and non‐certified wood)
Why would firms adopt third‐party certification y p p yrather than do it themselves, more cheaply?
Lots of costs associated with credibly certifying –
Bren SchoolUC Santa Barbara
better to centralize those costs6
3. Green Stock Portfolios
Many “Green” Mutual Funds AvailablePortfolio 21
Green Cent r F ndsGreen Century Funds
Winslow Green Mutual Funds
Vanguard FTSE Social index Fund
WilderHill Clean Energy Index
Do these funds do better than the market (or as well)?
Or is there a sacrifice in performance for greenness?Or is there a sacrifice in performance for greenness?
Bren SchoolUC Santa Barbara
7
Why invest in green firms?T tiTwo questions:
What is the record of performance?
Why might green be good for investors?Why might green be good for investors?
Bren SchoolUC Santa Barbara
8
Why invest in green firms?y g
What is the record of performance?Domini Social (DS) index vs S&P, 1990‐2004( ) ,
DS 400: 1.1%/yr return; S&P 500: 1.0%/yr return
However, statistically indistinguishable
Why might green be good for investors?May lower the cost of capitalMay lower the cost of capital
Attract better employees (eg, Dow)
Signal well managed company
Bren SchoolUC Santa Barbara
Signal well managed company
9
4. EPA’s 33/50 Program/ g
Voluntary toxics program from early 1990s
Firms free to joinFirms free to joinAgree to reduce emissions of toxics by 33% by 1992 and by 50% by 19951992 and by 50% by 1995
Firm benefits: PR and some regulatory relief
C d i i j i did d liCovered emissions among joiners did decline over the 1990‐95 time period
Bren SchoolUC Santa Barbara
10
Was 33/50 program effective?/ p g
If only “good” firms join, then all the program does is signal who is “good”p g g g
Madhu Khanna studied the two decisionsWhether to participateWhether to participate
Whether to reduce emissions after joining
C l iConclusionProgram did not reduce emissions beyond hat o ld ha e occ rred itho t it
Bren SchoolUC Santa Barbara
what would have occurred without it11
5. Responsible Care and the Ch i l M f t ’ AChemical Manufacturer’s Assn.
Bhopal and other accidents generated negative public image of chemical industryg p g y
Growing public sentiment that further regulation of industry was neededregulation of industry was needed
In 1989 CMA set up Responsible Care Pgm.
D i d f 10 l i i lDesigned as a set of 10 general principles to which all CMA members agree
Bren SchoolUC Santa Barbara
12
What did Responsible Care accomplish?p p
For public: achieved improved performance by industry p p p y y(probably)
For firms: staved off mandatory and perhaps onerous l tiregulations
Is public better off with voluntary approach than mandatory approach?pp
Maybe/Maybe NotIndustry‐designed rules may have lower cost for same env quality
Mandatory regs might be difficult to implement and not very strict
Bottom line: voluntary approach achieves something but not necessarily enough
Bren SchoolUC Santa Barbara
necessarily enough
13
Two Basic Questions for todayQ y
How do voluntary environmental actions work?
How can I (a legislator) effectively use voluntary actions to improve thevoluntary actions to improve the environmental quality in my state?
Bren SchoolUC Santa Barbara
14
Types of Voluntary Actionsyp y
Purely by firmsPurely by firmsFor competitive advantage
Driven by consumer demandDriven by consumer demand
Driven by investor and/or employees
G t i t ti ith fiGovernment interacting with firmsGovernments may set up programs with l t ti i tivoluntary participation
Firms (or associations) may institute voluntary actions to stave off mandatory regulations
Bren SchoolUC Santa Barbara
actions to stave off mandatory regulations15
What Options for Legislation?p g
Labelling programs facilitate green consuming
Disclosure programs provide some pressure on poorest performing firms
Voluntary government programs (ie, firms may join) must be accompanied by real rewards for joining or penalties for not joining
Industry‐sponsored voluntary actions must be scrutinized and compared to mandatory actions.
Bren SchoolUC Santa Barbara
16
Labeling Programs Facilitate G C iGreen Consuming
Energy Star (US)
Clear organic standards (Cal)Clear organic standards (Cal)
Appliance energy efficiency labels (US)
A bil f l l b l (US)Automobile fuel economy labels (US)
Possible: develop green star program
Bren SchoolUC Santa Barbara
17
Disclosure programs pressure t f i fipoorest performing firms
Toxic release inventory
Greenhouse registriesGreenhouse registries
Possible: develop programs for firms to label goods according to embodied carbonlabel goods according to embodied carbon
Bren SchoolUC Santa Barbara
18
Voluntary Government P ith R l R dPrograms with Real Rewards
Top Runner Program in Japan
EPA programs IF they were accompaniedEPA programs IF they were accompanied by real rewards and penalties
Possible: develop voluntary greenhousePossible: develop voluntary greenhouse registry accompanied by rewards to firms that join and reduce emissionsthat join and reduce emissions
Bren SchoolUC Santa Barbara
19
Industry‐sponsored voluntary tiactions
Welcome such actions
Compare to what would be accomplishedCompare to what would be accomplished with mandatory regulations
For environmentFor environment
For consumers
For firmsFor firms
Bren SchoolUC Santa Barbara
20
Additional Readingg
Symposium on “Corporate Social Responsibility and the Environment” in p yReview of Environmental Economics & Policy, Summer 2008. [Authors: Reinhardt, y, [ ,Stavins, Vietor, Lyon, Maxwell and Portney]
Chapter 17 in Kolstad: EnvironmentalChapter 17 in Kolstad: Environmental Economics (2nd Edition, 2010), Oxford
Bren SchoolUC Santa Barbara
21