The Greening of Industrial Ecosystems. 1994.
Pp. 98-107. Washington, DC:
National Academy Press.
From Voluntary to Regulatory Pollution Prevention
FREDERICK R. ANDERSON
In environmental circles the 1990s will almost certainly be called the Decade of Pollution Prevention. After 20 years of "end-of-pipe, controls on releases to the environment, attention has shifted to the elimination of potential pollution at its source. This approach, an important dimension of Design for Environment (DFE) discussed by Allenby in this volume, spans the distance from engineers attempting to redesign products and processes, to government officials seeking new incentives to encourage pollution reduction, to heads of state negotiating pollution prevention principles in international agreements based on sustainable development.
Part of the attractiveness of pollution prevention rests on the perception that it allows all interested parties to achieve their separate goals. Environmentally friendly moves by industry, on One hand, and government's willingness to employ noncoercive pollution prevention methods, on the other, have created the perception of a new cooperative approach to environmental protection. Business's optimism in embracing pollution prevention is not unexpected, particularly in light of its continuing success with energy conservation and phaseout of ozone-depleting chemicals (Anderson, 1981).
Additionally, industry benefits because pollution prevention means elimination of waste, profitable innovation, and avoidance of command-and-control regulation. By changing production processes to eliminate nonessential uses of hazardous materials, by recycling such materials, and by redesigning products to
Copyright 1992. Frederick R. Anderson. Used with permission.
allow for reuse and for disassembly, industry can save money on production and disposal costs, waste site cleanups, and tort liability.
In addition, pollution prevention has provided industry with a new environmental consciousness. Good corporate citizenship provides valuable marketing and recruitment tools. For a more permissive philosophy to succeed, industry needs a greater measure of trust between itself and the constituencies traditionally seen in opposition—environmentalists, government, and the public. Environmentalists, regulators, and representatives of industry have already been working together on specific environmental projects such as ozone protection. Corporate leaders now seek advice on environmental issues directly from environmentalists. Representatives of environmental groups are invited to participate in industry conferences on environmental issues—a detente that would have been inconceivable a few years ago.
Government and the public benefit from business's enthusiasm for pollution prevention. Pollution prevention tends to reduce the cross-media pollution that old-style regulation sometimes produced. To the extent that industry undertakes most pollution prevention measures voluntarily, the costs of regulation can be reduced. If pollution prevention is cost-effective to industry, it means lower prices for the public as consumers.
Not surprisingly, environmentalists have also embraced the pollution prevention philosophy. To many, pollution prevention offers an opportunity to incorporate environmental Values into the world economy. Greenpeace, for example, has been enthusiastically promoting its hope for a universal goal of zero discharge to the environment. The concept of sustainable development, basic to the United Nations Conference on Environment and Development, depends in part on the pollution prevention philosophy.
Pollution prevention reinforces another recent major development in environmental policy. For several years, the ranking of risks in order of priority has received major attention from the U.S. Environmental Protection Agency (EPA) leadership and the scientific community. Beginning in William Ruckelshaus's second term as EPA administrator from 1983 to 1985, the EPA leadership and EPA's influential Science Advisory Board began urging that the agency direct its energies toward the most serious environmental risks. Environmental problems are to be ranked based their relative risks and addressed in rank order by the most cost-effective means. In an interesting display of the difference between the scientific and regulatory mentalities, the EPA Science Advisory Board has urged EPA to take the initiative and address the most serious risks first, "whether or not the Agency action is required specifically by law." The board emphasized that EPA should consider pollution prevention its "preferred option" in reducing risk as "a far cheaper, more effective way to reduce environmental risk, especially over the long term" (Blomquist, 1991). Because pollution prevention strategies emphasize voluntary measures—measures generally not required under existing law—they have became the linchpin of the approach to ranking risk priorities.
Pollution prevention programs already have demonstrated significant achievements. EPA points to the enthusiastic response to its voluntary "33/50" industrial toxics project, noting that "over 400 companies have committed to an average reduction of 50 percent by 1995, for an overall reduction commitment of 335 million pounds" (EPA, 1991b). Many private entities have claimed great successes in pollution prevention. The National Electrical Manufacturers Association reports that member companies that manufacture batteries have voluntarily reduced mercury used in their production 92 percent, from 778 tons in 1984 to a projected 62 tons in 1990 (EPA, 1991a). EPA has identified a broad range of industrial success stories among individual companies with pollution prevention programs and goals. In view of such impressive statistics, it is not surprising that many are prophesying the end of the era of adversarial environmental regulation. The presumed trade-offs between economic and environmental values appear to have evaporated. Conflicts have yielded to sustainable development and other promises of benefit to both environmental and economic interests.
POLLUTION PREVENTION: A CRITICAL REAPPRAISAL
Understanding how the current enthusiasm for pollution prevention may be overstated requires drawing upon economics, law, and policy analysis of how governmental programs work in modem American society. Because of industry's enthusiasm for pollution prevention, it is appropriate to begin this critical reappraisal in the field of economics. The best economic thinking has been applied to global sustainable development, not to individual company behavior. When welfare (micro) economists begin to examine pollution prevention seriously, they will not be pleased, for two fundamental reasons.
First, pollution prevention taken to its "zero discharge" extreme contradicts the theory that pollution should be assigned a price that accurately reflects its extramarket, or "external," injury to the environment. Once pollution "externalities" are "internalized" and included in prices, a company should be permitted to pay the price and pollute. Such pollution is more economically efficient, welfare economists argue, because some industrial use of toxic substances and some discharges to the environment are valuable to society. Failure to permit these uses or discharges imposes a high economic cost and thus impedes realization of other social goals. Pollution prevention in practice tends to set as an ultimate objective zero use of, or zero discharge from, an enormous, ill-defined collection of substances and processes, without regard to economic efficiency and the high economic value of some types of pollution. Entire categories of substances and processes may be, in effect, declared ''off limits" to commerce or are designated for totally enclosed systems, without regard to whether optimal discharge levels should be permitted instead, or what alternatives are therefore required.
Second, even if large numbers of substances and processes should be declared off limits to normal economic forces, advocates of pollution prevention
have yet to develop an economically sound reason for industry to engage in pollution prevention over and beyond what is required by law. Why should a company voluntarily incur higher marginal production costs than a competitor incurs, merely to implement pollution prevention measures? The answers suggested by some of the arguments for pollution prevention—public goodwill, a new cooperative era, avoidance of regulation, curtailment of waste—do not seem substantial enough to carry pollution prevention for long.
The real answer appears to be profit. The initial enthusiasm for pollution prevention has developed in large part because pollution prevention is seen to be profitable to companies that invest in it. The first pollution prevention activities have in fact proven relatively inexpensive to implement, and some yield relatively high rewards—the harvest of low-hanging fruit. Industry can pick from a variety of economically attractive pollution prevention options. Yet can pollution prevention continue indefinitely to yield high economic returns? To answer this question, one begins in the field of economics but moves to regulatory policy analysis for a definitive answer.
Historically, the environment has supplied the least expensive factors of production—natural resources and free waste receptacles. As these resources are consumed, and the disposal of wastes increases in cost, pollution prevention becomes economically attractive in large part because of the scarcity created by regulatory measures that place some dangerous materials and disposal options artificially off limits to the economy.
As industry becomes more frugal and waste-free, opportunities for trimming waste inevitably rise in cost, and the market incentive to reduce pollution diminishes. "Technological innovation" is not a complete solution to rising costs. While current innovations in industrial production tend to be inherently less polluting, there is no technological reason why "modernization" should always produce cleaner production processes. Innovation also pollutes, although perhaps not in the same manner as an outdated technology. New technology may also produce "disbenefits'' such as flimsier, less attractive, less reliable, or more dangerous products. Economists and engineers point out that optimizing for environmental protection alone means some loss in safety, efficiency, durability, convenience, attractiveness, or price, The proliferation of lightweight, energy-efficient vehicles has meant some loss in safety as well as comfort. Reducing CO2 emissions by increasing the use Of nuclear power raises questions relating to long-term natural resources use, safety, and waste generation.
Because pollution prevention Carried to extremes flies in the face of sound economic analysis, ensuring its long-term success will be quite difficult. Replacement of polluting and dangerous substances, products, and processes will occur over the long run only if inventors and companies can rely on certain conditions:
Substances and activities declared off limits by regulation remain so unambiguously and permanently.
Choices about products and processes are left to market incentives, with no arbitrary regulatory specification of replacement materials and technologies.
Regulatory decisions about which substances and activities will be "off limits" do not arbitrarily deprive the economy of useful resources (because ill-considered choices will probably be undone later, undermining earlier capital investment).
Regulation does not take away credit for pollution reductions undertaken ahead of the regulatory schedule to give industry decision-making flexibility.
Can industry safely rely on our legislatures and regulatory agencies to abide by these ground rules? History indicates, in part, that government has powerful incentives to inject itself into almost every phase of industrial planning. Industry cannot expect legislatures and agencies to refrain from trying to manage, hasten, and order particular results. Only if industry, government, and even environmental groups work hard to counteract this tendency can pollution prevention succeed. We must all have the patience to focus on the long run.
Perhaps an example will help explain the regulatory temptation and the industry dilemma. The pollution prevention philosophy suggests that it is possible to phaseout or phase down the use of the 189 toxic chemicals targeted by Section 112 of the 1990 amendments to the Clean Air Act. Indeed, one prominent EPA pollution prevention program encourages companies to attempt this task, ahead of the mandatory rollbacks that the statute will require later. Yet can industry rely on the agency, and ultimately the Congress, not to seek to control the complex process of technical innovation necessary to eliminate or drastically reduce use of these 189 economically important substances? So far regulation seems destined to thwart prevention of air toxics pollution by changing ban and phase down objectives, mandating particular technologies, changing the rules about credit for early compliance, setting arbitrary deadlines for creative innovation, and generally seeking a counterproductive role as industrial planner, which exceeds the earlier excesses of end-of-stack regulation.
As pollution prevention costs increase, standards for evaluating performance in pollution prevention play a more important role. When large reductions in pollution are easy, everyone can afford to be lenient about how a baseline is measured or how different methods of pollution prevention are compared. As the easy reductions play out, that leniency fades. As competition heats up, the certainty, predictability, and evenhandedness of pollution reduction requirements become centrally important. Regulation will have to become far better at providing certainty, predictability, and evenhandedness. Present pollution prevention agreements negotiated company-by-company thus will become increasingly unpopular.
Faced with diminishing returns from pollution prevention, a company might consider several options. It could cease pollution prevention efforts at the level that optimizes its profits. It could seek to cooperate with its competitors, sharing
technology so that everyone moves forward in unison to avoid creating competitive disadvantages within the industry. Finally, it could seek governmental implementation of uniform pollution prevention requirements, so that everyone would be subject to the same pollution prevention burdens.
If industry decides to discontinue pollution prevention, pollution prevention has ceased to be an ideal solution. Such an action would certainly fuel pressure from the public and from environmental groups to return to a primary strategy of command-and-control regulation. To these critics, industry would appear unequal to the task of self-regulation in environmental matters.
Alternatively, if companies pool their knowledge and seek to act cooperatively, they may become vulnerable to antitrust actions. So far we have heard only friendly talk about existing collaborations, but such talk may have ominous overtones when viewed from the perspective of a disgruntled competitor or the Justice Department. The EPA newsletter on pollution prevention reported efforts to develop a pollution prevention technical information exchange team among several major manufacturers. A team of representatives from these manufacturers toured one of the participating companies, facilities to observe pollution prevention initiatives. One tour member exclaimed, "It is hard to believe we are touring [this company's] facility—a major competitor!" A representative of the host company similarly remarked that "even though we compete with our products, this is an area where we must work together to ensure a safe environment." Another team member opined that "these meetings have set a precedent—never before has there been a reason so important that we could remove the barriers of competition to work toward a common goal. Good pollution prevention technology is simply too important to all of us not to share" (Li, 1991). Such sentiments possess considerable practical appeal. Perhaps pollution prevention technology should be exempted from the antitrust laws. But cooperation to eliminate competition at present is against the law.
Thus we come to the last option open to the company. It is, in fact, the last hope for the long-term future of pollution prevention. A level playing field among companies undertaking (or failing to undertake) pollution prevention appears indispensable. Government's role is to provide that level field. At the same time, government must give industry freedom to innovate, substitute products, test, market, and bring the full arsenal of technology to bear in creating a safer, more environmentally benign economy.
Such a role for government seems at present unlikely to prevail over the long run. We are too accustomed to what Professor James Krier dubbed more than 20 years ago "The Great American Regulatory Tradition." Pollution prevention begins with government encouragement of private innovation in partnership with industry to eliminate or reduce use of environmentally suspect substances and processes. But it risks metamorphosis into a new theory to justify a greater governmental role in specifying exactly what industry must do to satisfy environmental imperatives. In short, impatient regulators will not be able to keep their hands
off industry's attempts to phaseout or reduce use of environmentally undesirable products and production processes.
For two decades we have sought, with little success, to solve the problem of the inefficiency of uniform government-issued environmental standards. The uncritical acceptance of pollution prevention seems at present destined to guarantee that voluntary pollution prevention will be gradually supplanted by traditional command-and-control regulation that imposes on industry a tremendous variety of measures that intrude deeply into the industrial economy. Ironically, as a rationale for command-and-control regulation, pollution prevention may stifle the economy far more effectively than any social regulation of the past. In fact, as the next section shows, the process clearly has begun.
POLLUTION PREVENTION AS A NEW REGULATORY TECHNIQUE
While government's role in pollution prevention currently appears to emphasize awards, university courses, research programs, and voluntary goals and deadlines, "regulatory" pollution prevention has also clearly made an impressive debut, including substance bans, technology specifications, and incorporation of pollution prevention obligations in actions related to permits and enforcement.
While this paper focuses on federal pollution prevention, it is important to stress that the states have been at the forefront of pollution prevention activity over recent years. Some states' pollution prevention laws are simply broad policy statements in favor of pollution prevention generally. Yet other states establish specific source reduction goals and mechanisms aimed at achieving these goals. Various states require facility planning, including the submission by individual facilities of pollution prevention information, the establishment of pollution prevention plans for such facilities, submission of progress reports, and penalties or other negative incentives for failure to comply with such requirements. Some states prohibit the use of particular materials (for example, lead or other heavy metals in packaging, or CFCs in particular nonessential uses). I have dealt with these state programs in a prior paper (Moorman and Anderson, 1992).
Federal environmental laws contain a variety of potential hooks from which pollution prevention regulations and other requirements can be suspended. To enable regulation, EPA possesses a tremendous information-gathering capacity that can be Used to advance pollution prevention. EPA has already indicated repeatedly its intention to make use of "traditional regulation and enforcement" in promoting pollution prevention, and has announced a search for environmental laws that it can use "to further pollution prevention within existing programs and to determine how to implement such provisions in the future" (EPA, 1991a).
The Clean Air Act offers a particularly interesting example of how the pollution prevention approach can be applied under a traditional federal environmental statute. The 1990 Clean Air Act amendments (CAA amendments) specifically
incorporate pollution prevention goals (see 42 U.S.C.A. §7401(c)). The amendments provide extended compliance periods for industries that reduce their emissions of hazardous air pollutants ahead of forthcoming maximum achievable control technology (MACT) requirements. In addition, the amendments require the agency to consider pollutant source reductions, process changes, materials substitutions, cross-media impacts, and other production modifications that could reduce or eliminate emissions in setting emissions standards for hazardous air pollutants. The agency has prepared a pollution prevention guidance document for its staff working on MACT control standards for the 189 air toxics targeted by the amendments. The amendments require the phaseout of chlorofluorocarbons (CFCs) and halons and ban the use of unsafe substitutes for these chemicals. They also provide EPA with authority to regulate gasoline additives. EPA has used this authority to phaseout leaded additives. EPA thus has been busily "incorporating pollution prevention into [the] regulatory process and into targeted Clean Air Act regulations" (EPA, 1991b).
Regulatory pollution prevention has not been limited to mere expansion of traditional pollution control. The EPA also intends to use the pollution prevention strategy in attacking particular pollutants in different media simultaneously. In the past, EPA has sought to control pollution within carefully defined statutory authority. Now, however, its multimedia approach means that it starts by targeting a specific pollutant then searches for various authorities with which to control that substance in all the media. For example, EPA is using a variety of statutory and regulatory tools to reduce or eliminate the source of lead (EPA, 1991a). For bans and limits based on pollution prevention, both the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and the Toxic Substances Control Act (TSCA) provide EPA with particularly broad authority to restrict the use of any chemical or pesticide that poses an unreasonable risk.
By combining its multimedia approach with its strategy of targeting particular industries or groups of industries for source reduction, EPA has laid the foundation for the most comprehensive (and perhaps the most chilling) regulatory application yet of the pollution prevention approach. Citing the 1990 Pollution Prevention Act, which requires the EPA to review all regulations of the agency prior and subsequent to their proposal to determine their effect on source reduction, the EPA has created its Regulatory Targeting Project covering proposed rule-making for all media affected by 17 major industries. Under this approach future rules and permits will contain pollution prevention measures wherever possible.
EPA's approach to rulemaking for the pulp and paper industry exemplifies regulatory pollution prevention. Regulation of this industry cluster entails mandating pollution prevention through the use of stringent effluent or emissions standards that assume particular methods of source reduction. Pollution associated with this cluster will be prevented, at least in part, by end-of-pipe controls that are to be "based largely upon manufacturing processes and waste treatment systems that adopt no- or low-pollution practices" (EPA, 1991a). Rather than pollution
prevention serving as an alternative or supplement to traditional regulation, it becomes the basis for regulatory standard setting.
Pollution prevention is also being used to guide the writing of permits, enforcement decrees, settlements, and money penalty reduction agreements. By incorporating pollution prevention into permitting and enforcement, EPA can achieve pollution prevention goals late in the regulatory process and, to an extent, by the back door (EPA, 1991a). EPA reports that its basic National Pollutant Discharge Elimination System (NPDES) training course now includes training on pollution prevention "to encourage and challenge permit writers to incorporate prevention into NPDES permits" (EPA, 1991b). Similarly, EPA's Office of Solid Waste is working on Resource Conservation and Recovery Act (RCRA) orientation materials "to acquaint its inspectors and permit writers with waste minimization requirements, and considering requirements for waste minimization plans as a condition for issuing RCRA treatment, storage, and disposal permits."
EPA incorporates pollution prevention requirements through its enforcement actions as well. The agency has made clear that it will include pollution prevention conditions in agency enforcement settlements. An early 1992 report detailing achievements in this area leaves no doubt about where the agency is headed (EPA, 1992). Examples of incorporating pollution prevention terms in settlement agreements during 1990 include a $42,000 reduction of a fine in exchange for an agreement to install equipment that would reduce particular wastes by 500,000 pounds per year and increase recycling of other materials by roughly 250,000 pounds per year; a reduction of a penalty by $31,000 in exchange for a binding commitment to implement a leak detection and repair program and to install in-process recycling equipment to reduce generation of 1,1,1-trichloroethane and dichloromethane; a $10,000 reduction in a fine in exchange for implementation of process changes that virtually eliminated the use of acetone in the manufacturing process in question (EPA, 1991b).
Incorporation of pollution prevention through permitting and enforcement is clearly an effective means for EPA to mandate particular pollution prevention methods or standards. Both permitting and enforcement place EPA in a position of considerable bargaining power. The application of pollution prevention strategies in such situations can be tailored to the individual circumstances of the facility or company involved. EPA might argue that permitting and enforcement allow it the flexibility to require only what is reasonable from a particular facility. Nevertheless, such tailoring is essentially at EPA's discretion and removes the game from the level playing field that is indispensable to the long-term success of the pollution prevention approach. Further, although much of the pollution prevention optimism focuses on industrywide efforts to develop goals and strategies, in permitting and enforcement individual companies or facilities may be left on their own. Although an industrywide coalition may have substantial bargaining power in discussing pollution prevention goals with EPA, an individual facility or company has considerably less stature. In sum, where broad prosecutorial and permit-
ting discretion is guided by a sophisticated set of pollution prevention objectives, statutory authority may not be a necessary prerequisite to detailed government regulation.
Pollution prevention as regulation also appears here to stay, raising concerns about the unanticipated rapid evolution of an intrusive regulatory system. The entanglement of pollution prevention with regulation almost inevitably will limit the flexibility that industry is hoping to find in nonadversarial pollution prevention. Thus industry, government, and environmental groups must critically examine the inner workings of pollution prevention and be vigilant to deter it from becoming a rationale for national industrial policy and a more intrusive form of regulation.
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Environmental Protection Agency. 1991a. Pollution Prevention 1991: Progress on Reducing Industrial Pollutants. Washington, D.C.: U.S. Environmental Protection Agency, Office of Pollution Prevention.
Environmental Protection Agency. 1991b. U.S. EPA Progress in Meeting Congressional Mandates of Pollution Prevention. Washington, D.C.: Environmental Protection Agency, Office of Pollution Prevention.
Environmental Protection Agency. 1992. Pollution Prevention Through Compliance and Enforcement. January, Washington, D.C.: Environmental Protection Agency, Office of Pesticides and Toxic Substances.
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