Keith Brouhle

Governance for the Environment: The effectiveness of voluntary environmental initiatives

Introduction Voluntary environmental initiatives (VEIs) by firms are increasingly being relied upon to address major environmental problems such as climate change, toxic release reduction, waste reduction, and forest management, as well as to improve compliance with existing environmental regulations in the USA. These mechanisms for encouraging private governance have emerged as the capacity of governments to establish mandatory regulations to provide environmental protection has become increasingly constrained (Young, Chapter 1, this volume). We refer to VEIs as including voluntary programs established by regulatory agencies, codes of conduct designed by trade associations and third parties, standards for certification of environmental management systems set by the International Standards Organization (ISO), as well as self-regulation by firms who set internal standards, goals, and policies for environmental performance improvements. These VEIs aim to encourage firms to voluntarily reduce pollution, increase energy efficiency, adopt environmental management practices, and make other efforts to improve their environmental performance beyond the requirements established by existing regulations. More than 150 such initiatives have been sponsored by government, industry, and independent third parties in the last two decades (Carmin, Darnall, and Mil-Homens 2003). Voluntary programs established by the US Environmental Protection Agency (US EPA) alone have increased from twenty-eight in 1996 to fifty-four in 1999 and to eighty-seven in 2005 (US EPA 2005). From the point of view of government agencies, environmental self-governance is more appealing than enacting mandatory regulations, because it reduces the administrative burden on regulatory agencies and avoids the delays inherent in enacting legislation, while encouraging a collaborative relationship between firms and regulators.

Information and the Provision of Quality Differentiated Products

Governments often enact information provision policies to overcome asymmetric information of product qualities. We show that increasing awareness among consumers of the quality of a good can (but will not always) encourage firms to produce goods with higher levels of quality. Even if product qualities increase, social welfare may fall as information provision results in too much product differentiation. We show that the effectiveness of emission taxes and output subsidies are affected by the level of consumer knowledge of product quality, and we identify conditions under which information provision is welfare enhancing relative to these price instruments. (JEL L1 5, Q58)

The role of environmental management systems in the Canadian Voluntary Climate and Challenge Registry

This study evaluates the Canadian Voluntary Climate and Challenge Registry (VCR), an important policy in Canadas approach to climate change during the 1990s. First, we relate the set of practices prescribed under the VCR to the well-established Plan-Do-Check-Act framework of environmental management systems (EMSs). We then examine VCR adoption and find that firms with past experience with management systems and firms in provinces with different legal, economic and institutional factors were more likely to adopt VCR. We do not find, however, EMS adopters under the VCR had significantly different GHG releases than non-adopters in the immediate years after the VCR programme ended.

Exploring Strategic Behavior in an Oligopoly Market Using Classroom Clickers

This article discusses an innovative technique to teach strategic behavior in oligopoly markets. In the classroom exercise, students play the role of a firm that maximizes its profit given the behavior of other firms in the industry. Using classroom clickers to communicate pricing decisions, students explore first-hand the strategic nature of decision-making in an oligopoly market. Students see the diversity of equilibrium outcomes that can be supported in an oligopoly setting and better understand the conditions that lead to one equilibrium over another. The game also illustrates different game theoretic concepts such as the Nash equilibrium (Nash 1950, 1951) and backward induction. The exercise is designed for use in an intermediate microeconomics class, although the technique and exercise could be modified for other courses that examine strategic behavior.

Voluntary Approaches to Environmental Protection

Voluntary approaches for environmental protection include a range of policies from unilateral firm initiatives to government-sponsored public programs and negotiated agreements between industries and regulators. For regulators, these approaches offer the potential to facilitate more cost-effective pollution control as compared to traditional command-and-control regulations that are prescriptive and media specific. For firms, participation in a voluntary approach may act as a signal of their environmental responsibility to stakeholders. Of concern with voluntary programs is the potential for participating and nonparticipating firms to free-ride and gain benefits from the program without undertaking actual pollution abatement. Evidence on the effectiveness of these approaches shows that they can improve environmental performance, induce firms to go beyond compliance, and stimulate innovation under certain conditions. These conditions are more likely to exist when voluntary approaches are accompanied by mandatory disclosures of environmental performance by participants and nonparticipants, which enable public sanctioning of low performers. They also need to be accompanied by monitoring and a credible threat of regulation and are more likely to succeed if they create excludable benefits for participants. The lack of success of these approaches in other situations can largely be explained by the lack of specific targets for improvement relative to some baseline, limited mechanisms for monitoring performance, no third-party audits of changes in operating practices, and the absence of sanctions for participating firms that do not make environmental performance improvements.