March 3, 2008
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster
Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.
This week's commentary by RFF Senior Fellows Richard Morgenstern and William Pizer summarizes findings from their book, Reality Check: The Nature and Performance of Voluntary Environmental Programs in the United States, Europe and Japan, in which they, along with other leading experts, studied seven voluntary environmental programs across three continents. In the commentary, they discuss the effectiveness of these polices and their pros and cons. While mandatory programs are required to achieve deep reductions in pollution emissions, Morgenstern and Pizer conclude that voluntary programs can play a useful role when mandatory programs take some time to enact, would be very difficult to administer, or when environmental gains may not be sufficient to justify stringent environmental controls. For more information about the specifics of individual programs, the reader is referred to the sources provided at the end of the commentary.
Next week's commentary by Steve Gabriel will discuss the workings of the world market for natural gas and possible policy implications for the United States.
The Effectiveness of Voluntary Environmental Programs
Richard D. Morgenstern and William A. Pizer
Voluntary environmental programs have been multiplying at an explosive rate since the early 1990s in the United States and many countries abroad. The trend reflects growing optimism about the possibilities of cooperation between government and business. It also is fed by frustration with the long and expensive battles that often arise from regulatory controls. But how much actual impact are the voluntary programs having?
Our own findings, drawn from research on a number of programs, are that they are having a real but limited effect. Compared with a credible baseline, they reduce releases of pollutants by, probably, not more than five percent.
Now a five percent reduction is not trivial: many nations have commitments under the Kyoto Protocol that are roughly of that order of magnitude (although the United States and Canada would impose much larger requirements). In addition to near-term reductions, voluntary programs may influence corporate attitudes and management practices, leading, in time, to broader-scale improvements in performance.
But it is hard to argue for voluntary programs where there is a clear desire for dramatic changes in behavior, as would be required to achieve virtually any of the goals now being discussed in Congress.
Out of the thousands of these programs now in operation, which cover a wide range of environmental issues, we chose seven prominent examples (Morgenstern and Pizer 2007) for a close look, including EPA's 33/50 program aimed at toxic releases, along with energy or carbon dioxide reduction programs in the United States, Europe, and Japan. While the U.S. programs all involve participation criteria established by government, the U.K., Danish, and Japanese programs we studied rely on explicit negotiations between industry and government to set emissions reduction goals and other parameters of agreement.In contrast, all the key programmatic decisions in the single German program examined were made by industry.
Even though most of the programs had extensive operating experience, our evaluation was hampered by concerns about the self-selection of participants: those firms that participated may be planning to do the relevant activities anyway, which would generate coincidental reductions- and by the absence of good emissions or energy use data derived from a well-defined baseline.
Voluntary programs offer valuable opportunities for firms to get practical experience with new types of environmental problems without the straitjacket of mandatory regulation. In the process, firms are able to enhance their reputations with a broad range of constituents. These programs also give government agencies a similar chance to deal with new challenges and new industries, sometimes with more holistic approaches than the media-specific, end-of-pipe focus of most existing legislation.
On the other side of the ledger, voluntary programs are limited by the absence of clear price or regulatory signals to push changes in corporate or consumer action, or to stimulate demand for cleaner technologies. "Free riding," where some firms avoid making any effort while others voluntarily address a problem and keep further regulation at bay, may be an issue in some cases. Arguably, a voluntary approach may shift attention from the biggest polluters- that may be both the source of more emissions and more low-cost emissions reductions- to cleaner firms that emit less and have already taken significant action. Some in the environmental community see voluntary programs as a distraction from the real work of taking mandatory action.
Extensive work has been done on the motivation for firms to participate: doing so may help pre-empt the threat of regulation, influence future regulation, improve stakeholder relations, or gain competitive advantage. Several studies have shown the importance of public recognition to be a key inducement. The nature of the firm's market may also be important as well as the willingness of its customers to pay for green products.
Incentives offered by some voluntary programs to firms that join and take stipulated actions can affect the magnitude of the efforts they make. Among the voluntary programs that we studied closely, those that provide greater financial incentives or relief from other requirements seem to result in larger results than those without incentives, although the difference is not significant. However, incentives may draw more firms into the program and thereby increase its impact by multiplying the number of contributors. Consequently, environmental results may be enhanced by expanding participation rather than seeking deeper cuts from a limited number of firms.
Another question is whether, under voluntary cooperation, the initial gains will persist over time, both as the program is broadened and more participants come in, and as the original participants mature. Among the cases that we studied, the evidence showed that some initial gains may not persist. Typically, the most profitable gains are taken early and the most cooperative firms join first, with the result that the program may lose momentum over time. Or, it may be that program participants are simply taking actions earlier than other firms would within a few years.
Richard D. Morgenstern, Senior Fellow, RFF
Morgenstern received his Ph.D. in Economics from the University of Michigan in 1974. His research focuses on the economic analysis of environmental issues with an emphasis on the costs, benefits, evaluation, and design of environmental policies, especially economic incentive measures.
William A. Pizer, Senior Fellow, RFF
Pizer received his Ph.D. in Economics from Harvard University in 1996. His research seeks to quantify how the design of environmental policy affects costs and effectiveness.Currently, he is working on projects that look at the effectiveness of voluntary programs, the role of technology programs in pollution control efforts, and the effect of regulation on competitiveness.
In designing a voluntary program, a significant initial consideration must be the targeted environmental medium, and the activities being addressed. If it is a novel and unstudied area, or one that involves clear impacts on local communities -- as was the case with toxic pollutants twenty years ago -- there may be opportunities for more significant improvements at low cost. At the same time, if it is an area that has already been carefully scrutinized with less local consequences, as we believe the case to be for energy efficiency, effective opportunities are less likely.
At the end of the day, voluntary programs can indeed affect behavior and produce environmental benefits -- but the limitations are clear. These programs make sense when mandatory action seems premature, or lacks legal or political support. They are a useful step when mandatory programs will take a long time to implement. But we have seen no solid evidence that voluntary action can produce sharp and truly fundamental improvements in environmental protection.
Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.
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Khanna, Madhu and Lisa A. Damon. 2004. “Effectiveness of Voluntary Approaches: Implications for Climate Change Mitigation,” inVoluntary Approaches in Climate Policy, edited by A. Baranzinin and P. Thalmann. Cheltenham, U.K.: Edward Elgar
Maxwell, John W. and Lyon, Thomas P. 2007. "Public Voluntary Programs Reconsidered" Available at SSRN:
Morgenstern, Richard D. and William A. Pizer. 2007. “Case Study Findings.” In “How Well Do Voluntary Environmental Programs Work?” Resources. Winter No. 164.
--------. 2007b. Reality Check, RFF Press: Washington, D.C.