Leaders and Laggards

Next-Generation Environmental Regulation

Neil Gunningham, Darren Sinclair

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781874719496
• eBook ISBN: 9781351281980
• Topic: Business
• Subtopic: Business General
• Index: Business

Consensus is growing internationally that traditional command-and-control approaches to environmental regulation have borne much of their low-hanging fruit. Yet it is far from clear what should complement or replace them. Regulatory agencies and policy-makers are struggling with a lack of information about regulatory reform, about what works and what doesn't, and about how best to harness the resources of both government and non-government stakeholders. Progress is being impeded unnecessarily by a lack of shared knowledge of how similar agencies elsewhere are meeting similar challenges and by a lack of data on the success or otherwise of existing initiatives.  Despite recent and valuable attempts to deal with such problems in the European Union and North America, these remain islands of wisdom in a sea of ignorance. For example, when it comes to dealing with small and medium-sized enterprises, very little is known, and what is known is not effectively distilled and disseminated. Much the same could be said about the roles of third parties, commercial and non-commercial, as surrogate regulators, and more broadly of many current initiatives to reconfigure the regulatory state. Based on the authors' work for the OECD, Victorian Environmental Protection Authority and the Western Australian Department of Environment Protection, Leaders and Laggards addresses these problems by identifying innovative regulatory best practice internationally in a number of specific contexts, evaluating empirically the effectiveness of regulatory reform and providing policy prescriptions that would better enable agencies to fulfil their regulatory missions.  Focusing primarily on the differing requirements for both corporations and small and medium-sized enterprises in North America and Europe, the book aims to complement existing initiatives and to expand knowledge of regulatory reform by showing: how existing experience can best be put to practical use "on the ground"; by drawing lessons from experiments in innovative regulation internationally; by reporting and extrapolating on original case studies; and by advancing understanding on which instruments and strategies are likely to be of most value and why. The authors argue that the development of theory has outstripped its application. In essence, Leaders and Laggards aims to ground a myriad of theory on the reinvention of environmental regulation into practice.  The book will be essential reading for environmental policy-makers, regulatory and other government officials responsible for policy design and implementation, academics and postgraduate students in environmental management, environmental law and environmental policy, and a more general readership within environmental policy and management studies. It will also be of interest to those in industry, such as environmental managers and corporate strategists, who are considering the use of more innovative environmental and regulatory strategies, and to environmental NGOs.

1
Introduction

The environmental impact of industry, especially pollution, has been subject to regulation for at least three decades, under an approach that is somewhat unfairly called ‘command-and-control’ regulation. This approach typically specifies standards, and sometimes technologies, with which regulatees must comply (the ‘command’) or be penalised (the ‘control’). And it commonly requires polluters to apply the best feasible techniques to minimise the environmental harm caused by their activities. Command and control has achieved some considerable successes, especially in terms of reducing air and water pollution (Cohen 1986; Cole and Grossman 1999). However, it has been widely criticised, particularly by economists, for inhibiting innovation, and for its high costs, inflexibility and diminishing returns (Sunstein 1990; Stavins and Whitehead 1997).

The problems of command-and-control can be overstated and its considerable achievements too easily forgotten (Cole and Grossman 1999). Nevertheless, its limitations have led policy-makers and regulators to recognise that it provides only a part of the policy solution, particularly in a rapidly changing, increasingly complex and interdependent world. As one US EPA (Environmental Protection Agency) official put it: ‘as the world changes, patterns of law and governance must change with it’ (Fiorino 1999: 467). And much indeed has changed over the past decade, with a plethora of innovative regulatory and quasi-regulatory approaches seeking either to replace or to complement command-and-control in a variety of contexts.

As policy-makers and social scientists observe this changing regulatory world, they have learned many lessons concerning: the limitations of command-and-control regulation; the potential value of a range of alternative regulatory strategies such as economic instruments, information regulation, regulatory flexibility and voluntary agreements (VAs); the development and application of more sophisticated enforcement strategies; and the value of cleaner production and environmental partnerships.

Yet there is still a great deal that is not known, or that is ‘known’ theoretically but not tested through fieldwork, or even that has been tested but which still does not inform regulatory practice ‘on the ground’. In particular, our work with the Organisation for Economic Co-operation and Development (OECD) and our interactions with a variety of environmental regulatory agencies have sensitised us to the substantial extent to which the development of theory has outstripped its application,¹ and to the importance of synthesising and disseminating more effectively what is known about ‘next-generation’ environmental strategies.

These interactions have also made us acutely aware of the extent to which the translation of theory into practice must take account of shrinking regulatory resources. In some circumstances it is necessary to develop strategies capable of achieving results even in the absence of credible enforcement (as when dealing with small and medium-sized enterprises), and in almost all circumstances to extract the ‘biggest bang’ from a rapidly diminishing ‘regulatory buck’. We believe this diminution in the capacities of environmental regulators is a mistake, and that considerable additional expenditure would be a wise investment in the public and environmental interest. However, we also recognise that, at least under prevailing political ideologies, and in the absence of large-scale environmental disasters, such expenditure is highly unlikely.

This book is about how to design regulation and alternatives to regulation in this economic and political context, in a manner that is both effective in protecting the environment and efficient in that it does so at least cost to regulators and regulated enterprises.2 It takes as its starting point the proposition that command-and-control regulation has indeed made a substantial contribution in many areas of environmental policy, particularly in relation to laggards, and will continue to do so. However, it is also clear that ‘the low-hanging fruit’ has largely been picked, and that in an increasingly complex, diverse and interdependent society command-and-control is a blunt tool that is not well suited to meeting many of the challenges which lie ahead.

Our intention is not to rehearse the conventional arguments about the strengths and weaknesses of command-and-control,³ but rather to examine the next generation of regulation and regulatory tools developed to curb the environmental excesses of business.

In doing so, we distinguish between the regulation of large enterprises and of small and medium-sized enterprises (SMEs). These two groups are treated differently, in different chapters, because for the most part the problems they face, their motivations, and, above all, the instruments most likely to be effective in improving their environmental performance, are quite distinctive. There is, for example, little point in using public shaming as a tactic on a small enterprise with no public reputation to protect, whereas the very same strategy can be extremely effective when used against large, reputation-sensitive enterprises.

We also distinguish between policies designed to bring laggards up to a minimum level of compliance and those designed to reward leaders for going ‘beyond compliance’ with the regulatory status quo. Traditional command-and-control regulation has focused firmly on the former group and on prescribing minimum levels of environmental performance, but rarely encouraged continuous improvement beyond that level. Yet, as we will argue, next-generation mechanisms can make a considerable contribution in improving the environmental performance of leaders as well as laggards and, in so doing, lift levels of environmental performance across the board. While strategies for encouraging beyond-compliance behaviour are much more advanced in relation to large enterprises (since the large majority of leaders will come from the ranks of such enterprises), such strategies can also benefit some SMEs.

The remainder of the book is organised as follows. Chapters 2-5 examine how best to overcome the considerable barriers to curbing the environmental excesses of SMEs.Chapter 2 provides a critical evaluation of instruments currently used for regulating SMEs, and builds on recent international experiments and our own work on small-business regulation to derive a set of policy recommendations for more effective and efficient regulation of this group of enterprises. In particular, it identifies policy mechanisms that can effectively harness the goodwill of SMEs and which are pertinent to their commercial circumstances, while at the same time retaining more coercive mechanisms to monitor and control laggards.

Chapters 3–5 provide greater depth of analysis through a series of case studies. These demonstrate how regulation of SMEs could be more effectively designed to: (1) facilitate industry self-management; (2) facilitate effective risk management; (3) foster environmental partnerships with larger firms (for example through the supply chain); (4) encourage the adoption of cleaner production; and (5) engage the financial sector in the environmental performance of SMEs. Our particular case studies relate to vehicle crash repairs, the vegetable-growing industry, and ozone protection in the refrigeration industry.

Chapters 6–8 examine the very different challenges involved in regulating large enterprises and how these might be overcome. Chapter 6 explores a variety of innovative forms of regulation. Not least, important lessons are derived from the ‘Reinventing Environmental Regulation’ initiative in the United States, from the European experience with voluntary agreements brokered by government against the background of less palatable alternatives, and from the various forms of informational regulation, which seek to harness both non-governmental organisations (NGOs) and financial markets in the environmental interest. More broadly, this chapter analyses a number of innovations, mostly in Europe and North America, that have a track record of success (and some that do not) in order to identify best-practice environmental regulation, as applied to particular circumstances.

Chapters 7 and 8 complement this broader synthesis with two case studies exploring the pitfalls of various next-generation regulatory mechanisms and demonstrate how our current regulatory regime can be substantially improved on the ground. Chapter 7 examines the experience of voluntary codes in the mining sector internationally, in order to derive broader lessons as to how to tailor such codes to best fit the circumstances of particular industry sectors, to identify their limitations and the extent to which they need to be supported by other instruments. Chapter 8 examines the Australian experience with Environmental Improvement Plans (EIPs) and accredited licensing, two very distinctive innovations which seek to achieve best practice through ‘facilitative regulation’. Under this approach a combination of community participation, information disclosure and process-based regulation are used as mutually reinforcing means of driving industry performance up to and beyond compliance, and of encouraging leaders as well as pressuring laggards.

Finally, Chapter 9 locates the various next-generation regulatory reforms within a broader context. It argues that we are witnessing not a retreat of the regulatory state, but rather a reconfiguration in which the state’s role has shifted from direct regulation to one of facilitation, empowerment and sometimes partnership, with a range of third parties and sometimes with business itself. It traces the main reasons why such a reconfiguration has come about and what it is likely to contribute to environmental protection, by examining recent reforms through a series of different conceptual lenses or perspectives.

The principal methodology used to conduct the fieldwork component of the project was semi-structured interviews with a representative sample of stakeholders, and in particular with business enterprises, government inspectors and a variety of other groups that also have a direct role in, and experience of, the regulatory process.⁴ These included industry associations, environmental and community groups, and environmental professionals. This sample was supplemented by strategically targeted interviews with other key actors identified on the basis of ‘snowball’ sampling.

Our focus was on the design and application of environmental policy in the developed world and in countries of Anglo-Saxon origin in particular (we are less confident of the extent to which our conclusions might translate to other countries and cultures). Our fieldwork for this project was undertaken in such countries (primarily, but far from exclusively, in Australia), and the broader theoretical and empirical literature on which we draw in developing our arguments is also substantially taken from countries of Anglo-Saxon origin (principally Canada, the UK and the USA).

However, while many of the challenges facing environmental regulators in these countries are quite similar, their regulatory cultures are not. Like others before us, we would draw a distinction between the tradition of ‘adversarial legalism’ characterising regulation in the United States and the far more co-operative approaches taken in Australia, Canada and the UK (Kagan 2001; Kagan and Axelrad 2000). At the level of enforcement strategies, and in terms of establishing trust and partnerships between regulators and regulated enterprises, this distinction is crucial. Some of the conclusions from our case studies, all of which are based in the latter group of countries, will have more obvious and immediate relevance to that group than to the USA. Others among our arguments will, we hope, resonate for all of these countries.

As will be apparent, the book is principally normative in its approach. Its main concern is to identify weaknesses in current arrangements, and to argue the case for adopting a number of regulatory reforms and innovations drawing from experience internationally, or on recent and important developments in regulatory theory, and on the models and approaches we have constructed during the course of our own research. Accordingly, we hope that the analysis and recommendations of this book will benefit those who are interested in achieving better environmental regulation and policy, including environmental agencies and government officials responsible for policy design and implementation. We hope it will equally be of value to corporate strategists interested in improved environmental outcomes, NGOs and students of environmental law and policy.

1 For example, a recent OECD report on regulatory compliance concluded that: ‘awareness of compliance problems is growing among Member countries, but that action to improve compliance is uncoordinated and unsystematic’ (OECD 2000a: 8).

2 Effectiveness (contributing to improving the environment) and efficiency (improving the environment at minimum cost, within which we include administrative simplicity) are not the only possible goals of environmental policy. We also recognise the importance of equity (showing fairness in the burden-sharing among players) and of political acceptability (which includes factors such as liberty, transparency and accountability). However, effectiveness and efficiency are arguably the pre-eminent criteria, because in the majority of cases the effectiveness of regulatory policy in reaching an environmental target, and its efficiency in doing so at least cost, will be the primary concerns of policy-makers.

3 For a summary, see Gunningham and Grabosky 1998: Ch. 2 and references therein.

4 A total of 138 interviews were conducted: 116 in Australia, and the remainder in the USA and Northern Europe.

2
Regulating Small and Medium-Sized Enterprises

Small and medium-sized enterprises (SMEs) represent a very high proportion of all enterprises in industrialised economies. In the UK, for example, over 99% of all enterprises fall within this category (defined for present purposes as those with fewer than 200 people),¹ with about 90% of these enterprises having fewer than ten employees. SMEs have different environmental performance characteristics from their larger counterparts. In particular, they commonly have a higher level of environmental impact per unit, and lower compliance rates with health, safety and environmental regulation (Bickerdyke and Lattimore 1997). Although their individual environmental impact may be small, their aggregate impact may, in some respects, exceed that of large enterprises. For example, collectively, they are claimed to be the source of around 70% of total environmental pollution in the UK (Groundwork 1998; KPMG 1997). In recent years, the environmental impact of SMEs may have been compounded by a substantial increase in the number of such enterprises.

The effective regulation of SMEs is a substantial policy challenge for environmental agencies in all jurisdictions, not least because this group has a number of unique characteristics which inhibit the application of conventional regulatory measures.² These include:

• ∎ A lack of resources. This is exacerbated by higher compliance costs, a shortage of capital and economical marginality (Haines 1997).
• ∎ A lack of environmental awareness and expertise. Many are ignorant of their environmental impact, technological solutions to their environmental problems, or their regulatory obligations.
• ∎ A lack of exposure—including lower public profiles—which means that ‘pressure groups gain none of the prestige, headlines and publicity by targeting SMEs that campaigns exposing the environmental misdemeanour of high-profile multinational bring’ (Hobbs 2000: 150).
• ∎ A lack of receptivity to environmental issues. Many SMEs have not integrated environmental issues into their business decisions, making it difficult to persuade them of economic benefits (Merritt 1998).
• ∎ The sheer numbers of such enterprises. This leads to infrequent inspections, and many businesses slip through the regulatory net and are untouched by environmental policy initiatives.

What motivates SMEs and their owners is also likely to be very different from what motivates large corporations. Most striking in this regard is not only their low level of environmental awareness but the substantial disparity...

Table of contents

• Cover
• Half Title
• Title
• Dedication
• Copyright
• Contents
• Preface
• Chapter 1 Introduction
• Chapter 2 Regulating small and medium-sized enterprises
• Chapter 3 Partnerships, EMSs and the search for regulatory surrogates in the smash repair industry
• Chapter 4 Refrigeration and air-conditioning: co-reguiation and industry self-management
• Chapter 5 Cleaner production and the Victorian vegetable growers
• Chapter 6 Regulating large enterprises
• Chapter 7 Voluntary approaches to environmental protection: lessons from the mining sector
• Chapter 8 Community empowerment and regulatory flexibility: EIPs and accredited licensing
• Chapter 9 Conclusion: reconfiguring environmental regulation
• Bibliography
• List of abbreviations
• Index