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Economic Incentives for Pollution Control

This Section is devoted primarily to programs under which EPA asks companies to voluntarily participate in activities to protect the environment. Such programs have become increasingly popular in the 1990s: a recent EPA publication, Partnerships in Preventing Pollution, listed and described 28 such initiatives EPA (Spring 1996). As the EPA stated in its June 15, 1995 report to the President on regulatory reform, "Over the past two years, EPA has shifted its emphasis from command-and-control to building partnerships with stakeholders to achieve environmental results in a cooperative manner." DEN, June 23, 1995, p. E9.

Although these voluntary programs may not be pure economic incentive instruments like pollution charges or deposit-refund mechanisms, they differ from command-and-control approaches. Instead of imposing requirements on businesses, these programs merely encourage them to participate.

One incentive for businesses to take part in these programs appears to be favorable public relations, which indirectly could result in less public pressure to regulate participants and increased market share at the expense of competitors perceived to be less environmentally friendly. Polls have shown that consumers are willing to pay a premium for products with environmental advantages.Arora and Cason (1995), p. 2. See Resources for the Future study of EPA's 33/50 program Discussion Paper Abstract:95-38 Why Do Firms Overcomply with EnvironmentalRegulations? Understanding Participation in EPA's 33/50 Program Henriques and Sadorsky (1996) found that pressure from shareholders and customers significantly influenced Canadian firms' decisions to formulate environmental plans. In this respect, voluntary programs could have effects similar to the information approaches discussed in Section 9.

Another reason for participation in voluntary programs is that the sponsoring regulatory authority often provides technical assistance to participants. Such assistance could be regarded as a subsidy as discussed in Section 8. As noted below, some companies have saved money by implementing the activities associated with voluntary programs such as Green Lights and WasteWi$e.

Moreover, voluntary programs may limit potentially high litigation, monitoring, and enforcement costs incurred by regulators and businesses. Some of these programs offer participating companies the opportunity to identify and address environmental problems that could later subject them to regulatory sanctions. They also sometimes give companies flexibility to improve their environmental performance at less cost.

A Resources for the Future study of EPA's 33/50 program (discussed below) cited several reasons other than publicity benefits and added flexibility why firms might voluntarily overcomply with environmental regulations. In some industries, firms might improve their performance in the hope of leading government to make such performance mandatory, thereby creating barriers to the entry of potential competitors. It has also been suggested that firms overcomply to forestall additional mandatory regulation. Another possibility is that the "lumpiness" of pollution abatement investments means that large investments offer significantly more abatement per dollar than a series of small investments made to comply with progressively tighter restrictions. Arora and Cason (1995), pp. 3-4.

See Resources for the Future study of EPA's 33/50 program Discussion Paper Abstract:95-38 Why Do Firms Overcomply with EnvironmentalRegulations? Understanding Participation in EPA's 33/50 Program

This Section discusses the following EPA-initiated voluntary programs: Green Lights and Energy Star, WasteWi$e, 33/50, XL, ELP, WAVE (Water Alliances for Voluntary Efficiency), Climate Wise, and methane recovery. (These programs are listed in Table 10-1.) It concludes with a description of several state voluntary programs. Three other voluntary initiatives (supplemental environmental projects, joint implementation, and Brownfields activities) are excluded from this Section because they are discussed elsewhere in this report.

See Partners for the Environment:"EPA's New Era of Voluntary Partnership Program" Web site

Businesses voluntarily carry out numerous environmental initiatives on their own, such as the Chemical Manufacturers Association's Responsible Care program and the Coalition for Environmentally Responsible Economies' (CERES) principles. While such purely private sector activities may promote environmental protection, they are beyond the scope of this report.

Some voluntary programs are directed primarily at individuals. For example, many municipalities encourage consumers to voluntarily recycle wastes such as beverage containers, newspaper, and used oil. These types of programs are not discussed here.

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