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Smart Regulation: Designing Environment Policy

Book · September 1998

DOI: 10.1093/oso/9780198268574.001.0001

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 TABLE OF CONTENTS

PART I 7

PRACTICE AND POTENTIAL IN ENVIRONMENTAL REGULATION 7

CHAPTER ONE 8

INTRODUCTION 8

Regulation, deregulation and beyond 10

Building on what we've got 15

Towards a successful policy mix 18

The structure of this book 22

How we approached our task: assumptions, evaluation criteria and methodology 25

The normative basis of our study 25

Evaluation criteria: what we mean by "optimal" 27

Methodology 33

Summing up 37

CHAPTER TWO 50

INSTRUMENTS FOR ENVIRONMENTAL PROTECTION 50

Introduction 50

Varieties of regulatory instruments 51

1. Command and control regulation 52

2. Self-regulation 61
 2

3. Voluntarism 66

4. Education and information instruments 69

(i) Education and training 70

(ii) Corporate environmental reports 71

(iii) Community right to know and pollution inventories 71

(iv) Product Certification 73

(v) Award schemes 74

5. Economic instruments 77

(i) Property-rights 77

(ii) Market creation 78

(iii) Fiscal instruments and charge systems 81

(iv) Financial instruments 83

(v) Liability instruments 84

(vi) Performance bonds 85

(vii) Deposit refund systems 85

(viii) Removing perverse incentives 86

6. Free market environmentalism 88

7. Conclusion 93

CHAPTER THREE 117

PARTIES, ROLES AND INTERACTIONS 117

1. Third Parties: public interest groups 118

Public interest group-industry interactions 122

Government support for the role of public interest groups 124

Overcoming the shortcomings of public interest group engagement 127

2. Third Parties: commercial 129

 3

Green Consumers 129

Buyer-Supplier Relations 131

Institutional Investors 135

Financial Institutions 137

Insurance Institutions 140

Environmental consultants 142

3. Governing at a distance 145

4. Instrument and institutional interactions 147

A typology of interactions 147

1. Complementary interactions 148

2. "Neutral" interactions 150

3. Counter productive interactions 151

Challenges for regulatory design 154

5. Conclusion 155

PART II 167

REDESIGNING REGULATION: A SECTOR SPECIFIC ANALYSIS 167

CHAPTER 4 168

THE CHEMICAL INDUSTRY 168

Introduction 168

The chemical industry and its environmental impact 169

Characteristics of the chemical industry 171

 4

The regulatory environment and its shortcomings 174

Redesigning regulation: towards efficient and effective policy instruments 179

1. Self-regulation and Responsible Care 182

What is Responsible Care? 183

Can Responsible Care deliver smarter regulation? 186

2. Environmental Management Systems (EMSs) and ISO 14001 197

Can ISO 14001 deliver smarter regulation? 201

Towards a broader policy mix 210

Strategies for regulating large chemical companies 211

1. Measuring environmental outcomes under Environmental Management Systems

(EMSs) 214

2. Third party oversight 219

3. Broader Stakeholder Involvement: Community participation and dialogue 226

4. Regulating at a Distance: Government as backstop 229

5. Incentives for enterprise participation in regulatory flexibility 234

Can Commercial Third Parties Reinforce the Role of Regulatory Flexibility? 243

Utilising supply chain pressure 243

Strategies for regulating smaller players 247

The Role of Private Orderings: Responsible Care and product stewardship 253

Broader lessons 260

1. Instrument Ordering: Towards a "two-track" regulatory strategy 261

2. The Limits of "Stand Alone Instruments": Towards co-regulation and tripartism 265

3. Regulatory surrogates 267

Potential regulatory surrogates and their roles 268

4. De-centering the State: Government as facilitator, catalyst and activator 271

5. Accountability, Transparency and Consultation 273

 5

6. Complementary instrument combinations 276

Activation and reinforcement 277

Using combinations which both "push and pull" 278

Enforcement though complementary combinations 280

Counterproductive mixes and unintended consequences 282

7. Political Acceptability: Achieving win-win solutions 283

Conclusion 284

CHAPTER FIVE: 325

THE AGRICULTURE INDUSTRY* 325

Part 1: The agricultural industry and its environmental impact 326

Threats to land-based biodiversity 327

Agricultural chemicals: pesticides and fertilisers 329

Part 2: Characteristics of the agriculture industry 330

Special features of biodiversity and agricultural chemical use 332

Implications for policy design 334

Part 3: The regulatory environment and its shortcomings 336

Limitations of current regulatory regimes and obstacles to effective policy design 340

Inappropriate incentives 342

Resistance to regulation and compliance. 344

Inadequate regulatory design 345

Failure to facilitate third party action 347

Overview 348
 6

Part 4: Assessing Instrument Options : toward efficient and effective agricultural

policy 350

Information 351

Voluntarism 354

Self-regulation 360

Economic instruments 363

Positive incentives 364

Property-rights and price-based instruments 369

Coercive Sanctions 373

The role of precautionary regulation 377

Instrument interactions 378

Part 5: Institutional influences: the role of third parties 384

Commercial institutions, supply side pressure and sustainable agriculture 384

Institutions of finance and insurance 391

Commercial institutions, third parties, and biodiversity 393

The limits of supply-chain pressure and green markets 395

The contributions of environmental interest groups 396

Part 6: Design considerations 401

1. Instrument ordering 401

2. Institutional Mixes: Utilising third parties 403

3. Economic and Structural Setting 405

4. Design for Precaution 406

5. The First mover problem and moral hazard 408

6. Financially Attractive 411

Conclusion 414
 PART I

PRACTICE AND POTENTIAL IN ENVIRONMENTAL

REGULATION
 8

CHAPTER ONE

INTRODUCTION

Neil Gunningham

One of the crucial issues of our time is how to avoid serious, and perhaps cataclysmic, damage

to the natural environment. The causes of such damage are both complex and controversial, and

arise from a wide variety of social and economic pressures. The results, however, are more

readily apparent. The evidence that pollution, land degradation, de-forestation, ozone depletion,

climate change, and the loss of biological diversity are inflicting serious and in some cases

irreversible damage to the planet which sustains us, is increasingly compelling. 1 Indeed, it is

arguable that the window of opportunity for averting major ecological disaster is a rapidly

shrinking one, and that, in some cases, it may already be too late to prevent ongoing

environmental degradation.2

For policymakers, a variety of strategies are available that might, subject to political and

economic constraints, enable serious environmental damage to be slowed down, halted, or

ideally reversed. This book is about one of the most important of those strategies:

environmental regulation. We use this term, deliberately, in the broadest sense, to include not

just conventional forms of direct ("command and control") 3 regulation - the staple diet of many

politicians - but also to include much more flexible, imaginative and innovative forms of social

control which seek to harness not just governments but also business and third parties. For

example, we are concerned with self-regulation and co-regulation, with utilising both

commercial interests and Non-Government Organisations, and with finding surrogates for direct

government regulation, as well as with improving the effectiveness and efficiency of more

conventional forms of direct government regulation itself.

 9

We do not claim that regulation - even broadly defined - is necessarily the most important

means (and certainly not the only means) of addressing every major environmental problem.

Indeed, so complex are the causes of such problems that their solutions are also likely to be

multifaceted, with regulation being but one component. However, we do claim that regulation

does have a very substantial role to play in protecting the environment, but that most existing

approaches to regulation, are seriously sub-optimal. By this we mean that they are not effective

in delivering their purported policy goals, or efficient, in doing so at least cost, nor do they

perform well in terms of other criteria such as equity, administrative viability or political

acceptability.

The major task of this book is to demonstrate how environmental regulation could be

redesigned so that it would perform "optimally"4 in terms of those criteria (or at least come a lot

closer to it). The central argument will be that, in the majority of circumstances, the use of

multiple rather than single policy instruments, and a broader range of regulatory actors, will

produce better regulation. Further, that this will allow the implementation of complementary

combinations of instruments and participants tailored to meet the imperatives of specific

environmental issues. By implication, this means a far more imaginative, flexible, and

pluralistic approach to environmental regulation than has so far been adopted in most

jurisdictions.

In this introductory chapter, as indeed in chapters two and three, we lay the groundwork for the

substantive task of regulatory redesign which we undertake in parts II and III. First, we provide

an overview of the political and ideological debate about the future of regulation that has

dominated decision making for more than a decade. We suggest that this debate has been a

largely sterile one that has not substantially advanced the cause of environmental policy.

Second, we argue that the germ of a far more fruitful approach is contained in recent theoretical

work in the sphere of legal pluralism, and in the evolution of more innovative policy

instruments in the field of the environment specifically. Third, we show that even these
 10

innovations are insufficient to achieve environmental and economic policy goals. Their

limitations can only be overcome by invoking a broader vision of regulation and by the pursuit

of broader policy mixes, utilising combinations of instruments and actors, and taking advantage

of various synergies and complementarities between them. Fourth, we describe the structure of

the remainder of the book. Finally, we outline our methodology, the normative basis of our

enterprise and the criteria against which we evaluate the success of regulatory design.

Regulation, deregulation and beyond

In broad terms, the history of environmental regulation involves two phases. The first began

around the early 1970s, when governments in most developed countries responded to public

environmental concern by introducing a myriad of regulations designed to prohibit or restrict

environmentally harmful activities.5 By and large, these regulatory approaches have tended to

follow the United States model of "command and control" regulation. That is, legislatures have

proscribed certain behaviour and set up a regulatory agency to monitor and police compliance

with the legal standards. Although this mechanism has never completely displaced other means

of social control,6 it is nevertheless the "reigning conception" which has guided policy-making

for many years.

Yet the strategy of using regulatory agencies to curb the environmental degradation caused by

the behaviour of corporations and others is fraught with difficulty. By the late 1970s it was

evident that much command and control regulation had not turned out the way the policy-

makers had intended. Some regulatory agencies, particularly in the United States, adopted an

adversarial stance towards regulatees which often engendered regulatory resistance and proved

counterproductive.7 Moreover, environmental regulations, both in the United States and

elsewhere, were often inflexible, and excessively costly for business to comply with. 8

Centralised, bureaucratic standard-setting - the centrepiece of traditional forms of command

and control - is now routinely castigated by its critics for being "an inherently inefficient and
 11

cumbersome way to control pollution"9 and for failing to deliver many of the environmental

benefits it promised.10

The critique of command and control legislation can be seriously overstated. Criticism is often

directed at the relatively unrepresentative adversarial approach adopted in the United States,

and fails to acknowledge a significant movement towards more flexible and cost-effective

forms of regulation across a number of developed countries that avoid the worst excesses of

highly prescriptive versions.11 Moreover, some critics conveniently overlook the fact that

regulatory agencies are often constrained or prevented from performing their mandate by lack

of resources or other factors entirely beyond their control. Nor should it be forgotten that,

notwithstanding the serious difficulties confronting many regulatory agencies, command and

control regulation has achieved some significant victories in halting, or at least slowing, some

forms of environmental degradation.12 For example, both water and air quality have been

substantially improved in many jurisdictions over the last thirty years, due in large part to

government regulation.13

However, for reasons described more fully in chapter two, many of the gains have been

achieved at an unnecessarily high social and economic cost, and in an increasing number of

cases, regulation has been demonstrably ineffective.14 There is also considerable evidence that

government regulation, at least in an archetypal form of command and control, has reached the

limits of its technical capacity and cost-effectiveness.15 The low hanging fruit has all been

picked. The overall result is, at best, one of slow progress at excessive cost. Pressures for

governments to reduce outlays and to provide for more competitive business environments, and

for business to keep up with rapidly changing technology, combine to further undermine the

effectiveness of prescriptive government regulation.

Against this backdrop, the neo-liberal critics of the regulatory state, including in particular

some economic rationalists, have been able to mount a credible case for environmental

deregulation. From the late 1970s onwards, they have focused on the shortcomings of
 12

traditional government regulation as a basis for arguing the case for its replacement by market

or property-rights approaches.16

In some areas of social regulation, where previously the state had played a central role, the neo-

liberals were so successful that some twenty or so years of conventional government regulation

(what may be termed the "first phase" of regulation) was followed, in the 1970s and 1980s, by

substantial deregulation (the "second phase"). However, despite their enthusiasm for a

wholesale dismantling of the regulatory state, neo-liberal governments met substantial public

opposition to de-regulation when it came to the environment. Although resources for

environmental regulation suffered badly at the hands of the Reagan and Thatcher

administrations in particular,17 the basic regulatory structures and legislation remained largely

intact.18

Nevertheless, so influential has neo-liberal thinking been at a political level, and so successfully

has economic rationalism dominated social policy debates, that the regulatory climate has been

substantially changed. Regulators are in retreat, reluctant to argue for new or tougher regulation

for fear of alienating either their political masters or influential business lobbies who are never

reticent to suggest that such regulation will make them less competitive, or hasten their move to

another jurisdiction. The current battle between the United States Environment Protection

Agency (EPA) and a number of states which are strongly resisting enforcement of Federal

environmental laws, is perhaps one symptom of this regulatory malaise.19

Even in the unlikely event that pro-regulators were to win such battles, and the pendulum were

to swing back towards more regulation ("bigger and better" regulatory agencies, more

standards, tougher enforcement, etc) this would raise as many problems as it would solve. First,

there is little evidence that policy-makers have overcome many of the serious limitations of this

approach which became evident during the "first phase" of regulation. Second, government

resources are necessarily limited. When premises can only be inspected once every few years,

when inspectors have to rely on industry to self-monitor, when an agency cannot afford the time
 13

or resources to launch prosecutions, then traditional regulatory strategy is inevitably limited.20

As a result, it may well be that in many circumstances, traditional regulation is neither the most

efficient nor the most effective strategy. If so, then it is, at best, only a partial solution, which

should be used selectively rather than "across the board".

Were the pendulum to swing to the opposite extreme, with free market and property-rights

approaches substantially replacing regulation, there is little reason to believe that environmental

outcomes would be any better.21 For reasons we explore in chapter two, the limitations of these

approaches are also severe. As a result, their capacity to deliver optimal environmental

outcomes is, in most cases, even more limited than that of command and control regulation. The

crucial question thus becomes: where should one go next in terms of regulatory policy? None of

the main players can claim satisfaction with the existing state of affairs. There a groundswell of

dissatisfaction with traditional strategies: on the one side from the public and environmentalists

(because they insufficiently improve environmental outcomes); and on the other from business

(because they fail to take account of the pressures of international competition and the need for

economic efficiency). There is also a considerable danger of stalemate. On the one hand, the

push for deregulation has lost some momentum, having proved a less than adequate solution to

many areas of social (as opposed to economic) concern,22 and there remains considerable public

support for direct government intervention regarding the environment. On the other hand,

traditional regulatory approaches seem to have reached their limits, and in any event, fiscal

constraint and government overload (with demands for policy and services exceeding capacities

to respond) combine to threaten efforts to expand such regulation. Moreover, the very approach

of couching the debate in terms of either regulation or de-regulation kindles a spurious and

sterile ideological divide, which inhibits attempts to find solutions containing the best of both

approaches.

In our view, the challenge for regulatory strategy is to transcend this ideological divide by

finding ways to overcome the inefficiencies of traditional regulation on the one hand, and the
 14

pitfalls of deregulation on the other. That is, to move beyond the market-state dichotomy to

devise better ways of achieving environmental protection at an acceptable economic and social

cost. This will involve the design of a "third phase" of regulation: one which still involves

government intervention, but selectively and in combination with a range of market and non-

market solutions, and of public and private orderings. Given the political and fiscal constraints

under which governments now labour, it will be crucial to harness resources outside the public

sector in furtherance of government policy. In the following chapters we will demonstrate ways

whereby these goals may be achieved, and opportunities for environmental innovation,

regulatory flexibility and improved environmental performance but without the use of greater

government resources. Among these opportunities are those which flow from naturally

occurring market phenomena, and from other commercial influences. These and other

mechanisms may be enlisted in furtherance of "governing at a distance".23

In approaching regulatory strategy in this manner we are not alone. In the broader arena of

public policy generally, the substantial failings of both traditional government regulation and

market-based solutions have already prompted a search for innovative and more effective

alternatives. Osborne and Gaebler’s (1992) "Reinventing Government" is probably the most

well known and influential attempt to devise a new regulatory agenda in these terms. 24

The authors challenge the conventional wisdom that the only way out of our repeated public

crises is either to raise taxes or to cut spending. On the contrary, they offer a third option,

namely transforming how we go about providing services so as to improve both efficiency and

effectiveness. They suggest that the fundamental issue is not how much government we have,

but what kind of government. In their words: "we do not need more government or less

government, we need better government".25

Our quest is in some respects a similar one, though the answers we provide are both

substantially different from theirs, and addressed to different issues of social policy. We would

nevertheless agree with the general sentiment that we need to pursue "smarter regulation",
 15

which for our purposes means that which promises improved environmental performance, but at

a price acceptable to business and the community.

Building on what we've got

In pursuing our quest for "smarter regulation" we draw sustenance from two sources: one

theoretical and academic; the other pragmatic and policy oriented. While both illuminate our

search, neither provides the answers we seek.

Turning to the former, there is some evidence that a new paradigm for the analysis of regulation

may be evolving: one capable of transcending the regulation-deregulation dichotomy and of

providing a much broader perspective of what regulation can involve. 26 The most influential

work within this paradigm, is that of Ayres and Braithwaite who argue the case for "responsive

regulation" capable of providing "creative options to bridge the abyss between deregulation and

proregulatory rhetoric"27 and of achieving "win-win" solutions through innovations in

regulatory design. In particular, they emphasise the contributions of enforced self-regulation

(whereby regulatees develop their own compliance program, which is then subject to approval

by regulatory authorities) and regulatory republicanism (where an enlightened private sector

and an informed public, through deliberation and constructive participation, can contribute

productively to the regulatory process). We build both on that work and more generally, on the

broader literature on legal pluralism to which it is related.

Scholars within the legal pluralism tradition focus upon the interrelationship between state law

and private forms of social control and conflict resolution. They recognise that the law is just

one element in a web of constraint on behaviour, some of whose strands are barely discernible,

and many of which are non-governmental.28 For our purposes, the central insight of legal

pluralism is that, contrary to conventional wisdom, most regulation is already "in the hands not

of government officials but of the myriad individuals employed in the private sector" 29 and that

often more can be achieved by harnessing the enlightened self-interest of the private sector than
 16

through command and control regulation. It is through the theoretical lens of pluralism, that we

will elucidate the relationships which exist between the state, industry, and third parties, and

the way in which the law relates to each, operates in the shadow of the other. 30 From this

perspective, the limitations of a government-specific approach become readily apparent, as do

the virtues of "de-centering the state" and developing a broader and more inclusive conception

of the regulatory process.31

However, beyond these general perspectives, there has been little analysis of regulation which

assists in addressing the central theme of this book: the design of efficient and effective

"optimal" policy mixes. For example, little work has been done to assess the relative advantages

of different combinations of mechanisms in different institutional, economic or social contexts.

Neither is there any substantial body of literature which assists in addressing specifically

environmental issues in the broader manner we envisage. For example, the environmental

literature substantially overlooks means by which public agencies may harness commercial

institutions and resources residing outside the public sector to further policy objectives, or how

governments might foster conditions conducive to the operation of "naturally occurring" private

initiatives. Mitchell's sophisticated analysis of oil pollution and of the role of classification

societies in preventing ballast discharges at sea, is perhaps the most striking exception. 32

Our second source of sustenance in designing smarter regulation is the rapid expansion of

different types of environmental policy instruments over the last decade. These policy

innovations include: self-regulation and co-regulation; environmental audits; environmental

management systems (EMSs); eco-labelling schemes; liability rules for banks and insurers;

environmental reporting; community right to know legislation (CRTK); and good neighbour

agreements.33

While these instruments open up a range of policy options far broader than traditional

regulation, they have rarely been used to their full potential. This is because most of these

developments have been driven by pragmatic policy considerations and the desire to rectify
 17

specific problems, rather than by broader theoretical concerns. As a result, they have also

tended to develop in an ad hoc manner, often without any serious attempt to design them as part

of an integrated system. Nor has there been much systematic enquiry on how such instruments

might interact with each other and other forms of regulation.34 Rather, policy-makers have

commonly fallen into the trap of simply adding a new instrument to their arsenal of weapons

without giving sufficient thought to how this will impact on their overall regulatory strategy.

Also introduced, but with a much more coherent and sophisticated theoretical underpinning,

have been a range of economic instruments including taxes, charges and tradeable property and

pollution rights.35 However, even most of the economic literature shows only a limited

appreciation of the extent to which some economic instruments at least might be viewed not

just as a complement to direct regulation, (or a more flexible form of it), but integrated with a

range of other policy instruments.36

Overall, there remains a tendency to treat the various policy instruments as alternatives to one

another rather than as potentially complementary mechanisms capable of being best used in

combination.37 As a result, policy analysts have tended to embrace one or other of these

regulatory approaches without regard to the virtue of others. Perhaps predictably, economists

have focused on economic instruments, lawyers and government regulators on direct regulation,

industry on self-regulation, and scientists on research.38

We will argue such "single instrument" or "single strategy" approaches are misguided, because

all instruments have strengths and weaknesses, and because none are sufficiently flexible and

resilient to be able to successfully address all environmental problems in all contexts.

Accordingly, we maintain that better strategy will seek to harness the strengths of individual

mechanisms while compensating for their weaknesses by the use of additional and

complementary instruments. That is, we will argue that in the large majority of circumstances

(though certainly not all), a mix of instruments is required, tailored to specific policy goals.

Moreover, such a mix of instruments will work more effectively if a broader range of
 18

participants are capable of implementing them. This means the direct involvement not only of

governments (first parties) but also of business and other "targets" of regulation (second

parties) and a range of other interested actors (third parties), both commercial and non-

commercial. To date, the use of third parties has been restricted to public interest and

community groups. Commercial third parties, in particular, remain a largely untapped resource

in the environmental arena, despite their considerable potential to act both as quasi-regulators

and to influence the behaviour of regulatees more generally.

Towards a successful policy mix

The central thesis of this book is that recruiting a range of regulatory actors to implement

complementary combinations of policy instruments, tailored to specific environmental goals

and circumstances, will produce more effective and efficient policy outcomes. Further, that this

approach will reduce the regulatory burden on government, thus freeing up scarce public

resources to be allocated to situations where government intervention or assistance is most

required.

We place particular emphasis on the potential for second and third parties (business or

commercial or non-commercial third parties) to act as surrogate or quasi-regulators,

complementing or replacing government regulation in certain circumstances. We do so not to

fulfil the ideological agenda of deregulation39 but because we consider that it will build a more

robust and comprehensive policy mix than traditional approaches, at the same time as achieving

more cost-effective outcomes for business. We will demonstrate: how commercial actors can

exert controlling influences in furtherance of environmental protection in addition to (and at

times, in excess of) those which governments may contemplate; how scrutiny on the part of

public interest groups can often supplement vigilance which might be exercised by government

agencies; and also, how the government can facilitate greater third party involvement in support
 19

of the public interest, thereby deriving considerable policy leverage by harnessing external

resources and by facilitating private orderings in furtherance of environmental protection.

We do not, however, advocate a smorgasbord approach, where the greater the number of

different instruments and actors the better. There are limits to government and private sector

resources which necessitate a careful selection of the most cost-effective regulatory

combinations. There are also limits to the administrative burden that can reasonably be placed

on regulatees in satisfying a multiplicity of regulations. Excessive administrative burdens may

well divert internal firm resources away from more productive pollution prevention activities.

Finally, appropriate mixes of instruments and actors will vary depending on the nature of the

environmental problem and industry sector or sectors being addressed, making it difficult if not

impossible to generalise concerning optimal combinations.

Nor do we assume that any combinations of instruments will be better than a single instrument

approach. On the contrary, different combinations of instruments, or the introduction of a new

instrument to an existing policy mix, could have a variety of effects, not all of which are

positive. These range from synergy (where two instruments enhance each other's effects) to

neutralisation (where one instrument negates or dilutes the effects of another). For example,

uniform pollution standards for individual firms may well undermine the efficiency of a broad-

based pollution tax.40 What is needed then, is not simply the introduction of a broad range of

policy instruments, but the matching of instruments with the imperatives of the environmental

issue being addressed, with the availability of different regulatory actors, and with the intrinsic

qualities of each other.

We are not alone in advocating the need to design optimal (or at least better) policy mixes. By

the mid 1990s there was a growing recognition that this was a vitally important issue of

environmental policy. By this time, dissatisfaction with the regulatory status quo and the

deregulatory alternatives, had spawned a number of suggestions, at international, regional and

national levels, for such an approach. At international level, references to the concept of
 20

regulatory mix (though not how to achieve it) are to be found as early as 1992, in Agenda 21,

the main policy document to emerge from the Rio Earth Summit.41 Regionally, the clearest

statement is contained in the European Union's Fifth Action Program which aspires to "create a

new interplay between the main groups of actors (government, enterprise, public) and the

principal economic sectors (industry, energy, transport, agriculture and tourism) through the use

of an extended, and integrated range of instruments".42 Similar sentiments have also been

expressed at national level in a number of jurisdictions,43 and by organisations such as the

Business Council for Sustainable Development.44

Yet despite these expressions of support for a new approach to regulation involving a broader

range of instruments and parties, little attempt has been made to operationalise it. As the OECD

put it in 1997: "instruments, while pervasive, are the least analysed [public management tool].

When they are analysed, they tend to be studied individually rather than comparatively". 45 In

the United States, Europe and elsewhere, there are increasing calls to go "beyond command and

control regulation"46 but without any clear sense of direction as to what this might mean.47 And

while the United States EPA had by the late 1990s introduced a range of more flexible

programs that sought continuous improvement and reflect collaboration with stakeholders, 48

these remain marginal to its central mission and have so far produced only very limited

results.49 Similarly, in Europe, there remains heavy reliance on command and control as the

basic policy instrument,50and only very limited experimentation with instrument and policy

mixes.51 The Fifth Action Program, the vehicle most likely to develop a broader approach, was,

according to a report in late 1996, still making extremely slow progress and was nowhere near

completion.52 The record of some individual countries is also disappointing. For example, in the

United Kingdom, two high level reports in the same year both identified inertia as the dominant

government response to a range of important sustainability issues.53

Nor has there been any substantial advance in thinking about regulatory mixes at the theoretical

level. Certainly, the Organisation for Economic Co-operation and Development (OECD), long a
 21

leader in both monitoring and developing the environmental regulatory agenda internationally,

now explicitly acknowledges that combinations may be more valuable than individual

instruments acting alone. However, it has not yet engaged in the crucial task of theorising how

this might be brought about.54 That is, while the breadth of the OECD approach is to be

applauded, it has still not taken the next crucial step of identifying which complementary

combinations of instruments in conjunction with the use of what broader range of regulatory

actors are likely to be complementary rather than counterproductive, or of identifying how to

integrate different instruments and actors to produce an optimal regulatory mix. It is equally

true of sustainability policies more generally that, as Dovers points out, "rarely have criteria for

choosing between different instruments been made explicit and applied rigorously".55 Even less

attention has been paid to identifying criteria for choosing between different combinations of

instruments and institutions.

Perhaps the closest approximation to the ideals expressed in this section is to be found in

attempts by a few nations to design individual environmental strategies in ways which, without

articulating the importance of mixes in regulatory design, nevertheless embody some important

principles of such design. The Dutch approach to Internal Company Environmental

Management56 and to environmental covenants,57 initiatives in the United States such as Project

XL and the Environmental Leadership Program,58 and the efforts of some Australian States to

reform the principles of their pollution legislation are good examples59.

In summary, despite a recent and growing recognition of the importance of "regulatory mix" as

a research and policy issue, very little work has been done to put the concept into practice, to

show what it would mean in specific circumstances, or to design a set of principles and policy

prescriptions to achieve it. The task of this book is to fill that gap.
 22

The structure of this book

The book is in three parts. Part I (comprising chapters one to three) is introductory and provides

a context for the main body of our argument. Before one is in a position to design principles for

optimal (or at least better) environmental regulation and regulatory mixes, it is necessary to

survey the regulatory terrain. That is, one must identify the range of instruments and actors

available for recruitment to the regulatory cause, the policy levers which government can pull

to activate their engagement, the underlying properties of instruments and parties which

determine complementary regulatory combinations, and the means of avoiding dysfunctional

combinations. These issues are addressed in chapters two and three.

Specifically, in chapter 2, we review the main instruments available and, in chapter 3, the main

institutional actors who might be capable of implementing them: the government regulator; the

companies and industries which are the targets of regulation; and the "third party" participants,

both commercial and non-commercial. We identify the strengths and weaknesses of these

instruments, the circumstances where they have most potential, and the extent and means

whereby government might exploit them to optimal effect. We also explore the roles which

different parties might play in achieving optimal mixes and their broader contribution to

environmental policy. We also address the issue of instrument interaction, and discuss some of

the forms in which regulatory instruments, broadly defined, might combine with positive or

negative consequences.

In part II (comprising chapters four to five), we explore the issues of regulatory design and

policy mix as they relate to the chemical industry and critical aspects of agriculture, drawing

our examples from North America, Western Europe and Australia. The reasons for choosing a

sector-specific approach are addressed in the methodology section below. In essence, much

richer results are likely to be gained from concrete context-specific study than from an abstract

or generic approaches. The two sectors upon which we focus have been chosen to provide a

representative range of regulatory structures, strategies and actors, of environmental issues and
 23

institutional capacities. The threats we examine within these sectors pose different

environmental risks, elicit the attention of different institutional actors, and are amenable to

different combinations of regulatory instruments. These two sectors, industry and agriculture,

are also vitally important in environmental policy terms.

In chapter four we examine means of reducing point-source pollution in the chemical industry,

and in particular, of ameliorating major risks to the environment caused by toxic emissions to

air, land and water. The chemical manufacturing industry is diverse, comprising large multi-

national industrial corporations with sophisticated environmental compliance programs, their

buyers and suppliers, and small "backyard" operations where knowledge of regulatory

requirements may be largely lacking. The organisational structure of the industry exists in a

network of relationships with insurance and other commercial institutions having a direct

interest in the environmental performance of chemical manufacturers. As we shall see, the

structure of the chemical industry suggests the possibility of effective co-regulation (utilising

Responsible Care, EMSs and Product Stewardship programs), of major third party involvement

(buyers and suppliers, local communities, public interest groups, trade unions, and

environmental auditors) in conjunction with information-based strategies (CRTK).

In chapter five we examine means of addressing two crucially important environmental threats

as they relate to the agricultural sector: biodiversity loss and non-point source pollution caused

by pesticides, fertilisers and agricultural by-products. As we will see, biodiversity has a number

of features which distinguish it from more conventional resource management issues and which

make it a particularly important subject for policy research. These include the fact that much

biodiversity loss is irreversible; that it is subject to threshold effects; and that it commonly has

no immediate economic value. The use of agricultural pesticides and fertilisers, which may

cause serious damage not only to organisms and ecosystems but also to human health, gives rise

to a different set of policy challenges. These include: the need to remove various perverse

incentives which traditionally encouraged unsustainable farming practices; the importance of

 24

fostering peer-to-peer education in furtherance of environmentally friendly agriculture; and the

potential for fostering consumer demand for low input products.

In both cases, the reach of traditional regulation, and the opportunities of policing it effectively,

are likely to be very limited. The alternatives however, differ substantially with the different

features of biodiversity and non-point source pollution. One important differentiating factor is

whether or not the producer’s interest and the public interest converge. Biodiversity

conservation, at least those aspects dependent on habitat preservation, will usually entail some

degree of sacrifice on the part of the producer. By contrast, agricultural practices based on low

inputs and encouraged by consumer demand, can sometimes be more profitable than "farming

as usual".

More generally, the agricultural sector provides unusual and promising examples of

constructive engagement of interest groups and industry. Markets, both domestic and

international, are greater potential instruments of control than governments and investors and

financiers in particular, and may have a profound influence. In addition, the prospective

contribution of the environmental services sector to agricultural enterprise may also become

important.

In our approach to both the chemical industry and to agriculture, we adopt a common structure.

We begin by providing a profile of the industry sector and by identifying those characteristics

that are likely to be important in identifying workable instrument and actor combinations. We

outline the existing regulatory and policy regimes and their strengths and limitations, and

suggest which new instruments and institutional forms might constructively operate there. We

then argue the case for redesigning regulation to achieve policy mix appropriate to the

particular circumstances of that industry, and in accordance with the general approach which

we outlined above.
 25

Finally, in part III (chapter six) we distil the conclusions and insights of the previous chapters,

and extrapolate from the industry sector studies to draw more general conclusions about

regulatory and policy design. Specifically, our central task is to identify a set of processes,

principles and policy prescriptions that can be applied to a wide variety of environmental

circumstances, which will guide policy-makers in implementing policy mixes of instruments

and participants. These policy principles would be capable of matching instruments and

potential regulatory participants with each other and with the characteristics of the

environmental problem at hand. In particular, we devise a robust theoretical underpinning of

regulatory design that transcends the limitations of single instrument and party approaches.

Armed with such knowledge, policy-makers will be in a much stronger position to devise

improved regulatory solutions.

How we approached our task: assumptions, evaluation criteria and methodology

The normative basis of our study

Our approach to the task of designing regulatory policy is principally normative. It is from the

standpoint of public policy that we address questions of regulatory strategy: in what

circumstances and to what extent can regulation safely be left to industries themselves? When

government intervention is necessary what forms should it take? What are the implications of

adopting one form of regulation rather than another? What are the appropriate roles of third

parties? How can we achieve smarter and more effective regulation? Our concern in each case

is to suggest ways in which policy-makers, acting in good faith and intending to design

successful environmental regulation, might best approach that task.

This last statement is almost certain to raise the hackles of public choice theorists and to be

regarded by them as, at best, naive. These theorists suggest that the process of establishing and

implementing regulation is susceptible to corruption, that regulatory officials are vulnerable to

capture or prone to engage in rent seeking behaviour to further their own ends and that
 26

politicians pander to noisy lobby groups at the expense of the community as a whole. 60 Even

public interest groups, which ostensibly seek interventionist policies to protect the environment,

may in reality have much baser, self-serving motives.61 The public choice solution is to remove,

as far a possible, the target of special interest group influence (ie government) from the

regulatory process.62 Instead, free market environmentalism and a property-rights approach are

favoured .63

We do not deny that regulatory agencies are organisational entities with their own agendas,

seeking to cope with often turbulent, unpredictable and highly politicised environments. 64 Nor

can we offer any definitive solutions to the democratic and bureaucratic politics ("politics

without romance"65) identified by public choice scholars and others.66 However, the public

choice critique can be overstated.67 Indeed, on the basis of a broad review of the evidence, it

would be hard to deny that in some circumstances broader considerations of the public good do

prevail.68 As Howse, Pritchard and Trebilcock put it:

there appear to be no iron-clad rules of politics that render insurmountable the challenge of

devising institutions that allow government to act with speed and flexibility, and that ensure

that policies reflect a principled deliberation on the entire range of legitimate interests and

values that are at stake.69

Moreover, we contend that for government to simply walk away and leave environmental

protection to unfettered market forces, as some public choice theorists would advocate, is really

no solution at all.70 Instead, following Yeager71 we argue that "the primary institutional goal is

to produce rules that have a reasonable chance of surviving the inevitable political and legal

attacks and that are capable to a tolerable degree of effective implementation in the real world".

We consider that a pragmatic approach to regulatory design, where government is relatively

unencumbered by the ideological baggage of the regulation versus deregulation debate, and

seeks to harness the resources of a range of potential participants, has the greatest chance of

avoiding the types of political and bureaucratic manoeuvring that public choice theorists so
 27

72
despise. As Mendeloff points out, it is no coincidence that it is "when creative professionals

and politicians have been relatively free to shape programs without strong pressures from either

pro- or anti-regulatory ideologies" that many of the most worthwhile regulatory measures have

been adopted.

By sharing the regulatory burden between a range of participants, the chances of any one

participant pursuing an agenda not in the public interest will be minimised. For example, it is

unlikely that commercial third parties will be influenced by political lobbying. Again, a

substantial part of our agenda is to identify opportunities for win-win solutions, and to design

policy mixes that maximise these opportunities. To the extent that this can be done, the problem

of self-interested lobby groups seeking to block regulatory reform, necessarily recedes.

Evaluation criteria: what we mean by "optimal"

Unfortunately, despite substantial analysis and discussion in the literature, it is not immediately

obvious how one judges whether or to what extent a particular policy has been "successful", or,

to use the narrower, technical term favoured by economists, "optimal". And yet this is

fundamental to the task of designing optimal policy mixes. Regulatory or social policy goals are

rarely spelled out in statutes themselves, at least in terms that are capable of measuring their

relative success or failure. Different groups with an interest in the outcome of legislation will

themselves often disagree sharply about what a successful outcome would be. So how are we to

determine what a successful policy would look like?

This problem has increasingly occupied that minds of policy-makers and others in recent years.

For example, the OECD has identified flexibility, efficiency and cost-effectiveness as important

indices of success, not only in its studies of economic mechanisms but also more broadly. 73

Many other policy-making bodies, academic think tanks and individual writers have come up

with other lists, no two of which apparently coincide.74 Indeed, there is almost no limit to the
 28

number and range of individual characteristics that could be legitimately used to assess

regulatory performance.

In the absence of any consensus on precisely what criteria a successful regulatory strategy

should satisfy, and with no value-free way of establishing any, it falls upon us to identify our

own preferred criteria and our reasons for choosing them. We are influenced in part by

pragmatism: we could not develop a set of regulatory design principles that seeks to

accommodate a broad range of assessment criteria because using a large number of variables

would make it impractical to account for all the various interactions and permutations that

would arise.75 For this reason we narrowed down the available assessment criteria to four core

objectives. The ones we chose are relatively uncontroversial. 76 They begin with the three which

find their way into almost all lists:77 "effectiveness (contributing to improving the

environment);78 efficiency (improving the environment at minimum cost within which we

include administrative simplicity); and equity showing fairness in the burden-sharing among

players to which we add political acceptability (which includes factors such as liberty,

transparency, and accountability).

Of these, we chose to make effectiveness and efficiency the pre-eminent criteria, because we

believe that 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. Certainly this is not always so, and proponents of environmental justice would

understandably put equity at the top of their list.79 However, to follow the latter approach,

would involve us writing a very different book, with a very different title.

In any case, we consider effectiveness and efficiency to be the two criteria most likely to yield

substantial results in terms of improved environmental performance. These criteria are the

essence of the term "optimality", which is concerned with whether instruments will do the

desired task and at an acceptable performance level. As economists use these terms in defining

optimality:
 29

By efficiency is meant the static aspects (ie what levels of administrative costs are

associated with the instruments) and the dynamic ones (eg to what extent will the various

instruments induce technological innovation or diffusion). By effectiveness is meant the

degree to which the determined environmental objectives are achieved through the use of

certain instruments.80

The term "optimal" is therefore a convenient shorthand to encapsulate our core goals in

designing systems of regulation. However, to the extent practicable, we will also be mindful of

the remaining two criteria, at least where they are likely to be of major significance. For

example, in the circumstances of the chemical industry, we argue the case for greater

community participation and oversight, on the basis that participative democracy (and, in terms

of our criteria, political acceptability) will be crucial to the credibility, legitimacy and success

of a more flexible co-regulatory regime, while recognising that this is at odds with economic

efficiency.

As a result of our selection and prioritisation, our study is not all encompassing: we do not

purport to design a quantitative, interactive model of a regulatory system that integrates a wide

range of assessment criteria. However, we do provide a framework with the ability to suggest

useful generalisations - in Breyer’s terms, "generalisations that are broad enough to cover more

than one regulatory program but specific enough to impart useful knowledge" 81 and in so doing

we hope, through the design of policy mixes, to make a significant contribution to the

environmental policy debate.

Even when employing relatively narrow defined assessment criteria such as we have proposed,

further thorny questions may arise concerning how one actually quantifies effectiveness and

efficiency. In many circumstances, particularly when a policy is comparatively new or untried,

no objective measures of success or failure will be available. 82 The use of various cost-benefit

assumptions, including the time scales under which they operate, will inevitably be contentious.

For example, those who take seriously issues of intergenerational equity are likely to take a
 30

very different view from those whose major concern is profit levels in the next five years.

Depending where one sits on the environmental spectrum, one's views on effectiveness and

efficiency will be coloured by different imperatives.

This is also a problem that is easier acknowledged than overcome. When discussing

effectiveness and efficiency, we will be mindful of the contentious nature of these concepts and

careful how we use them. In doing so, we are influenced by three meta-principles which are

increasingly recognised both in international agreements and in national legislation: those of

inter-generational equity; the precautionary principle; and the polluter pays principle. 83 We

have also striven to take account of the opinions and beliefs of the major players involved -

those who have most experience of the impact of particular instruments in particular regulatory

settings. Although this does not provide an independent and objective measure of regulatory

effectiveness or efficiency, it does both sensitise us to different perspectives, and teach us a

great deal about the limitations and potential of different regulatory strategies. Such accounts

may be particularly valuable when we have a paucity of independent evidence, as is all too

frequently the case.

There is a further and serious difficulty associated with use of assessment criteria that is

conveniently avoided by much of the existing literature. There will often be a tension between

different criteria, which existing "lists" do little to resolve. For example, it is not always

possible to reconcile efficiency goals with other public values, such as equity and transparency.

And yet several commentators84 assume that solutions can be arrived at which simultaneously

achieve efficiency, effectiveness, and equity, while others ignore the problem entirely. Yet if

such tensions cannot always be avoided (and the evidence suggests they cannot) then what

principles do we use to make policy trade-offs between them? We face a normative dilemma,

and must invoke value-judgments in allocating weightings to different criteria. Our own view is

that the weightings of different criteria should vary with different environmental problems. For

example, certainty and effectiveness will be more prominent in cases where irreversibility is at
 31

stake, transparency and consultation will be highlighted when local communities are put at risk

and efficiency and flexibility will be relatively more important when there are large differences

in the capacities of firms to reduce pollution.

To an extent, we can extract ourselves from some of these complex normative dilemmas, by

stepping back from the setting of policy goals and putting ourselves in the position of policy

advisers. We would claim that, for whatever environmental policy goal a particular decision-

maker wishes to achieve, with whatever weightings of different assessment criteria, we can

advise how to go about the task of designing it for optimal results (as defined by the decision-

maker). If we adopt this role, then we have no need to buy into arguments about, for example,

the time frame within which efficiency or effectiveness should be measured, or even how to

resolve the largest tension of all between environmental protection and economic growth.

As to this last issue, for better or worse, the concept of "sustainable development" has been

adopted by governments as the most appropriate policy response. In essence, sustainable

development refers to "development that improves the total quality of life, both now and in the

future, in a way that maintains the ecological processes on which life depends". 85 The reduction

of poverty itself is seen as a necessary pre-condition for improved environmental practices.86

The origin of the concept of sustainable development can be traced back to the United Nations

Conference on the Human Environment, Stockholm, 1972, and the World Commission on

Environment and Development 1987, where the central importance of human economic well-

being was recognised and entrenched in policy statements. More recently, at the 1992 United

Nations Conference on Environment and Development (the "Rio Earth Summit"), the principle

of sustainable development was recognised in the Rio Declaration, and has subsequently been

incorporated into several international environmental treaties and the political discourse and

legislation of many national governments. The shift from unsustainable to sustainable growth

patterns has been identified as probably the most complex policy agenda facing governments
 32

today.87 It is a task that, if it is to be fulfilled, will require a major reorientation of economic,

political and other institutional structures and processes.

In this book, while acknowledging the enormity of the task at hand, and the need to address the

fundamental drivers of unsustainable development in a multi-faceted way, we maintain that

environmental regulation (broadly defined) is and will remain an important part of the policy

solution. At a practical level, the vast majority of governments in industrialised countries, and

increasingly developing countries, will continue to depend on regulatory policy to achieve

specific environmental objectives. The challenge we seek to address, therefore, is not to

articulate the policies of sustainable development in a broad sense, but rather how best to

design successful systems of environmental regulation once those superordinate goals have

been established.

Finally, we refer throughout the book "optimal policy mixes" and we should clarify what we

mean by this concept. We use the term "optimal policy mix" as a convenient shorthand to

signify our aspiration to design the best possible environmental policy (in terms of our core

assessment criteria of effectiveness and efficiency) using a broader combination of instruments

and actors.

However, we must state plainly that an optimal mix (measured against a particular weighting of

social objectives, addressed to a particular environmental problem) is an ideal that may never

be attained - not least because of the difficulties of identifying the effects of particular policies

at the margin and in combination with each other88 and because of the political obstacles

identified by public choice theorists and others. In practice it may well be that the best we can

do is identify better, rather than best (optimal) strategies, and in doing so, we have to be careful

to identify the tensions between efficiency and effectiveness and of the values underpinning any

particular trade-off.
 33

It is nevertheless worth striving for, and even when we fall short of fully achieving it, the

framework presented will be important in evaluating the strengths and weaknesses of particular

regulatory strategies, in suggesting which changes in regulatory policy are likely to be in the

right direction, or which sorts of regulatory strategies work best for dealing with certain types

of problems and in identifying which ones are likely to be counterproductive. If, as a minimum,

we provide an analysis and a framework which enables policy-makers to design mixes which

substantially improve the status quo, then this in itself will be a useful contribution. Given the

underdeveloped nature of the debate about regulatory strategy, and the paucity of what we

currently know about effective and efficient regulatory design, what we undertake is still a

significant step forward in public policy.

Methodology

Our subject matter is environmental regulatory design and policy mix as it has been, or might

be applied to advanced industrialised countries. It is in western democracies that environmental

regulation is most developed, and the array of regulatory and quasi-regulatory institutions most

active. The rest of the world will be able to learn from the innovations, the successes, and the

failures, of the West. In examining the value of existing and embryonic policy instruments and

mixes, and the role of a broader range of institutional actors, we draw on experience in the use

of those approaches in North America, Western Europe and Australia. Given inevitable

resource constraints, we have necessarily been selective in our approach.

Particular attention is given to the United States (whose regulatory system is at one extreme in

terms of its legalistic and adversarial nature), to Australia (which is representative of a very

different approach)89 and to selective examples of innovation in regulation and environmental

policy in some Western European countries and Canada from which there is much to learn. For

example, in the case of the chemical industry, the most important development of the last

decade has been Responsible Care, an advanced and sophisticated self-regulatory program.
 34

Since this is still evolving, our focus was on the three counties which first adopted it and which

have made most progress with it: Canada; the United States; and Australia. Also in the case of

chemicals, the Dutch model, based on an industry sector approach, a national environmental

plan, and environmental covenants, provides particular insights on innovative regulatory

design, while the British approach to integrated pollution control presents both an opportunity

but also a particular challenge, to the chemicals sector.90

In studying biodiversity within the agricultural sector, our initial focus is on Australia: the only

developed country amongst the twelve nations which are classified as "megadiverse", and in

part for this reason an innovator in seeking means to discharge its responsibilities under

international agreements for the protection of biodiversity. We compare the Australian

approach with that adopted in a number of other developed countries, in seeking to draw

broader lessons for the design of optimal policy mixes.

In the central chapters of this book we adopt a sector-specific approach rather than seeking to

identify optimal mixes in the abstract. This is because what works and what doesn't work is

usually highly dependent on the particular characteristics of the industry or environmental

threat at issue. So complex and various are the causes of environmental degradation and the

circumstances in which they arise that no single instrument, and indeed no single mix of

instruments, could conceivably be successful in addressing all or even most of them. As a

result, generalisations are extremely hazardous. In short, the complexities of social, economic

and ecological processes preclude simple broad-brush solutions.91 The only answer to the

question: "what is the optimal combination of instruments and mechanisms?" is: "it all

depends". As one recent study put it: "a priori rules are inferior to case-by-case analysis".92

For these reasons, research needs to address regulatory design at a lower level of generality: to

identify specific policy strategies in specific social, economic and institutional contexts. A

sector-specific approach is one way (though not the only way) to do so. An equally legitimate

approach would have been to take environmental threat(s) (for example ozone depletion,
 35

sulphur dioxide emissions) rather than industry sectors as the focus of study, though within the

confines of a single book it was not possible to do both.

There were strong reasons for preferring the first of these options to the second. Crucially, in

redesigning environmental regulation, one does not start with a clean slate. There are already

layers of existing environmental policy only very limited amounts of which are likely to be

dismantled in the future. A sector-specific approach is likely to complement what already

exists,93 whereas a threat specific approach is likely to confront the problem that existing

regulations and policy interventions are commonly not threat specific. The result is that options

that in the abstract might be optimal, would (given existing policy distortions) in reality

produce seriously sub-optimal outcomes.

Certainly, we are able to derive lessons of much broader application from these sector-specific

studies. They provide important "testing grounds" enabling the development of policy

prescriptions and design principles of general relevance. However, most of the latter will be

principle or process-based rather than outcome oriented or concerned with general policy

prescriptions and we have no illusions of being able to identify single policy mix(es) of general

application.

In arguing for redesigning regulation, and in particular, in arguing for the construction of

broader policy mixes, we both seek to build on lessons from the past, and to design as yet

untried approaches for the future. As to the former, (what works, what doesn't and why) we

draw on the history of environmental regulation in a number of jurisdictions as indicated above,

and on our study of particular industry sectors. However, in examining innovative policy

mechanisms it must be acknowledged, as the OECD has put it, that: "little is known about their

effectiveness, efficiency, or administrative implications compared to traditional regulation, nor

about how they can best be implemented".94

 36

As to the latter (what might work in the future), we face the difficulty that it is not possible

formally to test our proposals against real world experience. 95 The empirical component of our

research was conducted very much with this problem in mind. Every attempt was made, first to

glean the experience of the main groups of industry participants as to what sorts of instrument

and party combinations might be practicable, and second (at an advanced stage in our research)

to anticipate problems with our draft recommendations.

In the case of the chemical industry, (where our principal focus was on Responsible Care, and

environmental management systems) we relied substantially on interviews with a broad cross

section of industry participants. We spoke to corporate executives, industry group officials,

regulatory executives, public interest group leaders, environmental auditors, environmental

lawyers, financial institutions and members of the insurance industry. We sought to discover

how each of these interests perceives the involvement of themselves and of other actors in the

regulatory process and how those actors are seen to facilitate or inhibit attaining the goals of

efficient and effective environmental policy. We were equally concerned to ascertain how, and

in what circumstances alternative regulatory instruments or combinations were seen as likely to

make a contribution to the overall policy mix.

In the case of agriculture, we spoke to producers, industry representatives, regulatory officials,

interest group members, as well as participants in the environmental services industry. In

addition, we drew significantly from many informants contacted in the course of a related

project on the use of incentives for biodiversity conservation in which we were engaged during

the period 1994-5.96

The principal form of data collection was semi-structured interviews conducted by one or other

of the principal investigators. These were conducted with a representative sample of the groups

identified above. This sample was supplemented by strategically targeted interviews with other

key actors identified on the basis of "snowball" sampling. Snowballing enables the researcher

to identify key players and to "find the principles underlying the field in the minds and
 37

strategies of the people who operate in and around the borders of the field". 97 In respect of

access, much information is on the public record and there was a high response rate. Less than

10% of prospective respondents declined to be interviewed, most commonly through

unavailability rather than unwillingness. These interviews provided substantial qualitative data

for analysis.98

Summing up

The less than satisfactory performance of both direct government regulation and market de-

regulation has forced a critical re-examination of current regulatory strategies. This in turn has

led to considerable experimentation throughout the industrialised world with alternative policy

mechanisms such as economic instruments, self-regulation and co-regulation, and a variety of

information-based strategies.

This book offers a new approach: identifying optimal combinations of market and non-market

policy instruments which effectively harness the different regulatory participants to meet the

twin objectives of economic efficiency and environmental effectiveness. In particular, it

establishes a regulatory design process which can guide policy-makers in avoiding the excesses

and inefficiencies of stand alone command and control regulation on the one hand and the

pitfalls of de regulation on the other, while capitalising on the virtues of each.

The book should be of particular interest to regulators and policy makers seeking to fulfil their

mandate of achieving improved environmental outcomes at an acceptable social and economic

cost, and to construct policies which improve outcomes for both the environment and business.

In addition to suggesting means of achieving optimal policy mixes (or at least getting closer to

them) it will give policy-makers an opportunity to explore a broader range of strategies before

choosing a solution to a regulatory problem. In particular, it suggests ways: to make more

effective use of scarce regulatory resources; to develop more efficient regulatory strategies; to

"take the heat" off command and control regulation; to achieve cheaper, more cost-effective
 38

means of achieving environmental protection goals without imposing unreasonable costs on

business; to treat differently serious violators and occasional non-compliers; to provide better

assurances of compliance by regulated entities; and more efficiently use scarce government

inspection and enforcement resources by recruiting a range of third parties. By indicating the

advantages and limitations of various regulatory and policy options, it should also encourage

rational and informed decision-making.

The book should be of equal interest both to business and to environmental and public interest

groups. Not only does it provide better means of achieving their often differing social goals but

it also holds out the promise of more constructive, creative dialogue and of achieving win win

outcomes than does the status quo.

It will also be important to regulatory theorists generally. The latter will find that the research

has implications which extend to the range of similar mechanisms that exist in other areas of

social regulation such as occupational health and safety, consumer protection and companies

and securities regulation.

1
See OECD, Environmental Data 1995: Compendium, November 1995, OECD, Paris; World Resources
Institute, World Resources 1994-95: A guide to the Global Environment (1994), Oxford University Press,
New York; and OECD, The State of the Environment (1991), OECD, Paris. On pollution see for example
C Flavin, "The Legacy of Rio" in Worldwatch Institute, State of the World 1997 (1997), Earthscan
Publications, London; World Resources Institute (WRI), International Institute for Environment and
Development, and World Conservation Union-IUCN, World Directory of Country Environmental Studies
(1996), WRI, Washington, DC; on land degradation see L R Oldeman et al, World Map of the Status of
Human-Induced Soil Degradation: an explanatory note (1991), 2nd ed., International Soil Reference and
Information Centre & United Nations Environment Programme, Wageningen, Netherlands and Nairobi;
for details of de-forestation and biological diversity loss see World Conservation Monitoring Centre,
Global Biodiversity - Status of the Earth's Living Resources (1992), Chapman and Hall, London; on
ozone depletion see United Nations Environment Programme, Environmental Effects of Ozone Depletion:
1994 Assessment (1994), UNEP, Nairobi and World Meteorological Organization, Scientific Assessment
of Ozone Depletion: 1994 (1995), WMO, Geneva; and on climate change see S H Schneider, The
Planetary Gamble We Can't Afford to Lose (1997), New York, Basic Books; and Intergovernmental Panel
 39

on Climate Change (IPPC), Climate Change: Second Assessment, (1996), Cambridge University Press,
Cambridge, UK.

2
That is, the integrity of entire ecological systems may have been undermined to such an extent that even
if all adverse human inputs were to immediately cease, they would continue on a downward spiral of
destruction. See also S H Schneider, The Planetary Gamble We Can't Afford to Lose (1997), New York,
Basic Books; D H Meadows; D Meadows; & J Randers, Beyond the Limits: Confronting Global
Collapse: Envisioning a Sustainable Future (1992), Post Mills VT, Chelsea Green; and L R Brown; C
Flavin; and S Postel, Saving the Planet: How to shape an environmentally sustainable global economy
(1991), W W Norton, New York.

3
The term "command and control" refers to the prescriptive nature of the regulation (the command)
supported by the imposition of some negative sanction (the control).

4
The word "optimal" is useful shorthand but subject to misuse. See pp 00 below.

5
R Kagan, "Regulatory Enforcement" in D Rosenbloom & R Schwartz (eds), Handbook of Regulation
and Administrative Law (1994), Dekker, New York.

6
In respect of some issues, including many involving rural communities (eg soil degradation and some
aspects of biodiversity loss) education, persuasion and voluntarism have been the dominant responses.

7
E Bardach & R Kagan, Going by the Book: The problem of regulatory unreasonableness (1982),
Temple University Press, UK. See also D Vogel, National Styles of Regulation: Environmental Policy in
Great Britain and the United States (1986), Cornell University Press, Ithaca, New York.

8
D J Fiorino, "Towards a New System of Environmental Regulation: the case for an industry sector
approach" (1996) 26(2) Environmental Law 457-489; and references cited in E Bardach & R Kagan,
Going by the Book: The problem of regulatory unreasonableness (1982), Temple University Press, UK.
See also D Vogel, National Styles of Regulation: Environmental Policy in Great Britain and the United
States (1986), Cornell University Press, Ithaca, New York. For an overview of European approaches see
R Brinkman; S Jasanoff; & T Ilgen Controlling Chemicals: The politics of regulation in Europe and the
United States (1986), Cornell University Press, Ithaca, New York.

9
E D Elliott, "Environmental TQM: Anatomy of a pollution control program that works!" (1994) 92
Michigan Law Review 1847 and references cited therein.

10
See for example E D Elliott & E M Thomas, "Chemicals" in C Campbell-Smith; B Breen; J W Futrell; J
M McElfish; & P Grant (eds), Sustainable Environmental Law: integrating natural resource and
pollution abatement law from resources to recovery (1993), West Publishing, St Paul, US at 1266-1270; J
Quarles, Cleaning up America: An insider's view of the Environmental Protection Agency (1976),
Houghton Mifflin, Boston, US; W E Orts, "Reflexive Environmental Law" (1995) 89(40) Northwestern
 40

University Law Review 1227; B Commoner, Making Peace with the Planet (1990), Pantheon Books, New
York; and B Commoner, "Failure of the Environmental Effort" (1988) 10 Environmental Law Reporter
195.

11
See further pp 00 below.

12
See generally G Easterbrook, A Moment On The Earth: The coming of age of environmental optimism
(1995), Viking Press, New York.

13
S Cohen, "EPA: A Qualified Success" in S Kamieniecki; R O’Brien; & M Clarke (eds), Controversies
in Environmental Policy (1986), State University of New York Press, Albany, p 174. For further
discussion see B A Ackerman, & R B Steward, "Reforming Environmental Law" (1985) 37 Stanford Law
Review 1333 at 1364.

14
For example, command and control regulation is not well equipped to deal with diffuse, non-point and
multi-media sources of pollution or with ever more complex and systemic environmental problems, such
as climate change and the loss of biological diversity, that demand far more sophisticated policy responses
(A L Alm, "A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA
Journal 18 May/June 6-11). See further chapter 2 pp 00.

15
A L Alm, "A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA
Journal 18 May/June 6-11.

16
See chapter 2.

17
J A Lash, A Season of Spoils: The Reagan administration's attack on the environment (1984), Pantheon
Books, New York.

18
In the USA, a more recent assault on environmental regulation, led by Republican Speaker Newt
Gingrich (N Robinson, "International Initiatives on Greenhouse" in B Boer; R Fowler; & N Gunningham
(Eds), Environmental Outlook No 2 (1996), The Federation Press, Sydney, p 240) has been similarly
unsuccessful.

19
J R Cushman, "Virginia Seen as Undercutting US Environmental Rules" (1997) New York Times 19
January 11.

20
See for example N Gunningham, "Negotiated Non-Compliance: A case study of regulatory failure"
(1987) 9(1) Law and Policy 69-97.

21
See further R Kuttner, Everything For Sale: The virtues and limits of markets (1997), Alfred A Knopf,
New York; and pp 00 (chapter 2) below.
 41

22
Across the broad spectrum of social and economic policy, de-regulation has had some significant
successes. Perhaps most noteworthy of these related to interstate trucking and airlines in the United States.
Conversely, there occurred some serious failures. The relaxation of prudential controls on small financial
institutions in the United States gave rise to the constellation of events known as the Savings and Loan
Scandal of the late 1980s (M Mayer, The Greatest Ever Bank Robbery: The collapse of the savings and
loan industry (1992), Collier Books, New York; and K Calavita & H N Pontell, "The State And White
Collar Crime: Saving the Savings and Loan (1994) 28(2) Law and Society Review 297-324. For a broader
analysis, see R Kuttner, Everything For Sale: The virtues and limits of markets (1997), Alfred A Knopf,
New York.

23
P Grabosky, "Green Markets: Environmental Regulation by the Private Sector" (1994) 16(4) Law and
Policy 419-448; and P Grabosky, "Using Non-governmental Resources to Foster Regulatory Compliance"
(1995) 8(4) Governance: An International Journal of Policy and Administration 527-550; and N Rose &
P Miller, "Political Power Beyond the State: problematics of government" (1992) 43 British Journal of
Sociology 173-205.

24
D Osborne & T Gaebler, Reinventing Government (1992), Addison-Wesley, Boston.

25
D Osborne & T Gaebler, Reinventing Government (1992), Addison-Wesley, Boston, pp 23-24.

26
See for example, I Ayres & J Braithwaite, Responsive Regulation: transcending the deregulation
debate (1992), Oxford University Press, New York; J Braithwaite, Crime, Shame and Reintegration
(1989), Cambridge University Press, Cambridge; B Fisse & J Braithwaite, Corporations, Crime and
Accountability (1993), Cambridge University Press, Sydney ; R Hahn, A Primer on Environmental Policy
Design (1989), Harwood Academic Publishers, London; R Hahn, "Towards a New Environmental
Paradigm (1993) 102 Yale Law Journal 1719; C Sunstein, "Paradoxes of the Regulatory State" (1990) 57
University of Chicago Law Review 407; C Sunstein, After the Rights Revolution: Reconceiving the
Regulatory State (1990A), Harvard University Press, Cambridge, Mass.; and D F Kettl, Sharing Power:
public governance and private markets (1993), Brookings Institution, Washington.

27
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992), Oxford
University Press, New York. p 14.

28
E Ehrlich, Fundamental Principles in the Sociology of Law (1912) Harvard University Press,
Cambridge; G Teubner, "Substantive and Reflexive Elements in Modern Law" (1983) 17 Law and Society
Review 239-286; and P Fitzpatrick, "Law and Societies" (1984) 22 Osgoode Hall Law Journal 115-138.
One of the most influential social thinkers of the late twentieth century, Michel Foucault, observed that the
real practice of government was not through the imposition of law, but rather in working with and through
the constellation of interests, institutions and interpersonal relations which are part of civil society (M
Foucault, "Governability" in G Burchell; C Gordon; and P M Miller, (Eds) The Foucault Effect: Studies
in governmentality (1991), Harvester Wheatsheaf, London p 127). A subsequent interpreter of Foucault
 42

referred to this "as governing in accordance with the grain of things" (G Burchell, "Civil Society and the
System of Natural Liberty" in G Burchell; C Gordon; P M Miller (Eds), The Foucault Effect: Studies in
governmentality (1991), Harvester Wheatsheaf, London p 127).

29
E Bardach & R Kagan, Going by the Book: The problem of regulatory unreasonableness (1982),
Temple University Press, UK, p 33.

30
M Galanter, "Justice In Many Rooms" (1981) 19 Journal of Legal Pluralism 1-47.

31
See also the literature on private institutions of social control and new technologies of governance in C
Shearing & P Stenning, Private Policing (1987), Sage Publications, Beverly Hills; N Rose & P Miller,
"Political Power Beyond The State: Problematics of government" (1992) 43(2) British Journal of
Sociology 173-205; J Di Iulio; G Garvey; & D Kettl, Improving Government Performances (1993), The
Brookings Institution, Washington DC; P Grabosky, "Using Non-governmental Resources to Foster
Regulatory Compliance" (1995) 8(4) Governance: An International Journal of Policy and Administration
527-550; and, on the development of reflexive law, W E Orts, "Reflexive Environmental Law" (1995)
89(40) Northwestern University Law Review 1227.

32
R B Mitchell, International Oil Pollution at Sea (1994). Other exceptions include work on interest
groups (T Bonyhady, Places Worth Keeping: conservationists, politics and law (1993), Allen & Unwin,
Sydney, Australia; E Papadakis, Politics and the Environment: the Australian experience (1993), Allen &
Unwin; Sydney, Australia; D Farrier, "Policy instruments for conserving biodiversity on private land" in J
Bradstock (ed), Conserving Biodiversity: threats and solutions (1995), Surrey Beatty & Sons, Chipping
Norton, UK.

33
See further chapter 2 pp 00.

34
For example, there is a burgeoning literature on environmental audit, the "new generation "regulatory
tool. Yet this literature is almost exclusively client oriented (addressing issues of confidentiality, how
audits should be conducted, by whom etc). What is lacking is any serious evaluation of the implications of
environmental audit or any concern to specify how and under what circumstances audit is most likely to
make a substantial contribution to environmental protection.

35
See further chapter 2 pp 00.

36
Much of the debate between economists and regulators continues to be couched in terms of economic
instruments versus regulation rather than in terms of synergies and complementarities. See for example C
Dieker Lessons from Uncle Sam: Regulation v economic incentives (1997), a paper delivered at 16th
Australian National Environmental Law Conference, Adelaide, April. For a more sophisticated and
integrated approach see M Jacobs The Green Economy: Environment, sustainable development and the
politics of the future (1993), UBC Press, Vancouver, pp 151ff; and also OECD, Guidelines for the Use of
 43

Economic Instruments in Environmental Policy (1990), October, OECD, Paris (40) 23; and OECD,
Applying Economic Instruments to Environmental Policies in OECD and Dynamic Non-Member
Economies (1994), OECD, Paris. What is lacking even from the more sophisticated OECD documents is
an analysis of how and in what circumstances various instruments and institutions might be combined. See
further at pp 00 below.

37
T Swanson "Book Reviews: J B Opschoor & R K Turner (Eds) Economic Incentives and
Environmental Policies: Principles and Practice (1994)" (1995) 4(1) Review of European Community
and Environmental Law (RECIEL) 85.

38
See for example S Dovers, "Information, Sustainability and Policy" (1995) 2(3) Australian Journal of
Environmental Management 149. As to the extent to which this "single institutions" approach may be
changing see below pp 00 [next section].

39
Government would continue to have an ongoing and critical role in establishing regulatory objectives,
harnessing other regulatory actors to conform to these objectives, underpinning these broader strategies
with a regulatory safety net, or (where better alternatives are not available) directly intervening itself.

40
See further pp 00 (chapter 3) below.

41
United Nations Commission on Environment and Development (UNCED), Agenda 21: Programme of
action for sustainable development, Section 1 Chapter 8 (B) Providing and Effective Legal and
Regulatory Framework (1992), United Nations Conference on Environment and Development, UNCED,
Geneva, p 55.

42
Commission of the European Community (CEC), Towards Sustainability Fifth Action Program of
European Union (1992), Brussels, p 25.

43
For example the first concerns were documented as early as 1990 when the Australian Manufacturing
Council Report Industry and the Environment: Europe and North America (pp 1-2) noted "The
complexity of the problems, and the apparent limitations of command and control mechanisms, have made
governments reassess their regulatory regimes and seek to meet community standards via a more flexible
approach to regulation such as economic mechanisms .... leading edge businesses, trade unions and
industry associations are meeting the challenge in an open and proactive fashion".

44
S Schmidheiny, Changing Course: A global business perspective on development and the environment
(1992), MIT Press, Cambridge, pp 30-32.

45
"PUMA/OECD, "Choices of Policy Instruments" (20 March 1997), 15th Session of Public management
Committee, PUMA/OECD. Paris.
 44

46
For example, the American Bar Association 16th Annual Conference on Environmental Law in 1997
had this as its theme, and in the same year the theme of an International Conference on Environmental
Law and Policy, held in Nigeria (Law Centre, Lagos State University), was "Towards Flexible, Efficient
and Effective Environmental Law".

47
The most recent initiative (not yet complete at the time of writing) is the enterprise for the environment,
which focuses on improving the regulatory process and environmental performance drivers that influence
behaviour in the US, and is a policy forum involving: The Center for Strategic and International Studies;
The Keystone Center; and The National Academy of Public Administration.

48
D J Fiortino, "Towards a New System of Environmental Regulation: the case for an industry sector
approach" (1996) 26(2) Environmental Law 457-489. These programs are described at pp 00-00 below
(chapter 2).

49
See T Davies & J Mazurek, Industry Incentives for Environmental Improvement: Evaluation of US
Federal Initiatives (1996) A Report to the Global Environmental Management Initiative Center for Risk
Management, Resources for the Future, Washington, DC. Even the most promising of these innovations,
the Environmental Leadership Program, is beset by problems (not least the lack of credible incentives for
firms to join) which makes the transition from the pilot phase to full program an extremely challenging
one. See also B Ward, "Now at BAT" (July 1997) Environmental Forum 38.

50
See J B Opschoor & H B Vos, Economic Instruments For Environmental Protection (1989), OECD,
Paris.

51
For details of EU Fifth Action Programme see H Joliffe, "EU Fifth Action Programme: progress report
on implementation of 'Towards Sustainability'" (1996) 5(4) Review of European Community and
Environmental Law (RECIEL) 342.

52
H Joliffe, "European Union Fifth Action Program: Progress Report on Implementation of 'Towards
Sustainability'" (1996) 5(4) Review of European Community and Environmental Law (RECIEL), pp 342-
343.

53
Environmental Data Services Ltd., "Sustainable Development Advisors Take Government To Task"
(1997) ENDS Report Number 264 p 7.

54
See for example OECD, Reducing Environmental Pollution: Looking back, thinking ahead (1994),
OECD, Paris; OECD, Draft Council Recommendations on the Use of Economic Instruments in
Environmental Policy, Env/EC (90) 23, OECD, Paris; and see also H Opschoor, H & K Turner, Economic
Incentives And Environmental Policies: principles and practice (1994), Kluwer Academic Publishers,
Dordrecht.
 45

55
S Dovers, "Information, Sustainability and Policy" (1995) 2(3) Australian Journal of Environmental
Management 149.

56
M Aalders, "Regulation and In-Company Environmental Management in the Netherlands (1993) Law
and Policy 15(2) 75.

57
See J Van Dunne, (ed), Environmental Contracts and Covenants: New instruments for a realistic
environmental policy? (1993), Koninklijke Vermande, Netherlands.

58
See further chapter 2 pp 00 below.

59
In Victoria (Victorian EPA, Accredited Licenses (1994), Publication 423, VGPS), firms are rewarded
through an accredited licensing scheme with reduced regulatory obligations for demonstrating excellence
in environmental management, and achieving significant improvements in waste outputs(A T Iles,
"Adaptive management: Making environmental law and policy more dynamic, experimentalist and
learning" (1996) 13(4) Environmental and Planning Law Journal 288 at 299). Accredited licence-holders
are not required to apply for works approval, can have a greatly simplified permit for a premises otherwise
requiring many individual permits, and pay reduced licence fees if they can prove use of an environmental
management system that is verified by an independent auditor, and produce an environment improvement
plan with community input.

60
See D Mueller, Public Choice II (1989),Cambridge University Press, Cambridge, New York; and W F
Shughart II, Antitrust Policy and Interest-Group Politics (1990), Quorum.

61
Another related problem which citizens' environmentalist activity may pose is that of policy distortion.
Not all environmental issues have the same political "sex appeal". Charismatic megavertebrates attract
more interest than do worms. Old-growth forests arouse more passions than does soil degradation. The
process of agenda setting by environmental groups, their choice of issues, would make a fascinating
treatise in its own right. Suffice it to say that preoccupation with a particular ecosystem, issue, or threat
almost inevitably entails an opportunity cost, and problems of inconsistency seem destined to remain a
fact of democratic life (S Breyer, Regulation And Its Reform (1982), Harvard University Press,
Cambridge).

62
M S Greve & F L Smith, Environmental Politics: Public costs, private rewards (1992), Praeger, New
York.

63
T L Anderson & D Leal Free Market Environmentalism (1991), Westview Press, San Francisco.

64
P C Yeager, The Limits of Law: The public regulation of private pollution (1991), Cambridge
University Press, Cambridge, New York; and N Gunningham, Pollution, Social Interest And The Law
(1974), Martin Robertson, UK.
 46

65
J Buchanan, "Politics without Romance" in J Buchanan & R Tollison (eds) The Theory of Public
Choice - II (1994), University of Michigan Press, p 13.

66
T O McGarity & S A Shapiro, Workers At Risk: The failed promise of occupational safety and health
administration (1993), Praeger, Westport, p 7; and N Gunningham, "Public Choice: Advancing the
economic analysis of law" (1992) 21(1) Federal Law Review 117-135.

67
The US Environmental Protection Agency for example, far from being vulnerable to capture by a single
group, is subject to a complex set of constituencies, and can enlist the support of a range of highly vocal
and organised environmental organisations in support of controversial decisions (J R Lazarus "The
Tragedy of Distrust in the Implementation of Federal Environmental Law" (1991) 54 Law and
Contemporary Problems (1991) 363-364). More generally, see N Gunningham, "Public Choice:
Advancing the economic analysis of law" (1992) 21(1) Federal Law Review 117-135 and references
therein.

68
See for example S Breyer, Regulation And Its reform (1982), Harvard University Press, Cambridge, p
10; and R Howse; J R S Pritchard; and M J Trebilcock, "Smaller Or Smarter Government?" (1990) 40
University of Toronto Law Journal 498 at 533.

69
R Howse; J R S Pritchard; and M J Trebilcock, "Smaller Or Smarter Government?" (1990) 40
University of Toronto Law Journal 498 at 533.

70
On the limitations of free market environmentalism, see R Kuttner, Everything For Sale: the virtues and
limits of markets (1997), Alfred A Knopf, New York and chapter 2 below.

71
P C Yeager, The Limits of Law: The public regulation of private pollution (1991), Cambridge
University Press, Cambridge, New York.

72
J Mendeloff, "Overcoming Barriers to Better Regulation" (1993) 18 Law and Social Inquiry 711 at 713.

73
OECD, Environmental Policy: How to Apply Economic Instruments (1991), OECD, Paris; OECD,
Group on Economic and Environment Policy Integration, Expert Group on Economic Aspects of
Biodiversity, Biological Diversity: Economic incentive measures for conservation and sustainable use
(1995) OECD, Paris; and OECD, Making Markets Work for Biological Diversity: The role of economic
incentives measures (1995), OECD, Paris.

74
For example, within Australia, negotiations on a National Strategy for Ecologically Sustainable
Development identified several criteria in addition to those selected by the OECD. These include: equity,
environmental effectiveness, community acceptance, the provision of ongoing incentives for technical
innovation, and the use of more efficient and environmentally benign production processes (Ecologically
Sustainable Development Working Group, Intersectional Issues Report (1992), AGPS, Canberra, in M D
Young et al, "Feedlots and Water Quality" (1994) 11 Australian Journal of Environmental Management
 47

52). In contrast, a report by the Australian Manufacturing Council, Best Practice Environmental
Regulation (1993) identifies ten criteria that could form the basis of benchmarking environmental
regulation. These are: certainty, communication, consultation, cost effectiveness, efficiency, flexibility,
integrity, practicality, responsibility and transparency. The report defines each of these terms and
concludes that in order to minimise the adverse effects on industrial competitiveness, while affording
maximum environmental protection, the principles should be incorporated into the regulatory design
process.

75
To give an example, 15 circumstances, each involving two aspects, would produce 32,768 possible
settings (H Bressers & P J Klok, "Fundamentals For A Theory Of Policy Instruments" (1988) 15(3/4)
International Journal of Social Economics 22-41 at 24.

76
For a similar list see M Jacobs, The Green Economy: Environment, sustainable development and the
politics of the future (1993), UBC Press, Vancouver, p 152.

77
P Winsemius & U Gutram, "Responding To The Environmental Challenge" (1992) Business Horizons,
March-April 12.

78
M Jacobs The Green Economy: Environment, sustainable development and the politics of the future
(1993), UBC Press, Vancouver, p 152 defines this criterion as concerning: how certainly does the
instrument achieve the environmental target set; how quickly; and how flexible it is to changing
circumstances.

79
See for example B Davy, Essential Injustice: When legal instruments cannot resolve environmental and
land use disputes (1997), Verlag Springer, Vienna.

80
H Opschoor, H & K Turner, Economic Incentives And Environmental Policies: Principles and practice
(1994), Kluwer Academic Publishers, Dordrecht, p 11.

81
S Breyer, Regulation And Its reform (1982), Harvard University Press, Cambridge.

82
J Mendeloff, "Overcoming Barriers to Better Regulation" (1993) 18 Law and Social Inquiry 711 at
722-25.

83
The concept of inter-generational equity is bound up in the concept of sustainability, defined by the
World Commission on Environment and Development (the Brundtland Commission) as: "development
which meets the needs of the present without compromising the ability of future generations to meet their
own needs." The attraction of this definition is its vision of integrating environmental and economic goals.
The precautionary principle states that a lack of scientific certainty about the level of environmental harm
is not sufficient reason to avoid taking policy action to prevent that harm. The polluter pays principle
requires the generator of pollutants to pay fully for the prevention of environmental damage from these
 48

pollutants (A Gilpin, An Australian Dictionary of Environment and Planning (1990), Oxford University
Press, Melbourne).

84
For example S Schmidheiny, Changing Course: A global business perspective on development and the
environment (1992), MIT Press, Cambridge; and P Winsemius & U Gutram, "Responding To The
Environmental Challenge" (1992) Business Horizons, March-April 12.

85
Ecologically Sustainable Development Steering Committee, National Strategy for Ecologically
Sustainable Development in Australia (1992), AGPS, Canberra. See also Presidents Council on
Sustainable Development, Sustainable America: A new consensus (1996), Washington DC.

86
World Commission On Environment And Development Our Common Future (1987), Oxford
University Press, Oxford, UK.

87
S Dovers, "Information, Sustainability and Policy" (1995) 2(3) Australian Journal of Environmental
Management 142.

88
J Mendeloff, "Overcoming Barriers to Better Regulation" (1993) 18 Law and Social Inquiry 711 at 722.

89
N Gunningham, "Negotiated Non-Compliance: a case study of regulatory failure" (1987) 9(1) Law and
Policy 69.

90
See Allott K, Integrated Pollution Control: The first three years (1994), Environmental Data Services,
London, UK, p xiv.

91
H Opschoor, H & K Turner, "Environmental Economics And Environmental Policy Instruments:
introduction and overview" in H Opschoor, & K Turner, Economic Incentives and Environmental
Policies: Principles and practice (1994), Kluwer Academic Publishers, Dordrecht.

92
H Opschoor, H & K Turner, Economic Incentives and Environmental Policies: Principles and practice
(1994), Kluwer Academic Publishers, Dordrecht, p 35.

93
Moreover, environmental policy in a number of countries, including the United States and the
Netherlands, is consciously moving further in a sector specific direction. See D J Fiorino, "Towards a
New System of Environmental Regulation: The case for an industry sector approach" (1996) 26(2)
Environmental Law 457-489 describing the main initiatives of the US EPA from the mid 1990s (the
Common Sense Initiative; the Sustainable Industry Project; Project XL; and the Environmental Leadership
program) as part of a broader shift to a sector specific approach. The Dutch have also moved to a sector
specific approach under the National Environmental Plan. See M Gambel, US Environment Protection
Agency, The Dutch Model: Lessons for the US (1995), US EPA, Washington, DC.
 49

94
Alternatives to traditional regulation: a preliminary list in OECD, Environmental Policy: how to apply
economic instruments (1991), OECD, Paris, p 4.

95
This is one reason we have a design principle concerning ongoing evaluation of new instruments and
mixes. See chapter 6.

96
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; & E McCrone, Reimbursing
the Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory
incentives for the conservation of biodiversity Part 1 and Part 2 Appendices (1996), Department of the
Environment, Sport and Territories, Biodiversity Unit, Biodiversity Series, Paper No.9, Canberra.

97
Y Dezalay & B G Garth, Dealing In Virtue: International commercial arbitration and the construction
of a transnational legal order (1996), University of Chicago Press, Chicago.

98
Responsible Care and the environmental management systems approach are still evolving. Responsible
Care is the older of these schemes, having been introduced in the late 1980s and largely developed during
the 1990s. While substantial changes continue to be made to it, nevertheless Responsible Care has been in
place long enough to lend itself to empirical study. In contrast, ISO 14001 was ratified in 1996 and at the
time of writing, was only in the early stages of implementation. Accordingly, detailed empirical work
would be premature. As a consequence, about 3/4 of the 122 interviews we conducted on the chemical
industry were concerned with Responsible Care. Our research on environmental management systems,
reported in chapter 4, relied on some 30 exploratory interviews. These were conducted principally in the
US and supplemented by a small number in Australia, the UK and Scandinavia. This was complemented
by desktop research on ISO 14001 which sought to identify its major features, to expose its major flaws
and to specify its crucial characteristics as a potential regulatory tool.
 CHAPTER TWO

INSTRUMENTS FOR ENVIRONMENTAL PROTECTION

Neil Gunningham and Darren Sinclair

Introduction

Despite decades of experimentation, the holy grail of optimal environmental regulation has

continued to elude policy-makers and regulatory theorists. As we saw in chapter one, neither

traditional command and control regulation nor the free market provide satisfactory answers to

the increasingly complex and serious environmental problems which confront the world. This

has led to a search for alternatives more capable of addressing the environmental challenge, and

in particular to the exploration of a broader range of policy tools such as economic

instruments,99 self-regulation and information-based strategies.

In this chapter we review the main categories of environmental instruments, both old and new.

We do so not only to provide an overview of the main policy alternatives and to summarise the

"state of the art" in environmental policy making (though this in itself may be valuable for those

who are not closely acquainted with the area), but also in order to demonstrate the substantial

shortcomings of all current approaches and to argue a case for regulatory redesign.

Specifically, we will demonstrate that, while each of the main categories of instruments has

something valuable to offer, it has substantial limitations as a "stand alone" strategy. Further,

we suggest that there are only a restricted range of circumstances in which each category of

instrument is likely to work well: no single instrument type works "across the board". The

success of instruments also depends substantially upon the interests and opportunities of key

players and their relationships. To develop these arguments we identify the main characteristics
 51

of each category of policy instrument, and of individual instruments within that category, and

their corresponding strengths, weaknesses and limitations.

Such an account is also a necessary precursor to chapter three, where we will show that both the

success of environmental policy generally, and the effectiveness of different instruments or

combinations of instruments, can be increased by the recruitment of a much larger range of

social actors and by utilising those actors in a wider range of roles than has so far been the case.

In particular, we will demonstrate the considerable contribution that both commercial and non-

commercial third parties might make in influencing the environmental performance of

regulatees directly and in achieving efficient and effective regulation. Business too may make

an important contribution, not just as regulatee, but also as regulator of itself and others.

Varieties of regulatory instruments

There are a range of possible ways of cataloguing the various instruments available for use in

environmental policy. We have organised the following account to conform to a fairly standard

breakdown of the different categories: command and control regulation; self-regulation;

voluntarism; educational and information strategies; economic instruments; and free market

environmentalism. This categorisation is not intended to be exhaustive; it merely provides a

relatively comprehensive summary of the range of environmental policy instruments available.

We also acknowledge that the taxonomic distinctions are somewhat artificial. In reality there is

significant overlap between instruments; similar instruments, particularly those involving

education and information, are at the disposal of governmental, public interest and commercial

institutions alike. Consequently, it is better to think of the following policy instrument

categories as points on a compass, rather than discrete or absolute policy units.

 52

1. Command and control regulation

Since the early 1970s, governments throughout the industrialised world have responded to the

rise of environmental degradation and industrial pollution with a myriad of environmental

policies. The dominant government response, however (particularly to "brown" issues such as

pollution100), has been the application of "direct" or "command and control" regulation designed

to prohibit or restrict environmentally harmful activities.101

Command and control regulation is generally characterised by an environmental target, for

example a limit on emissions of a pollutant to water or the air, and subsequent penalties that

apply if this target is not met. In the United States, in particular, command and control

regulation has tended to rely on the application of "best available technology" (BAT) or similar

technology-based standards.102 This entails the regulator determining the environmental target

or standard on the basis of what is technically feasible at a particular point in time, in a

particular industry sector and in a particular industrial application. 103 A common feature has

been the compartmentalisation of different media, such as land, air and water, and different

industries and natural resource uses, into separate regulations. Only in the 1990s, and only in

some jurisdictions, have more integrated approaches become common.

The term "command and control" has crept into the language of policy-makers (in the main

replacing the traditional term, "direct regulation") largely through the writings of neo-classical

economists, who used it to encapsulate what they regarded as the negative aspects of direct

government intervention compared to the virtues of market mechanisms. In part because the

debate concerning market vs government instruments has taken place largely in the United

States, it has been possible to treat command and control as almost synonymous with the

prevalent form of regulation in that jurisdiction; technology-based standards. This is

unfortunate since not all forms of direct regulation are subject to the criticisms that can be

levelled at technology-standards.104 Nevertheless, the term "command and control" is now

 53

almost universally used rather than direct regulation and, with this note of caution, will be

adopted in this section and elsewhere in this book.

Not surprisingly, given the breadth of environmental issues it covers, command and control

regulation takes a variety of forms, the most common of which is environmental standards. 105

Standards involve the establishment of uniform requirements on broad categories of activities

to achieve specific environmental goals. These include: ambient standards; technology-based

performance standards; design or specification standards; environment management standards;

and product standards. Of these, the major categories are technology-based standards,

performance-based standards, and process-based standards.

The various types of standards have fundamentally different modus operandi. For example,

design or specification standards prescribe an approved technology for a particular industrial

process or environmental problem.106 Such a standard "is defined in terms of the specific types

of safeguarding methods one must use in specific situations and ... places great emphasis on the

design and construction of these safeguards".107 In contrast, performance standards define a

firm's duty in terms of the problems it must solve or the goals it must achieve. That is,

performance standards are outcome-focused and avoid overt prescriptions. Process-based

standards address procedures and parameters for achieving a desired result, in particular, the

processes to be followed in managing nominated hazards.108 They are most used in respect of

hazards that do not lend themselves to easy measurement, such as safe working practices, or

Environmental Management Systems.109

Permits and licenses are often used to implement standards. They tend to be targeted at point

sources of pollution. Permits and licenses allow firms to continue to emit pollutants, but

generally at levels proscribed in the relevant standards. A permit or license may cover a single

point of discharge or an entire industrial facility.

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Arguably, environmental covenants, which are binding contracts between an industry and

government should also be classified as a form of command and control, at least if they are

enforced through the permit mechanism, are implemented within the framework of current

environmental laws and are accompanied by an implicit threat of less attractive alternatives if

they are not agreed to. We treat the Dutch version (which can be enforced in this way) as an

innovative version of command and control. However, the diversity of such agreements makes

classification difficult, and other versions may be better classified as "voluntary agreements".

Strengths and weaknesses of command and control

The major strength of command and control regulation is its dependability (provided there is

adequate monitoring and enforcement).110 By this we mean that the behaviour expected of

regulatees can be specified with considerable clarity (for example through the provision of

national minimum standards)111 making it relatively straightforward to identify breaches of the

legal standard and to enforce the law.112 This provides regulators with defined operational

parameters and in turn, firms themselves have a clearer understanding of their regulatory

obligations.

When coupled with strong community support, command and control regulation has been

relatively successful in curbing aspects of point-source pollution,113 outlawing extremely

hazardous substances and the dumping of toxic wastes, and the protection of endangered

species.114 It also sends important moral signals, emphasising that "tolerance of a polluting

activity is a concession, whereas other mechanisms may lead to it being viewed as a right". 115

Although the rigidity of command and control regulation, particularly when embodied in

uniform technology-based standards, has been criticised for being economically inefficient,

Latin (1985) argues that there are several advantages to this approach over more particularised

and flexible instruments.116 For example, he cites:

 55

...decreased information collection and evaluation costs, greater consistency and

predictability of results, greater accessibility of decisions to public scrutiny and

participation, increased likelihood that regulations will withstand judicial review, reduced

opportunities for manipulative behaviour by agencies in response to political or bureaucratic

pressures, reduced opportunities for obstructive behaviour by regulated parties, and

decreased likelihood of social dislocation and "forum shopping" resulting from competitive

disadvantages between geographical regions or between firms in regulated industries. 117

However, command and control is likely to be more successful in some circumstances than in

others. The clear, precise standards that command and control can embody, can best be

enforced against firms which are readily identifiable and accessible. 118 For example, regulators

enforcing a United States Federal law requiring limited erosion and site remediation at strip

mines were far more successful when dealing with larger firms,119 which were easier to identify,

visit and keep tabs on than a multitude of more transient smaller firms. Similarly, firms which

have in-house environmental expertise and are concerned with their corporate image are also

suited to command and control, and are more likely to adopt a cooperative approach to

regulatory compliance.120 Braithwaite and Fisse (1987) point out that corporate environmental

officers may be powerful advocates for environmental standards as they are often supportive of

the regulatory regime which provides a raison d’etre for their employment.121

By and large, command and control has been most effective in reducing pollution from single

media, point sources.122 For example, the United States Clean Water Act of 1972 successfully

created effluent discharge standards for all new and existing point source discharges. In doing

so, it employed a permit system to ensure compliance with these standards. As a result, water

quality visibly improved throughout the country.

Contrary to expectations, and prevailing wisdom, Porter (1990) argues that stringent business

regulations can inspire technological innovation in furtherance of regulatory compliance, and

thus enhance international competitiveness.123 In Germany, for example, tough command and
 56

control regulations have been credited with not only improving the productivity of existing

firms through technological and managerial improvements, but also the creation of entire new

pollution control industries. These firms are in a competitive position to export their products

and services as other countries catch-up to Germany's high environmental standards.

A discussion of the strengths of command and control regulation inadvertently reveals its

corresponding weaknesses (at least in its traditional forms). 124 It is not as effective in dealing

with: transitory, mobile and/or remote firms which are difficult to identify and keep track of:

diffuse, non-point sources of pollution; the transference of pollution from one media to another,

and rapidly changing technologies and economic circumstances. Unfortunately, many of the

most pressing environmental problems fall into one of these categories. There is a long list of

largely unresolved environmental problems where command and control has achieved only very

modest results. These include deforestation, desertification, agricultural run-off and urban air

pollution.125 To these are added new and complex problems, in particular, global climate change

and the increasingly rapid loss of biological diversity.

A number of serious weaknesses of command and control have contributed to its limited

effectiveness. One of the most common criticisms is that it requires regulators to have

comprehensive and accurate knowledge of the workings and capacity of industry. For example,

in establishing BAT standards, regulators are often required to engage in lengthy and intricate

information gathering exercises to determine appropriate pollution reduction targets. Apart

from the inevitable drain on public resources this inevitably entails, there is a clear imbalance

of knowledge between regulators and industry. Even assuming that regulators do get it right,

they can only ever provide transitory solutions as populations, technology and economic

activity change and grow, and indeed, new environmental problems arise.126

Although certainly not exclusive or inherent to command and control regulation, the use of

uniform standards has attracted considerable criticism from economists in particular. This is

because firms and industries will invariably differ in the cost of reducing polluting emissions. 127
 57

Uniform standards prevent firms from tailoring their responses, even though some may be able

to reduce pollution at much lower costs. The net effect is an increase in the overall cost of

regulation.

An additional problem, at least of some forms of command and control, is the absence of

incentives for firms to go beyond minimum standards (especially once a firm has already

invested in pollution control technology that meets the required standard). 128 The result is that

the onus is always on government to apply stricter standards, a sometimes difficult political

process which assumes that governments have detailed knowledge of the most appropriate

standards for different industries. A closely related problem is the failure to institute favourable

modifications to corporate culture, certainly as it is currently applied. 129 The inability to

encourage firms to go "beyond compliance", through a process of continuous improvement and

cultural change, is one of the most serious failings of command and control in its traditional

forms.130

Another criticism of command and control, given resources constraints, is the cost and

difficulty of enforcement. This is critical as it may negatively impact on its purported

dependability. Although some authorities may be committed to enforcement, most regulatory

regimes have insufficient resources to monitor compliance with any degree of adequacy. As

such, they fail to pose a credible deterrent threat. Even when such a threat may be credible,

however (as in the United States), the application of traditional regulatory enforcement

instruments runs the risk of eliciting defiance and resistance. In their work on nursing home

regulation, Makkai and Braithwaite (1993 and 1994) have found just such an effect, where in

some contexts a deterrent regulatory posture actually reduced compliance.131 In a very different

setting, Terry Anderson (1995) has used the expression "shoot, shovel, and shut up" to describe

the response of some western ranchers in the United States to Federal endangered species

legislation.132
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Resistance to what is perceived to be the heavy hand of regulation may be a very rational

response where regulations impede efficiency and competitiveness.133 When mutual mistrust

between government and industry degenerates into adversarial legal combat, efficiency and

effectiveness are in even greater jeopardy. In the more litigious jurisdictions, such as the United

States, legal challenges to regulatory actions can be a significant drain on the resources of

regulator and regulatee.134

Command and control regulation is also vulnerable to political manipulation. There are many

recent instances where some aspect of regulatory policy has been "hijacked" to serve the

interests of individuals or groups with political weight at the expense of good environmental

policy.135 Similarly, regulators themselves may succumb to self-interested behaviour, variously

being captured by the very industries they purport to regulate or engaging in "rent-seeking",

whereby the regulatory bureaucracy seeks to extend its own interests at the expense of the

public.136

Finally, command and control may lead to increasing administrative complexity and a

proliferation of law. The sheer volume of environmental statutes and associated regulations in

industrialised countries makes it difficult for regulators and industry alike to keep up all their

obligations. Industry is subject to a complex web of legislation, agency rules, permit

procedures, judicial decisions and other enforceable policies. 137 This can result in a

counterproductive regulatory overload.138 New entrants into an industry may be discouraged by

lengthy regulatory and legal approval proceedings associated with command and control.139

In the face of these imperatives, there is a growing consensus that traditional forms of command

and control regulation have serious and in some cases intractable problems and, confronted

with new challenges they are ill equipped to meet, have reached the limit of their effectiveness

in arresting environmental degradation.140

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Innovative developments in command and control

Recognising the substantial limitations of command and control regulation, in its traditional

forms, a number of innovative approaches have been developed in recent years. A milestone in

this respect was a joint enterprise in the United States between Amoco Corporation and the

EPA, known as the Yorktown Project. This project began by documenting the numerous ways

in which the conventional system of regulation neither encourages nor rewards innovation. It

went on to show that site specific flexibility to achieve environmental objectives fosters

innovation and leads to more cost-effective solutions, in a manner which far surpassed the "one-

fits-all" approach. In particular, a key conclusion of the Project was that the objectives of

environmental regulations can be achieved more cost-effectively if the regulated community is

allowed to devise individualised plant-specific compliance plans. For example, the participants

in the Project unanimously selected the most effective pollution prevention options for a

particular facility, that solution often being far removed from what the existing regulations

prescribed. The project team concluded that "by prioritising projects in this manner, equivalent

release reductions could have been achieved ... at 25% of the cost".141

Also significant are a number of responses to the Clinton administration's Reinventing

Environmental Law initiative.142 For example, under Project XL, a project designed to reward

companies that "have developed creative, common sense ways of achieving superior

environmental performance at their facilities",143 an enterprise can propose alternative

environmental strategies "where the company can demonstrate that such strategies will achieve

better environmental results than expected to be achieved under existing law". 144 A second

initiative, from within the EPA itself, the Sustainable Industry Project, has the objective "to

develop policies that foster the permanent integration of environmental protection functions

into the basic profit-oriented activities of industrial firms".145 A third, the Environmental

Leadership Program, seeks to use greater information to empower citizens and communities,

and focuses on the role of compliance management systems in regulation.

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Another important innovation is facility-wide permitting, which, in its "ideal type" incorporates

two elements. First, pollution prevention requirements are outlined in the facility’s Pollution

Prevention Plan, including an implementation schedule for the identified source reductions,

implemented at the facility’s discretion. Second, permitted emission/discharge limits are set,

which ensure compliance with existing single media regulations and eliminate cross-media

transfers. The virtue of facility-wide permitting is to enable a facility to focus its resources on

achieving the pollution reduction goal rather than undergo the cumbersome process of obtaining

several different permits. Because the emphasis is on pollution prevention, the single permit

may create incentives for technology innovation.146

The Victorian EPA in Australia, under its "accredited licensing" scheme, has also applied a

variation of facility-wide permitting which rewards "good performers" by relieving them of

much of the regulatory burden that would normally apply, such as works approvals and multiple

licenses across different sites.147 To participate, firms must have a commendable environmental

record and are expected to have prepared an environmental improvement plan, to conduct

periodic environmental audits and to implement an environmental management system. The

aim is to provide an incentive for firms to go beyond mere compliance with existing

regulations.

The Dutch have taken the concept a step further by negotiating pollution reduction targets for

specific industry sectors that last well into the next century. 148 These targets go beyond what is

currently practised with conventional command and control regulation. Firms negotiate with the

government individual agreements, or "covenants", which incorporate comprehensive

management plans and fit within the overall sector target.149 They are then granted permits

accordingly. The benefit to industry is the assurance of long term regulatory stability which is

crucial for optimal business investment planning.

There is also evidence of a shift, across a range of OECD countries, from ex ante to ex post

controls, and to rewarding good behaviour.150 In the United Kingdom, the concept of integrated
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pollution control based on a requirement to use the "best practicable environmental option"

heralds a shift from end-of-pipe approaches towards cleaner production, coupled with greater

transparency and public accountability.151 More recently the European Union Directive on

Integrated Pollution Prevention and Control152 espouses a very similar holistic approach to

pollution control at European level. A further trend, most developed in some European Union

directives, is towards process or systems-based regulation, which commonly involves a

requirement that hazards must be managed by incorporating three fundamental steps: hazard

assessment; risk assessment; and risk control.153

Despite their potential, the jury is still out on many of these recent innovations. Concerns are

expressed about the principal focus on large firms, upon the intensity of administrative and

resource burden the new initiatives entail, and upon the risks of regulatory capture which is

implicit in regulatory flexibility. In the case of the Dutch covenants, there is also a danger that

pushing out targets too far into the future will result in a serious miscalculation of changes in

technology and other factors. It will be some time before we know whether, and if so, to what

extent, the benefits of the various initiatives outweigh the costs and whether they will indeed,

overcome many of the problems of traditional forms of regulation.

2. Self-regulation

Self-regulation is an important, yet often unacknowledged, component of many regulatory

regimes. In both the United States and Europe, self-regulation is prevalent in many areas of

social regulation154 and this is equally the case in other advanced economies.155 If anything, self-

regulation is likely to play an even more important role in the future, either as an alternative, or

as a complement, to direct government regulation. This is because: (i) the broader problem of

regulatory overload makes the continuing use of highly detailed prescriptive regulation

problematic, and quite probably counterproductive; and (ii) shrinking tax bases, an ideological
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swing against government intervention, and the resistance of multinational companies operating

in global markets, all make direct regulation both politically and economically unattractive.

Self-regulation is not a precise concept but for present purposes it may be defined as a process

whereby an organised group regulates the behaviour of its members. 156 Most commonly it

involves an industry-level organisation (as opposed to the government or individual firms)

setting rules and standards (codes of practice) relating to the conduct of firms in the industry.

One can further categorise industry self-regulation in terms of the degree of government

involvement (for as we shall see, "pure" self-regulation, without any form of external

intervention, is uncommon). Rees (1988) for example, suggests that industry self-regulation

might take one of three forms.157 First, voluntary, or total self-regulation involves an industry or

profession establishing codes of practice, enforcement mechanisms and other mechanisms for

regulating itself, entirely independent of government. Second, mandated self-regulation

involves direct involvement by the state whereby it requires business to establish controls over

its own behaviour but leaves the details and enforcement to business itself, subject to state

approval and/or oversight. Finally, mandatory partial self-regulation involves business itself

being responsible for some of the rules and their enforcement but with the over-riding

regulatory specifications, though not the details, being mandated by the state.

There is a growing number of increasingly sophisticated self-regulatory schemes in the sphere

of environmental protection. Well documented examples include the chemical industry's

Responsible Care program, which applies in over 40 countries,158 safety-regulation of nuclear

power plants by the Association of Nuclear Power Producers (INPO) in the United States 159; the

Brazilian Extractive Reserves system under which community associations are granted

exclusive use of certain lands in order to encourage and facilitate their sustainable use; 160 and

the Canadian forest industry's Sustainable Forest Management Certification System. 161 There

are also considerably sophisticated self-regulatory programs in less developed countries.162

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Strengths and Weaknesses of Self-regulation

In principle, self-regulation offers greater speed, flexibility, sensitivity to market circumstances,

efficiency, and less government intervention than command and control regulation. Because

standard setting and identification of breaches are the responsibility of practitioners, with

detailed knowledge of the industry, this will arguably lead to more practicable standards, more

effectively policed. There is also the potential for utilising peer pressure and for successfully

internalising responsibility for compliance. Moreover, because self-regulation contemplates

ethical standards of conduct which extend beyond the letter of the law, it may significantly raise

standards of behaviour and lead to a greater integration of environmental issues into the

management process.163 It may be regarded as a form of "responsive regulation": 164 regulation

which responds to the particular circumstances of the industry in question, including how

effective an industry has been in the past in making private regulation work.

Yet in practice, self-regulation often fails to fulfil its theoretical promise and commonly serves

the industry rather than the public interest. Indeed, self-regulation has an extremely tarnished

image, and is often reviled by conservationists, consumer organisations and other public

interest groups for being a charade - a cynical attempt by self-interested parties to give the

appearance of regulation (thereby warding off more direct and effective government

intervention) while serving private interests at the expense of the public. 165 As John Braithwaite

(1993:91) has put it:

Self-regulation is frequently an attempt to deceive the public into believing in the

responsibility of a irresponsible industry. Sometimes it is a strategy to give the government

an excuse for not doing its job.166

According to the critics, self-regulatory standards are usually weak, enforcement is ineffective

and punishment is secret and mild. Moreover, self-regulation commonly lacks many of the

virtues of conventional state regulation, "in terms of visibility, credibility, accountability,

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compulsory application to all, greater likelihood of rigorous standards being developed, cost

spreading, and availability of a range of sanctions".167

As we will argue in chapter four, the extent to which self-regulation in practice has either the

positive or the negative attributes identified by its proponents or detractors, will depend very

much on the social and economic context within which an individual self-regulatory scheme

operates and on the particular characteristics of the scheme itself. Generalisations are extremely

dangerous. As with other instruments, self-regulation works better in some circumstances than

in others. Self-regulation works best where there is a degree of coincidence between the self-

interest of the individual company or industry, and the wider public interest. 168 For example, it

is in the interests of both the producer and the general public for the producer to adopt new

process technology which uses fewer raw materials and energy and generates less waste. Such

situations are often referred to as "win-win". Improved environmental performance occurs

naturally in the quest for an improved "bottom line".169

However, where a substantial gap exists between the public interest and the private interest of

individual enterprises, then it would be naive to rely upon an individual enterprise or industry

association taking steps voluntarily in the public interest unless there is some external pressure

to do so. This pressure might come from a variety of sources, the most important of which

include the threat (actual or implied) of direct government intervention, broader concerns to

maintain credibility and legitimacy (and through this, commercial advantage), and the market

itself. The likelihood of self-regulation functioning successfully will necessarily vary with the

strength of these pressures.170

Not all industries lend themselves to self-regulation through industry associations. Rees (1994)

uses the term "community of shared fate" to refer to circumstances in which poor performance

on the part of one member reflects adversely upon, and indeed, may jeopardise the interests of,

the entire industry.171 These circumstances facilitate the mobilisation of peer pressure to ensure

that no one member "lets the side down". Other structural factors that may bear upon the likely
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success of industry self-regulation include: (i) enterprises are aware of each others' behaviour

and can detect non-compliance (this will be compromised by large numbers of firms which

enhances the temptation and opportunity to cheat);172 (ii) industries that have a history of

effective cooperative action (eg an existing association); (iii) a means of punishing non-

compliant behaviour; and (iv) where consumers, customers or other clients value compliant

behaviour and can identify compliant firms (with the result that free riders can be controlled by

markets, particularly where these are driven by consumer demand). 173

Self-regulation may have its best chance of success when activated by external institutions.

Government may directly engage in the self-regulatory process by jointly negotiating targets

and strategies, and providing, if necessary, external verification and/or ratification. In such

cases, self-regulation may be more properly termed co-regulation. Often, negotiations at this

level will occur through industry associations on a sectoral basis. 174 One benefit may be that

firms participating in the design of regulations will be more committed to abiding by them.

Experience in the Netherlands indicates that the very act of negotiating co-regulatory

agreements provides industry with a greater insight into better environmental management.175

There is considerable evidence from a variety of jurisdictions, that it is largely fear of

government regulation that drives the large majority of self-regulatory programs.176 It seems

unlikely that they would perform well in the absence of continuing government oversight and

the threat of direct intervention in the event of self-regulatory failure.

In addition, third parties are also able to contribute to self-regulation, by exercising vigilance

and by voicing criticism as appropriate. This can move industry to open a dialogue with

community groups with the aim of finding mutually beneficial ways to improve environmental

performance. As we discuss below in chapter four, the chemical industry, because of its poor

public relations record and lack of credibility, has been at the forefront of such moves. For

example, under the Responsible Care program, community groups and outside technical experts

are given an important role in overseeing the chemical industry's environmental performance.
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The independent oversight exercised by third parties may be essential to maintaining the

credibility of a self-regulatory regime.

From the above analysis, it will be apparent that there are substantial limits to the contribution

of self-regulation. The greater the nexus between environmental improvement and increased

costs, the greater the incentive to renege on self-regulatory objectives. Consequently, only

rarely can self-regulation alone be relied upon to achieve environmental goals. As we have

seen, even effective self-regulation may depend on a degree of inducement. And at least the

spectre of coercive state intervention may be required in those cases where virtue is lacking. In

the words of one government regulatory official: "If self-regulation worked, Moses would have

come down from the Mountain with the Ten Guidelines".177

3. Voluntarism

In contrast to self-regulation, which entails social control by an industry association,

voluntarism is based on the individual firm undertaking to do the right thing unilaterally,

without any basis in coercion. Commonly, voluntarism is initiated by government, and may

involve government playing the role of coordinator and facilitator. At a general level this

category embraces voluntary agreements between governments and individual businesses taking

the form of "non-mandatory contracts between equal partners, one of which is government, in

which incentives for action arise from mutual interests rather than from sanctions". 178 However,

the variety of such agreements makes precise classification difficult. The words non-mandatory

are fundamental, for to the extent that such agreements contain a coercive element (for

example, there are strong pressures to enter into it) they might legitimately be regarded as an

innovative form of command and control, or co-regulation, as with the Dutch environmental

covenants, mentioned above.179

Among the most important individual instruments in this category are support for projects

undertaken by landholders (where the financial support is partial and there is heavy reliance on
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voluntary effort for successful completion). Voluntary programs of this nature do not require

any commitment to participation for any set period of time on the part of the landholder or

resource user. Rather, program participation relies upon the enthusiasm and goodwill of the

landholder or resource user, and withdrawal from a program only results in a cessation of

assistance. For example, all states in Australia have programs to assist in the voluntary use of

land for the protection of wildlife. Some of these carry no financial inducements at all. The

Australian Landcare program is another example of this approach. Landcare reflects a desire to

restrict government intervention to ameliorate land degradation through the encouragement of

voluntary activity and the provision of extension services. It provides opportunities for joint

activities between landholders and community groups by invoking a sense of responsibility for

land conservation.

In the areas of land and biodiversity conservation, management agreements with the person

responsible for managing an area of land will be of particular significance. These are a form of

conditional use right whereby landholders are reimbursed for the incremental cost of providing

non-marketable biodiversity services and the capital costs associated with the building of fences

etc necessary to conserve biodiversity. The normal mechanism used is one whereby landholders

are offered the opportunity to agree, in return for a payment, to contribute to the maintenance of

biodiversity not expected of that person’s market competitors. They are a crucial mechanism for

providing on-going protection of habitat. Management agreements generally involve a legally

binding contract entered into for a period of time, under which a land user agrees to refrain

from certain activities and to undertake other activities in return for reimbursement. 180

Within the areas of energy efficiency and pollution control, two of the most notable voluntary

agreements between government and industry are the United States EPA's 33/50 and Green

Lights programs. Under 33/50, firms are encouraged to reduce the release of toxic chemicals

through positive public recognition.181 Industry participation is completely voluntary and

commitments are not enforceable by law. Instead, the program relies on cooperation between
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industry and the EPA, and subsequent positive public recognition of environmental

achievements. Participating firms are required to develop detailed action plans, but can adapt

them to target the least costly abatement measures. An initial evaluation reveals that the 33/50

program has significantly reduced toxic chemical releases by participating firms. 182 Green Light

(whereby firms agree in writing to install energy efficient lighting) has also claimed some

success. The program signed up five per cent of all commercial office space in less than three

years.183 Average investment returns are estimated at between 20 and 40 percent. More recently,

the European Commission has sought to promote voluntary environmental agreements in the

industrial context, recognising that they can promote a pro-active attitude on the part of

industry, provide tailor made solutions and allow for a quicker and smoother achievement of

objectives. However, it is recognised that these benefits will only be obtained if agreements are

carefully designed to ensure their environmental effectiveness. Here the key elements have

been identified as : "the setting of qualitative objectives, a staged approach providing for

intermediate objectives, the publication of the agreement, the monitoring and reporting of

results".184

Strengths and Weaknesses of Voluntarism

Voluntarism has the considerable virtue of being non-interventionist, having high industry

acceptability and raising minimal equity concerns. It can also promote an ethic of

environmental stewardship. Like self-regulation, voluntarism works better in some

circumstances than others. Its greatest strength is where landowners or other regulatees perceive

their self-interest (short-term as well as long-term) as being to protect the environment.

Unfortunately, in the large majority of circumstances, this is not the case. For example, as we

will see in chapter five, there is often a considerable gap between the public interest in

environmental protection and the private interests of individual land users in respect of

biodiversity conservation.185 Nevertheless, even in these circumstances, voluntarism still has an

important role, particularly where the threats to the environment require active participation to
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resolve. The challenge in designing voluntary mechanisms is to build, rather than hinder, the

development of a custodial ethic, and to make environmental protection part of the "community

norm".186 Where this can be done, then voluntary agreements between government and

businesses or other interest groups, both in respect of the sort of "green issues", and in an

industrial context, have considerable attractions:

...they avoid adversarial relations; involve businesses or other groups in political processes;

improve compliance because rules rest on consensus rather than on coercion; and permit,

through negotiation, the development of instruments better adapted to economic and

competitive contexts.187

Management agreements have similar virtues: they are financially attractive, flexible,

cooperative and non-intrusive (where voluntary) and easily targeted. Their most obvious

limitation is their high administrative cost associated with negotiation and monitoring. They

also require periodic oversight, auditing or other forms of supervision on the part of

government, although this role may in part be transferred to local communities. 188 However, as

a "stand alone" mechanism management agreements are subject to a serious limitation, namely

that they need to be periodically renegotiated, and at each renegotiation the person involved has

an opportunity to hold the benefits of their work for ransom.189

Grants to facilitate specific projects, provided they are well targeted, can also have considerable

attractions, not least being high multiplier effects. Because they usually cover only a proportion

of the total costs, grants avoid the moral hazard associated with management agreements where

people have an incentive to falsify receipts and overstate expenditures. However, they can be

difficult to target and monitor without incurring high administrative costs.

4. Education and information instruments

The range of educational and information-based instruments is broad, and in many cases, these

instruments may overlap. For the purposes of this chapter we have attempted to cover the
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spectrum by breaking them down into the following major categories: (i) education and

training; (ii) corporate environmental reporting; (iii) community right to know and pollution

inventories; (iv) product certification; and (v) award schemes.

(i) Education and training

Education and training are essential to improving the capacity of industry and the community to

address pressing environmental issues. They are critical to changing attitudes, behaviour and

expertise to be consistent with environmental policy imperatives. 190 Environmental information

delivered through government sponsored education and training programs is likely to be an

essential supplement to other forms of regulation.191 Education and training can be tailored to

meet the needs of industry, and in particular, to address information gaps that hamper the

environmental performance of small and medium sized businesses. A key function of these

instruments is to internalise environmental awareness and responsibility into corporate

decision-making.

There is considerable evidence that educational instruments deliver improved management

practices. They work best, however, when they exploit the self-interest of the target audience.192

With any education campaign, the critical issue is being able to effectively target and deliver

the message to the intended audience. In some cases, this may require lateral solutions. For

example, in Australia, it was determined that the most effective way of targeting disparate users

of ozone depleting substances in commercial refrigerators was to train and certify private

contractors who regularly serviced commercial refrigerators. 193 The benefits were not only

improved environmental work practices on the part of service contractors, but the delivery of

reliable information on the phase-out process to otherwise unreachable small and medium sized

businesses.194 An alternative approach in targeting industry is to provide toll-free, help-lines.

For example, the United Kingdom's Department of Trade and Industry (DTI) operates an

Environmental Enquiry Point - a one-stop-shop for companies wishing to obtain technical

information relevant to improving their environmental performance..195

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(ii) Corporate environmental reports

Increasingly, firms have begun to adopt the practice of environmental accounting and

reporting.196 Corporate environmental reports are a useful way for firms to disseminate

information about the environmental record, either as part of an annual report or as a stand

alone document, but more than that, they can be used as an internal diagnostic tool to enhance

their performance.197 The very act of compiling a report necessarily entails a degree of

introspection that may reveal previously hidden opportunities for abating pollution. Corporate

environmental reporting is still in its infancy, however there are some potentially exciting

developments. These include the use of "eco-balance sheets" and full-cost accounting which

measure all business inputs and outputs, establish performance indicators and calculate

environmental efficiency per unit of production.198 Despite the potential of corporate

environmental reporting, there are still substantial shortcomings to be overcome. These include

consistency and coherence in the reporting format, and importantly, independent verification. 199

(iii) Community right to know and pollution inventories

Access to information is an essential prerequisite for effective community input into

environmental decision-making. In order to address this, a number of countries around the

world have introduced laws compelling disclosure of pollution and chemical hazard

information. Commonly referred to as "community right to know" (CRTK), such legislation is

intended to inform the community of the environmental impact of a firm's activities and of a

firm's pollution abatement policies The most prominent is the Emergency Planning and

Community Right to Know Act (the EPCRA) introduced in the United States in 1986.200 More

recently, Canada has introduced a national pollution inventory201 which follows aspects of the

United States EPCRA. European jurisdictions, such as the United Kingdom, have adopted

different types of laws which compel government to disclose information on pollution control

and chemical hazards.202 These follow a number of European Community directives on

Freedom of Access to Information and Control of Major Hazards of Industrial Activities

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The benefits of CRTK are readily apparent from the United States experience. 203 In particular,

CRTK: (i) provides community groups with increased insight and political leverage; (ii)

exposes government and regulatory agencies’ shortcomings, creating pressure for stricter

enforcement; (iii) stimulates pollution prevention by sensitising companies to community

pressure; (iv) can lead to the establishment of "good neighbour" agreements between local

communities and companies; (v) improves the quality of public policy debate; (vi) lessens the

need for environmental regulation via industry commitments to verifiable reduction targets; and

(vii) can directly influence the price of a firm's stock, serving to reward good environmental

performers and punish the bad.204

A central component of most CRTK legislation is a pollution inventory which compiles data on

the emission of pollutants or chemicals to the air, water and land. The basic function of a

pollution inventory is "to document the release or transfer of selected chemical pollutants to all

media as a basis for developing and monitoring the effectiveness of pollution prevention

measures or programmes".205 In the United States, this strategy, as embodied in the Toxic

Release Inventory, has been hailed by the former administrator of the EPA, William Reilly

(1990), as "one of the most effective instruments available" 206 for reducing toxic emissions, a

view reinforced by his successor, Carol Browner,207 and many others.

A major benefit of inventories is to encourage introspection. As Foucault and his followers

remind us, the simple process of enumeration and record keeping has a regulatory function.208

When the phenomenon enumerated is undesirable, as in the case of pollution, the necessity of

enumeration focuses managerial attention on the underlying phenomenon.209 No executive likes

to see their company exposed publicly at the bottom of the performance rankings; resulting

managerial exhortation is likely to have greater impact than any fixed standard which

regulatory authorities might be inclined to impose. When published, this in turn can inform

markets, including peers, regulators or NGOs which may be in a position to foster

compliance.210
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Notwithstanding the considerable virtues of CRTK and pollution inventories, they are not

without their shortcomings and limitations. Firms often fear that disclosure will enable a

competitor to gain an unfair advantage, that public interest groups will sensationalise the

information or that the public will misunderstand its significance and overreact on the basis of

unwarranted anxiety. Another potential problem is the tendency to focus on concentrated toxic

"hot spots" adjacent to local communities, at the expense of more widely dispersed pollutants.

For these reasons, CRTK can only ever play a supporting role and must be supplemented by

other regulatory instruments. Within this limitation, well structured CRTK legislation can and

does provide substantial benefits to government, the community and responsible firms.

(iv) Product Certification

Surveys indicate that many consumers are taking environmental considerations into account

when they purchase goods and services.211 There is evidence, however, that unassisted markets

do not provide accurate information to consumers and in some cases may mislead them about

the environmental performance of specific products.212 In order to inform the public about the

environmental "soundness" (or otherwise) of various consumer products, governments can

contribute to the development of labelling standards, and of eco-labelling schemes. This can

help inform consumers, and sustain markets for environmentally appropriate goods and

services.213 Private accreditation schemes, with appropriate safeguards, might achieve similar

results.

The experience of establishing eco-labelling schemes within and between nations has been

mixed at best. Assessing the full environmental implications and the relative merits of

competing products, and then incorporating the results into a single, broad-based labelling

scheme is not a simple task.214 Indeed, criteria and procedures for certification can become so

contentious that they may lead to impasse and deadlock. With the notable exception of the

German Blue Angel scheme, most national broad-based labelling schemes have experienced

strong industry opposition, which has greatly limited their coverage and effectiveness. In
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addition to design difficulties, there are considerable costs associated with the establishment

and ongoing operation of labelling schemes, particularly those that attempt to provide a full

"life-cycle-analysis" of products.215 Several schemes intended to become self-funding have in

fact required continued government assistance.216 There is also cause to doubt whether the

information provided under such schemes is necessarily "full information" and thus not always

good.217 For these reasons, some governments have withdrawn from eco-labelling, leaving the

development of labelling criteria for non-governmental bodies.

(v) Award schemes

Award schemes have considerable publicity potential, and as such, can contribute to the

education and information strategies of a regulatory regime.218 The publicity which may

accompany an award can serve an educative function, raising public awareness about

surrounding circumstances, and focusing attention on critical issues. Through a system of

awards, virtuous conduct that might otherwise pass unnoticed can be publicised. 219 The public

enunciation of virtuous conduct may have greater impact than the public denunciation of

harmful behaviour. Recipients of awards may be presented as role models, with the exemplary

act or pattern of conduct celebrated by the award held out as worthy of emulation by others.

The European Commission administers the high profile European Better Environment Awards

for Industry.220 A trophy and recognition is provided to the winning candidate. 221 The Oregon

Governor's Awards for Toxics Use Reduction is another example of a program which celebrates

environmental achievement.222 Awards can also be conferred by private institutions, such as

public interest groups and by philanthropic organisations. The Goldman environmental prize,

which recognises exceptional achievements by environmental activists is one example. 223

Despite their obvious merits, award schemes are not without limitations. Most significant of

these is their tendency to become debased through overuse. Excessive reliance on award

schemes can make recognised achievements less noteworthy, and thus dilute their educative

impact.
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Strengths and weaknesses of education and information instruments

The provision of information is essential to environmental improvement, for only with adequate

information can decision-makers at all levels maximise returns and avoid unintended

consequences.

The viability of other regulatory instruments is substantially dependent on the availability and

quality of relevant information. The application and enforcement of command and control

regulations, in particular, requires regulatory authorities to be aware of technological

innovations relevant to, for example, BAT standards and any breaches of emission standards. 224

Similarly, the effectiveness of economic instruments, such as taxes and tradeable permits, will

only be maximised if firms are fully cognisant of: (i) their environmental performance; and (ii)

the costs and benefits of various abatement options.225 If a persuasive case for environmental

improvement can be made, firms are more likely to respond positively to the range of other

instruments, whether voluntary, economic or interventionist.226

Educational and informational instruments will be more effective when they harnesses self-

interest to become financially attractive and self-enforcing, thus providing continuing

incentives for environmental protection and sustainability.227 However, self-interest is not an

essential prerequisite to the success of educational campaigns. There is evidence, for example,

that some people may be willing to sacrifice their own financial interests if they are made aware

of the importance of preventing environmental degradation and ways in which they might do

so.228 As the OECD (1994a) puts it:

...people and businesses often care deeply about contributing responsibly to the public good

(businesses also care about 'reputation'), and governments can use information,

communication, encouragement, peer pressure, and education strategies to convince the

public of the need for change.229

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In most circumstances, education and informational instruments can be implemented with

modest administrative burdens, thus improving their cost-effectiveness.

However, we do not suggest that this category of instruments is dependable, or that they can be

relied upon in isolation, particularly where there is a substantial tension between the public and

private interests. Indeed, there is evidence of a considerable gap between attitudes and

behaviour. That is, even when people collectively perceive the need for environmental

protection, each individual will not necessarily take appropriate action if this conflicts with

other goals and interests. For example, the South Australian experience has been that, even

when people were well informed and were supportive of the need for biodiversity conservation,

many still wanted to clear their own land. Only regulation (coupled with compensation)

prevented them from doing so.230 Thus, the main weakness of educational and information

instruments is that they contain no precautionary elements and cannot be depended upon to

protect the environment when there is a significant gap between private and social objectives.

Predictably, instruments within this category will also be more effective in some circumstances

than others. CRTK, for example, relies heavily on the energies of local communities in using

the information and pressuring enterprises to improve their environmental performance. Where

an environmental hazard involves no immediate threat to human health, or where there is no

identifiable local community, or where we are dealing with non-point source pollution, not

readily measured and traced back to its origins, then this instrument has far less to offer.

Similarly, corporate environmental reporting is dependent upon the willingness of public

interest groups to follow through on its results and to both shame bad performers and praise

good ones. Finally, eco-labelling relies upon the willingness of consumers to buy "green"

products and upon their capacity to distinguish between these and other classes of product.
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5. Economic instruments

The idea of economic instruments was conceived by academic economists, and for many years

remained largely of theoretical interest; regulators, environmentalists and industry alike tended

to be more comfortable with the familiar terrain of traditional regulation. 231 In the 1980s,

however, the OECD recognised the potential application of economic instruments, and began to

give the concept wider circulation amongst policy-makers. This, combined with the increasing

awareness of the limits of traditional regulatory enforcement, has led to the growing acceptance

and use of economic instruments in western industrial states.232 Today, economic instruments

are regarded by many as "the hottest growth industry in environmental law".233

Economic instruments may take a variety of forms, some providing positive incentives, and

others negative. While there is no single agreed classification, for present purposes, that

provided by Panayotou (1994) is particularly helpful234. Panayotou treats such instruments as

belonging to one of the following categories: property-rights; market creation; fiscal

instruments and charge systems; financial instruments; liability instruments; performance

bonds; and deposit refund systems.

(i) Property-rights

Much environmental depletion and pollution is caused by inadequately defined and insecure

property-rights. The classic assertion of this proposition is Garrett Hardin's (1968) "tragedy of

the commons".235 Hardin describes how, in the case of an unmanaged pasture, herders operate

in their own self-interest by overgrazing, since there is insufficient incentive to deter them from

doing so. The result is that over time, the pasture is depleted to an unsustainable level, to the

detriment of all. This problem might be avoided either by command and control regulation

(directing people how to behave), or by providing for a system of property-rights in such a way

that the problem disappears. The latter solution is generally preferred by economists on the
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grounds that it is low in administrative and transaction costs and achieves the internalisation of

externalities236 once and for all, without need for policy-makers to continually revisit the issue.

For example, if clear and enforceable property-rights and obligations are created for wildlife

with commercial value, then an incentive will exist (for those holding the property-rights) to

maintain the species and their habitats.237 Once a right or value is created, the owner has an

incentive to maintain that value so that they can maximise the profits that accrue from selling

that right. At the same time funds will be generated, some of which could be used for further

conservation measures. In circumstances such as these, property-right mechanisms offer a

powerful means to encourage people to conserve environmental resources and limit their use to

that which is sustainable.

Experience with the effectiveness of these mechanisms, however, is mixed, and their

application may be limited to relatively simple situations. 238 The strengths and weaknesses of

the property-rights approach is discussed further at section 6 (Free Market Environmentalism)

of this chapter.

(ii) Market creation

The object of this strategy is for government to create a market where none previously existed.

For example, a market might be created through the issue of tradeable pollution rights or

tradeable resource rights, which can be bought or sold like any other commodity. This entails

regulatory authorities determining an overall level of tolerable activity, based on the

assimilative capacity of a particular environmental sector, then allocating tradeable rights or

quotas up to this level.239 In effect, this means creating property-rights, manifested in the form

of permit certificates. If the users are then free to trade these certificates amongst themselves,

they will be able "to negotiate solutions to environmental problems upon the property structure

instituted by the regulator. In short, this approach allows the regulatory agency to solve the

missing market environmental problem by creating a surrogate market in permits".240

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The advantage of market creation is that, unlike direct regulation, it gives firms greater

flexibility in tailoring responses to their individual circumstances. The assumption is that firms

are in a better position than regulatory authorities to identify and specify appropriate action.

Government retains effective control of the scheme, however, by determining the allowable

emissions and quantity of available permits, and is thus able to set the overall level of polluting

emissions or resource exploitation. Government must also be in a position to enforce the

allowable emissions of individual permits to prevent abuses by free-riders, in a similar fashion

to the enforcement provision of traditional regulatory instruments. Market creation can be

envisaged as a hybrid between free market environmentalism and direct regulation. 241

The economic rationale for creating an artificial market for pollution permits is to effectively

exploit differences in the marginal cost of abatement.242 If the cost of reducing a given pollutant

varies between firms, the overall cost of reaching a desired level of pollutant emissions will be

minimised if the burden of compliance is shifted to those firms with the lowest marginal costs.

Rational behaviour by participating firms would mean that low marginal cost firms continue to

reduce emissions until the cost of further reductions is equal to or greater than that of

purchasing pollution permits, whilst high marginal cost firms will continue to pollute until the

cost of purchasing pollution permits is equal to or less than that of reducing emissions. The

benefit in using a market of tradeable permits to achieve such an outcome is that it can be

introduced without regulatory authorities needing to know anything about the circumstances of

individual firms, in particular their capacity to reduce pollutants. There may also be a further

benefit in that firms are encouraged to develop innovative forms of pollution abatement in order

to sell off excess permits at a profit.243

Although the activity subject to trade has typically been one or another form of pollution, the

concept can be extended to a variety of environmentally harmful activities. For example,

transferable development rights have been applied as part of comprehensive management plans

in New Jersey’s Pinelands. Here, development rights operate in conjunction with zoning
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restrictions so that landholders who own valuable habitat can trade with landholders in zones of

land of lesser biological importance. The use of transferable development rights is also allowed

under the Resource Management Act 1991 in New Zealand. Tradeable water entitlements and

individually transferable fishing quotas are other examples.244 So too, there are emerging

schemes for effluent trading in watersheds, wetland banking mitigation, and conservation

banking, all of which adopt some component of tradeable rights.245

Despite the substantial theoretical benefits available from utilising tradeable permits, a number

of practical difficulties have emerged in their application. These include: (i) difficulties in

finding a rational basis on which to allocate permits, whether historical use, equity, or

individual rights;246 (ii) a propensity for schemes to be inequitable if permits are simply

allocated to existing polluters - "for new entrants to the market will have to pay the price to

achieve rights of discharge";247 (iii) limited trading and uncompetitive behaviour, such as

hoarding permits, which undermine theoretical cost efficiencies; (iv) difficulties in monitoring

and enforcing permits when there is a large number of small, disparate polluters or there are

mobile sources of pollution, such as vehicles, or there are non-point sources of pollution, such

as methane emissions from farms; (v) difficulties in taking into account the transboundary

effects and highly localised ambient concentrations pollutants; 248 and (vi) difficulties in issuing

uniform permits for a mix of pollutants or resources.249

Perhaps unsurprisingly, given the array of practical obstacles, only a modest number of market

creation schemes have so far been introduced. Some, such as the United States acid rain permit

trading program, have the capability to work with considerable effectiveness.250 Others have

suffered serious design faults, with the result that very few trades have actually taken place and

monopolistic and anti-competitive behaviour has emerged.251 There is a dilemma in increasing

the complexity of the design and operation of permit schemes to address unintended

consequences, in that they have the potential, through greater administrative and enforcement

burdens, to undermine theoretical efficiencies. It is difficult to escape the conclusion that

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despite potential efficiency gains, market creation may be restricted to applications where the

use of permits can be easily monitored and verified, and where there are good trading prospects.

In these circumstances, well designed schemes have the capacity to deliver substantially

reduced pollution loads and a substantially lower cost to industry.252

(iii) Fiscal instruments and charge systems

Fiscal instruments are used to encourage environmentally responsible behaviour through full

(or partial) cost pricing of consumption or production. That is, rather than establishing

property-rights over common or unpriced resources, this approach involves establishing prices

on them, as a different way to internalise externalities. For example a tax might be based on the

degree of harm caused, or in proportion to the amount of polluting activity. 253 Economic theory

indicates fiscal instruments, principally taxes and charges, will impose less costs on industry to

achieve a given level of pollution reduction than will command and control regulations to reach

the same goal.254 As with market creation, this is because taxes and charges can exploit

differences in the marginal cost of abatement between firms to lower the overall cost of

abatement.255 There is an ongoing incentive to find new and cheaper ways to reduce pollution or

resource consumption and avoid payment, and because taxes and charges are non-prescriptive,

there are no limits to the ways in which these can be achieved.

Emission and effluent charges are amongst the most common form of fiscal instrument. They

are usually applied to individual point sources or to "bubbles" (from prescribed areas or zones)

and applied per unit of discharge.256 As each unit of pollution is reduced, so an economic

dividend is provided to the polluting enterprise. France, Germany and the Netherlands all have

effluent charges on water pollution.257 Proposed taxes on phosphates would fulfil similar

functions. Other applications include charges for the collection and treatment of waste, and

charges on potentially hazardous substances such as lubricant oils, fertilisers, pesticides and

batteries. Charges and taxes can be invoked to create incentives for more efficient resource use.
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Examples include user-pays charges for water, proposals for energy/carbon taxes and taxing

nature-based tourism operators.

It is important to recognise, however, that many tax and charge schemes that have been

implemented across the globe are in reality revenue raising devices, not serious environmental

policy instruments.258 That is, the size of the price signal to polluters is well below that required

to achieve a given environmental objective. In fairness, it may be politically possible only to

introduce taxes and charges at low levels, essentially as symbolic measures, and increase them

over time until they provide an effective price-based signal to the market. This rationale has

been applied to suggestions for a phased introduction of carbon taxes to reduce greenhouse gas

emissions in Australia.259

Financial subsidies are another form of fiscal instrument. By subsidies, we refer to tax

concessions conditional upon desired conduct. For example, tax deductions for the expenses of

environmentally responsible activity, such as mine site remediation or lower tax rates on

preferred products or materials, such as energy efficient cars or unleaded petrol. In recent years,

such approaches have become increasingly sophisticated. For example, Costa Rica now runs a

transferable reforestation tax credit scheme under which landholders receive a tax credit for

keeping their land forested or for returning land to native species cover. Subsidies may also be

offered by private and non-profit institutions. Defenders of Wildlife operate the Wolf Reward

Program which pays $5,000 to private landholders if wild wolves successfully raise a litter of

pups on their land.

Objections to using taxes and charges take three basic forms. 260 First, there is considerable

difficulty in setting a tax or charge at the right level. This is because the costs and choices

facing polluters may not be known to policy-makers (and in any case, may be subject to

lobbying to minimise business costs). This problem might be overcome by trial and error

(which may disrupt investment plans) or by establishing a progressive scale of charges, to be

increased over time.261 Nevertheless, there may remain some circumstances where it is essential
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to "get it right" first time, and where failure to do so may cause irreversible loss. Second, where

prices are relatively inelastic due to limited input substitutability, costs may simply be

transferred to final consumers with no consequential environmental benefit. Alternatively, the

size of the tax or charge would need to be very large and thus undermine the cost-effectiveness

of the instrument.262 Firms may also not respond rationally to price signals. Where taxes or

charges represent only a small proportion of outlays, costs might simply be ignored or not

noticed. And third, taxes and charges may be perceived as legitimating or condoning

environmentally harmful behaviour. For the state to allow pollution at a price, strikes some as

an inferior regulatory strategy to one which condemns environmentally deleterious activity

outright. In some circumstances, taxes or charges also raise issues of fairness and distribution

because they affect some regions and industries more than others and impact on small business

much more substantially than on larger enterprises.

In regard to tax subsidies, abatement incentives may be self-defeating, not for any sinister intent

on the part of prospective recipients, but because they might attract new entrants to the

industry. A number of these new players may be expected to bring inefficient processes with

them, thus increasing the number of potential polluters and, in the long run, the overall level of

pollution.263 Subsidies may also be a drain on public revenue.

(iv) Financial instruments

Financial instruments include such measures as revolving funds, green funds, subsidised

interest rates and soft loans. The intention is to mobilise additional financial resources for

conservation and environmental protection. For example, revolving loans enable central

governments to provide funds to local governments, small businesses or other entities, enabling

them to finance a variety of environmental activities such as sewage treatment, waste water

recycling, non-point source pollution control projects and reforestation. As loans are repaid,

they are recycled to make new loans to other entities. Similarly, revolving funds are used to

acquire land, attach an easement to it and then to sell the property so encumbered. Money from
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the sale of the land is then reused to purchase other property. Loans are commonly made at

interest rates lower than the market can offer, thus partially subsidising particular

environmental projects which, although desirable, cannot be justified in strict commercial

terms. For example, revolving loan funds are used in China for industrial pollution control. 264

Although financial instruments may indeed be effective for such purposes they do not,

however, adhere to the polluter pays principle. There are also dangers that such instruments

may be abused. For example, funds might be used for purposes other than those intended (eg

industrial expansion lacking an environmental rationale), emphasising the need for transparency

and accountability at all stages.

(v) Liability instruments

Imposing civil liability on those who despoil the environment can provide an economic

incentive for the management and control of risk, pollution and waste. Enterprises are given an

inducement to internalise externalities by the threat that legal action will be used to recover the

cost of environmental damages. At the very least, they may be persuaded to take out

environmental insurance which, while mitigating the risk, may also expose them to pressure

from the insurance company.265

It is important to distinguish between inherent and practical problems of liability instruments.

In contrast to most other economic instruments, liability systems recover damages ex post

(although the incentive effect is ex ante). This need not make them any less effective in theory,

providing that the liability system impacts upon the resource user in proportion to the harms

that their uses are causing. In practice, however, many liability schemes are beset with

problems that seriously limit their potential role in environmental protection. 266 These include

difficulties in dealing with large numbers of individuals and complex, multifaceted problems,

tracking the pathway between industrial activity and harm, and the very high, and potentially

unequal, transaction costs of court action (even allowing for the possibility of class actions and

other mechanisms to reduce these costs).267 A deciding factor in the viability of liability
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instruments is the timing of their introduction: prospective application is likely to be far more

successful than retrospective application.

(vi) Performance bonds

Performance bonds require regulatees to post a security deposit which is redeemable upon

satisfactory completion of a required task.268 In the event of non-performance, the deposit is

forfeited. The most obvious example would be a performance bond lodged by a mining

company which undertakes to rehabilitate land used for mining once an operation is complete.

In the event that the company fails to adequately restore the land and its biodiversity, all or part

of the bond would be forfeited and deployed for remediation purposes. Performance bonds are

equally applicable to pollution reduction and effluent control programs and might be extended

to forestry and fisheries. Performance bonds are best suited to situations where there is one

source of potential environmental damage, and where that damage can be reasonably estimated.

They are socially acceptable, administratively simple and cost-effective, and incorporate both

the polluter pays and precautionary principles.269 They are, however, only appropriate to

address temporary threats.

(vii) Deposit refund systems

Conceptually similar to performance bonds, deposit refund systems provide individuals and/or

firms with a financial incentive to dispose of waste in an environmentally preferable way. For

example, producers or carriers of hazardous waste could be required to lodge a deposit,

redeemable upon presentation of the waste product in question, or upon proof of satisfactory

disposal.270 The most common manifestation of this type of instrument is the deposit refund

system for used beverage containers,271 but its potential application is much wider, extending to

batteries, and automobiles and other forms of solid waste. There is considerable debate,

however, as to the administrative complexity and cost of operating such systems.

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(viii) Removing perverse incentives

The value of many potentially valuable incentive mechanisms may be lost or minimised by the

existence of perverse incentives, sometimes referred to as the "subsidising of environmental

bads". For example, a carbon tax is unlikely to realise its potential to reduce greenhouse gas

emissions while the production of coal-fired electricity remains subsidised as part of a separate

government program. Often perverse incentives occur because the government has intervened

in the market to secure social or economic ends, without fully understanding or considering

their implications for environmental protection. The World Watch Institute has identified

massive environmentally destructive subsidies in highly advanced economies such as Canada,

the United States and Australia. The OECD lists administered resource prices, output pricing,

irrigation subsidies, below cost timber pricing, subsidised crop insurance, and agricultural

support programs, as examples of government intervention that causes perverse incentives (the

perverse environmental impact of traditional agricultural policy instruments will be discussed

in chapter five). In principle, all such unsustainable market distortions should be removed, or at

least reduced, before positive incentives are introduced.272

Strengths and weaknesses of economic instruments

In theory, the virtues of economic mechanisms are their ability to: (i) influence behaviour

through price signals or property systems without the need for direct intervention in the affairs

of individuals; (ii) encourage individuals to seek out the most cost-effective (and innovative)

solutions; (iii) decentralise decision-making to individuals who often have better information on

how to solve a problem than regulators; (iv) reduce the government's enforcement costs as well

as the resource user's compliance costs; and (v) to give resource users an ongoing incentive to

develop better environmental approaches.

Whether in practice these virtues are necessarily demonstrated is less clear. Since relatively few

economic instruments have been implemented in environmental policy, and most of these only

recently, we have very little experience of how they actually work. Significantly, a recent and
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comprehensive OECD report on this issue has been unable to reach any general conclusions

about the effectiveness, efficiency, equity implications, acceptability or administrative

implications of economic instruments.273 As we will observe in chapter five, the extent to which

economic mechanisms can make a positive contribution to environmental protection is likely to

depend substantially on the particular contexts in which they are applied, the threats to which

they are addressed, their inherent attributes, 274 and their particular design and implementation.

There are nevertheless some generalisations that can usefully be made about the role of

economic instruments and property-right approaches and about their relationship with

regulatory strategies. In theory at least, economic instruments, appropriately designed, are

likely to substantially reduce the overall costs imposed on industry. This is because "regulatory

instruments require the central authority to determine the best course of action, whereas

economic instruments decentralise much of the decision-making to the single farm or factory or

household, which typically has better information for determining the appropriate individual

response to given economic conditions".275 Each firm can therefore optimise its abatement

strategy in response to appropriate market signals. Such signals can also stimulate demand for

new abatement technologies.

Unfortunately, and contrary to claims made in some of the earlier literature, economic

instruments are not self-enforcing and may involve considerable control costs.276 Indeed, one

recent study concluded that "there is no reason to expect that the administrative costs of

economic instruments are generally lower than those of regulatory instruments". 277 In any

comparison with other regulatory instruments it is appropriate therefore to compare the total

regulatory costs, that is the public administrative costs plus the private costs borne by industry.

Moreover, as one recent study concluded "there is no reason to expect that the administrative

costs of economic instruments are generally lower than those of regulatory instruments. 278 It

must also be acknowledged that market-based and property-right instruments are not generally
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well understood, and perhaps for this reason, do not rate highly in terms of community

acceptance.

In the practical application of economic instruments, potential shortcomings include: (i) a lack

of dependability on the part of property-rights and fiscal instruments in particular (unless

underpinned by direct regulation) which may be crucial, for example, in the protection of

ecosystems and biodiversity;279 (ii) a heavy reliance on information (eg about the quantity or

quality of emissions). In circumstances where such information is very hard to obtain, a

technology-based approach may be more appropriate; (iii) the risk that markets themselves may

fail and that firms may not respond rationally to price signals; 280 (iv) the risk that subsidies in

particular will have a "lulling'' effect which reinforces the status quo rather than foster

innovative pollution controls; and (v) undesirable distributive impacts. For example, tax

incentives operate regressively, they are worth more to the wealthy than to the poor, and they

are of no benefit at all to those outside the tax system entirely or to those firms operating at a

loss.281 Finally, as Cohen (1996) points out:

Economic instruments can be used to create incentives to meet or exceed centrally

mandated standards. They can perhaps reduce the enforcement and compliance costs

associated with criminal justice models of regulation. But they do not transform regulation

in the way their original proponents hoped and believed. Most economic instruments require

the state to set standards -- the difference between this instrument and command and control

regulation is that incentives and markets were used to move firms towards compliance. And

while levels of compliance were perhaps higher than that achieved with command and

control regulation, economic instruments still required public bureaucracies to monitor and

ultimately to enforce the standards.282

6. Free market environmentalism

Although often billed as alternatives to command and control, economic instruments (excluding

property-rights) may in fact be considered as market-based variants of command and control in

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that the regulator still dictates environmental aims through the manipulation of price signals or

tradeable permits.283 Such instruments must be clearly distinguished from the extreme

alternatives to environmental regulation which are espoused in sweeping terms by "free market

environmentalists" such as Anderson and Leal (1992).284 They argue not only in favour of a

more precise allocation and specification of property-rights (much as described above) but also

for the substitution of free markets for legislative solutions to regulate the exploitation of

virtually all natural resources and sources of pollution.285

Free market environmentalism entails allocating property-rights for natural resources to private

interests, or liability rules imposed in respect of harm from pollution, then allowing the market

to operate unfettered by government intervention. Under this approach, all environmental

outcomes can and should be determined by the accumulation of bargains struck between

individual owners of natural resource property-rights.286 There is no role for government in

establishing and pursuing environmental objectives. There would, however, be a role for

government in monitoring and enforcing the trading of individual property-rights. Free market

environmentalism is thus not really an instrument in the sense of a government or some other

institution intervening to correct a market failure; rather it is characterised by the substantial

absence of interventionist instruments. Such an approach would entail, inter alia, broadly

defining property-rights to include not only land ownership, but also: leases of public land for

grazing or timber harvesting; recognising existing property-rights and removing impediments to

the creation of new ones; minimal disturbance on individuals or firms to use their property as

they choose; unbundling land-use rights and land ownership so that, for example, water rights

are not attached to land; and allowing different conservation and resource rights to be traded. 287

Free market environmentalists allege that it is difficult, if not impossible, for policy-makers to

obtain accurate information about the value people place on environmental goods. A better

solution is to allow the market to determine these values under a system of well specified

property-rights. Anderson and Leal (1992) also contend that the free market approach is
 90

preferable because the political process of determining government regulation is itself

essentially corrupt, with regulatory officials and politicians both vulnerable to special interest

group lobbying and conflicts of interest.288

Strengths and weaknesses

Each of the main strategies advocated by free market environmentalists has serious limitations.

For example, although the property-rights approach is claimed to be widely applicable, in

practice it has only been used successfully in a very limited range of circumstances, and even in

some of these, can produce unwanted side effects. Take the most common scenario used to

promote this approach: endangered species protection. It is argued that because no one owns

such species or their habitat, no-one has an incentive to protect them. Conversely, if people are

granted an exclusive right to use and profit from a resource they have a greater incentive to

conserve that resource.289 Experience with the effectiveness of mechanisms which adopt this

"exclusive rights" approach however, is mixed. For example, the commercialisation of wildlife

has had only limited successes,290 most of which involve charismatic megafauna, or immediate

commercial pay-offs.291 Moreover, there may also be serious unforeseen problems with the

commercialisation approach generally: namely that it encourages illegal use (giving rise to

black markets and smuggling operations); that it threatens genetic diversity; 292 and that when

specially bred species such as salmon, escape into the wild this can also cause serious damage

to the gene pool.293

An alternative free market proposal would be to sell or lease publicly owned land such as

national parks or timber reserves to private interests. This would allow those interested in the

preservation of an endangered species habitat, such as environmentalists, to purchase the

property-rights and prevent any further exploitation. On a similar principle, the Nature

Conservancy purchases privately owned land, as well as easements, for conservation purposes.

The problem with this approach is that it assumes that private individuals and public interest

groups have the necessary resources to compete with potentially large multinational firms in the
 91

purchase of the property-rights. Further, environmentalists are unlikely to derive much income

from their activities leaving them at a further competitive disadvantage to firms which are able

to use profits from the past exploitation of resources to purchase more property-rights.

Turning specifically to pollution, it is contended by free market environmentalists that common

law tort remedies (mimicking the market, in Coasian terms) are a more appropriate and efficient

response than command and control regulation.294 For example, if the owners of private fishing

rights in a stream had their property damaged through the actions of an upstream polluter, they

would be able to obtain compensation by bringing a liability suit against the polluter. Thus the

threat of legal remedy would provide an ongoing incentive to minimise stream pollution.

However, as indicated above,295 there are serious shortcomings in using liability as an

environmental instrument, including difficulty accommodating complex, multifaceted

problems, very high transaction costs and the inevitable inequities between different litigants. A

total reliance on tort liability to enforce property-rights would therefore be fraught with

dangers.296 To take another example, some free market economists advocate a property-rights

approach to the problem of automobile emissions, involving the privatisation of highways and

an entitlement to those damaged by pollution to sue highway owners for compensation. Apart

from the potential for high transaction costs, there are several unresolved threshold issues, such

as who is going to sue,297 what damages are relevant and how the source is going to be traced.

All these issues are conveniently ignored.298 In essence, property-rights enforced through

liability rules are unlikely to be viable in complex situations involving many different users of a

single commodity where the exclusion of other users in not practicable.299

The concept of free market environmentalism has been the subject of more comprehensive

critiques. Blumm (1992), suggests that because of less than perfect market information, high

transaction costs, and difficulties in pricing collective goods and internalising externalities,

privatisation fails to generate the promised efficiencies. 300 Further, the evidence from the pre-

regulatory era is that unassisted markets systemically failed to provide efficient or fair
 92

allocations of environmental resources. He concludes that private rights are expensive to define

and enforce, and would rely on ad hoc assessments of individual cases under common law.

Others suggest that the free market environmentalists ignore the need for markets to be

coordinated by the very governments whose capacities they doubt.301 A total reliance on tort

liability to enforce property-rights would also be fraught with dangers.302 There are serious

shortcomings in using liability as an environmental instrument, including difficulty

accommodating complex, multifaceted problems, very high transaction costs and the inevitable

inequities between different litigants.303 There are also several unresolved threshold issues, such

as who is going to sue,304 what damages are relevant and how the source is going to be traced.

All these issues are conveniently ignored.305 In essence, property-rights enforced through

liability rules are unlikely to be viable in complex situations involving many different users of a

single commodity where the exclusion of other users in not practicable.306

The purported strengths of free market environmentalism, an absence of political and policy

interference and the ability to reflect the true value of environmental goods, are in fact largely

dependent on efficiently operating markets. That is, markets should as far as possible be based

on perfect competition and perfect information. The problem is that markets rarely operate this

way.307 There is the inevitability of transactions costs, less than rational behaviour by

competitors, and decisions being made in the absence of relevant information and the ability to

enforce the internalisation of externalities. Private individuals and public interest groups do not

have the necessary resources to compete with potentially large multinational firms in the

purchase of the property-rights. Further, environmentalists are unlikely to derive much income

from their activities leaving them at a further competitive disadvantage to firms which are able

to use profits from the past exploitation of resources to purchase more property-rights. This

exposes the central conundrum facing the free market environmentalists: that government

intervention, to a greater or lesser extent, is required to minimise these market distortions. As

Krier (1992) points out, there is no guarantee that government will not fail in establishing and
 93

operating a market of resource property-rights just as it fails in establishing and operating

environmental regulatory regimes.308

In conclusion, the circumstances in which the free market environmentalism approach is

demonstrably viable appear to be limited, in particular, to situations where there is a resource

that lends itself to commercial exploitation, where property-rights can be clearly defined and

readily enforced, where there is an absence of multiple users, where the users have access to

appropriate information and where the users clearly have an ongoing dependency on the

viability of the resource. It is no coincidence that the most convincing examples provided by

free market environmentalists conform to just such situations.

7. Conclusion

In this chapter we have shown that, beyond the confines of the traditional system of regulation,

there exists a far richer tapestry of policy instruments than is commonly realised. As the

conventional approach to command and control begins to collapse under its own weight, 309 so

policy-makers have begun to pay increasing attention to the potential of these broader policy

options.

As a result, environmental policy is in transition: from command and control towards a much

more pluralistic conception of instrument design. Yet these moves towards pluralism have so

far been hesitant in their approach and uneven in their outcomes. Economic instruments, long

hailed by environmental economists as the answer to a broad range of problems, have been

introduced only cautiously, in limited areas, and with encouraging, 310 but nevertheless mixed

results.311 Some instruments, for example corporate environmental reporting, and environmental

accounting, remain very much at the experimental stage. Others, such as some forms of product

certification, have been tried and found wanting. Still others, such as community right to know

and some forms of co-regulation, have had some marked successes, but only in limited

circumstances. Overall, alternative policy instruments are still at an early stage of development
 94

in which "little is known in general about [their] effectiveness, efficiency, or administrative

implications, nor about how they may be best implemented".312

Even where policy-makers have utilised innovative approaches, this has often been in a manner

which is largely incoherent and unreflexive. Single instrument and single category approaches

still predominate, commonly driven, as we indicated in chapter one, either by professional

myopia or self-interest, and with little awareness of the limitations of those instruments and

their incapacity to operate effectively "across the board". All too often, the story of the little

boy and the hammer, remains apposite to policy design. The little boy, having been given a toy

hammer as a gift, would use the tool for every task he confronted, regardless of its suitability.

Sometimes, mixes of instruments, or a broader range of institutional actors are invoked, but

often with little awareness of the need for conscious regulatory design. Far worse, some mixes,

put together with insufficient thought as to their likely consequences or undesirable side effects,

are likely to be counterproductive or dysfunctional. Many of the most constructive and

sophisticated innovations to date have been modifications to conventional regulation. These

range from a more judicious blend of performance and specification standards, through

changing permit and compliance programs to introduce more flexibility, to the use of process-

based standards, reflexive regulation and incentives for exemplary performance. Some of these

innovations to command and control have taken on the characteristics of other instruments and

have utilised a broader range of institutional actors. That is, here at least, there are now some

conscious mixing of instruments and actors.

However, these broader innovations are the exception rather than the rule and their impact, so

far, has been very modest. For example, after almost two years of operation only one company

had taken up an Accredited Licence in Victoria,313 while a detailed evaluation of Project XL

(and a number of other innovations) concluded that too high transactions costs, mutual mistrust

and the lack of a statutory base have resulted in very low participation rates in this and a

number of kindred schemes.314 In any event, these innovations are dwarfed by other new
 95

environmental initiatives in the traditional mould which, to quote Marc Landy: "exacerbate the

environmental regime's worst excesses".315 Even European Union's Environmental Management

and Audit Scheme (EMAS), the most far reaching of these alternative schemes, has

encountered problems, largely a result of the political compromises and dilution necessary to

gain industry's acquiescence to its introduction.

Notwithstanding the very modest advances made to date, some of this experimentation

nevertheless suggests important themes and insights on which future policy development and

design may build. As should now be obvious, there is no such thing as a single, perfect,

universal solution to environmental problems. Each of the instruments discussed above has its

shortcomings. Moreover, environmental problems themselves are of such variation and

complexity, and the industrial and ecological contexts in which they occur are so varied, that

the ideal solution will be context specific. What works best will necessarily vary from case to

case.

Our challenge is to envisage what combination of instruments will be most appropriate in a

given setting and to design strategies that mix instruments and institutional actors to optimal

effect. However, before accepting that challenge, we need to examine the contribution that a

broader range of institutional actors could make to optimal environmental policy, and how

instruments interact with each other, for better or for worse. These issues are the subject matter

of the next chapters.

99
Instruments are the tools employed by institutions to do what they wish to do.

100
As we will see in chapter 5, with some issues involving the rural sector, such as aspects of biodiversity,
this approach has been less pronounced.

101
R Kagan, "Regulatory Enforcement" in D Rosenbloom & R Schwartz (Eds), Handbook of Regulation
and Administrative Law (1994), Dekker, New York.
 96

102
A S Miller, "The Origins and Current Directions of United States Environmental Law and Policy: an
overview" in B Boer; R Fowler; & N Gunningham (Eds), Environmental Outlook: Law and Policy
(1994), Federation Press, Sydney.

103
Although specific technological requirements do not necessarily impede innovation or lock firms into
using a particular technology, in practice they often have this effect: permit writers tend to be conservative
and are unwilling to authorise new technologies or processes so agency guidance becomes de facto
requirement and technological lock-in occurs.

104
For example performance based standards focus on outcomes and are not restrictive or rigid in the
same way as technology standards can be.

105
Other specific forms of regulation include: land use controls which involve dividing a geographic area
into different zones, within which only certain types of activity are permitted. Issues such as land use, the
size of buildings, lot sizes, the clearing of vegetation and population density may be addressed by
prescriptive or performance based standards; environmental impact assessment, a critical appraisal of the
likely effects of a proposed project or activity on the environment. Such assessments are usually carried
out by the proponents at the behest of a regulatory authority as a necessary prerequisite for project
approval. As such, they fulfil a gatekeeping function and for this reason should arguably be classified
separately. Assessments may take into account: impact on communities; environmental impact on
ecosystems of the locality; and diminution of the aesthetic, recreational, scientific, or other environmental
quality or value of a locality; and water use controls which apply to the exploitation of natural resources
or recreational activities such as fishing and power boating. These controls are commonly subsumed
within wider management plans for water catchment areas, coastal zones, national parks and recreational
areas (J Bernstein, Alternative Approaches to Pollution Control and Waste Management - Regulatory and
Economic Instruments (1993), The World Bank, Washington DC).

106
In some versions the regulatee is notionally given considerable discretion to select the most appropriate
technology to their circumstances, but in practice, those who depart from the one approved technology run
a considerable "regulatory risk" that the regulatory authority will not deem their choice of technology as
complying with the statutory requirement. See J Atcheson, "Can We Trust Verification?" (1996) July/Aug
Environmental Forum 16 at 17.

107
P W McAvoy, OSHA Safety Regulation: Report of the Presidential Task Force (1977), American
Enterprise Institute, Washington DC.

108
See for example J Potter, "Chemical Accident Prevention Regulation in California and New Jersey"
(1993) 20 Ecology Law Quarterly 755-815.

109
Industry Commission, Work, Health & Safety: Inquiry into occupational health and safety (1995),
Volume I Report No 47, AGPS, Canberra, p 38; and N Gunningham "From Compliance to Best Practice
 97

in OHS: The role of specification, performance and systems based standards" (1996) 9(3) Australian
Journal of Labour Law 221-246.

110
For a comprehensive defence of command and control see H Latin, "Ideal v. Real Regulatory
Efficiency: Implementation of uniform standards and 'fine tuning reforms'" (1985) 37 Stanford Law
Review 1267-332.

111
The regulator can consider actual technologies, or those that will shortly be introduced, making both
information gathering and the standard itself relatively easy to implement. Enforcement is also relatively
easy, involving ascertaining whether the prescribed control technology is operating appropriately.

112
O McGarity, "Four Dimensions of Health and Environmental Regulation" (undated), an unpublished
paper, University of Texas Law School, points out that command regulation is easy to articulate,
predictable in impact (the enforcement agency can often know precisely how the regulatee will react) and
easy of enforcement (because the agency can structure commands so that it knows exactly how to enforce
them).

113
There have been impressive reductions in some airborne pollutants, such as lead concentrations and
emissions of ozone depleting substances, and similar successes in water quality have in many cases
dramatically improved the condition of national rivers (C Sunstein, "Paradoxes of the Regulatory State"
(1990) 57 University of Chicago Law Review 407-41; A W Reitze, (1991) "A Century of Pollution
Control Law: What worked; what's failed; what might work" 21 Environmental Law 1549-1646; A L Alm,
"A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA Journal 18
May/June 6-11; and W E Orts "Reflexive Environmental Law" (1995) 89 Northwestern University Law
Review 1227.

114
C Perrings & D Pearce, "Threshold Effects and Incentives for the Conservation of Biodiversity" (1994)
4 Environmental and Resource Economics 13-28. For example, endangered species legislation has saved
a number of species from extinction (C Sunstein, "Paradoxes of the Regulatory State" (1990) 57
University of Chicago Law Review 407-41).

115
Bureau of Industry Economics, Environmental Regulation: The Economics of Tradeable Permits - A
survey of theory and practice, Research Report 42, (1992), AGPS, Canberra.

116
H Latin, "Ideal v. Real Regulatory Efficiency: Implementation of uniform standards and 'fine tuning
reforms'" (1985) 37 Stanford Law Review 1267-332.

117
H Latin, "Ideal v. Real Regulatory Efficiency: Implementation of uniform standards and 'fine tuning
reforms'" (1985) 37 Stanford Law Review 1267-332 at 1271.
 98

118
Kagan refers to the difference between regulating "elephants" and "foxes": it is harder for elephants to
hide (R Kagan, "Regulatory Enforcement" in D Rosenbloom & R Schwartz (Eds), Handbook of
Regulation and Administrative Law (1994), Dekker, New York).

119
N Shover; D A Clelland; & J Lynxwiler, Enforcement or Negotiation: Constructing a regulatory
bureaucracy (1986), State University of New York Press, Albany, New York.

120
P Grabosky & J Braithwaite, Of Manners Gentle: Enforcement strategies of Australian business
regulatory agencies (1986), Oxford University Press, Melbourne.

121
J Braithwaite & B Fisse, "Self Regulation and the Costs of Corporate Crime" in C D Shearing & P C
Stenning Private Policing (1987), Sage Publications, Beverley Hills. USA.

122
A L Alm, "A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA
Journal 18 May/June 6-11.

123
M Porter, The Competitive Advantage of Nations (1990), Macmillan Press, London.

124
The means whereby recent innovations seek to overcome these weaknesses is addressed at pp 00
below.

125
A L Alm, "A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA
Journal 18 May/June 6-11.

126
A L Alm, "A Need For new Approaches: Command-and-control is no longer a cure-all"(1992) EPA
Journal 18 May/June 6-11.

127
R Hahn, & R Stavins, "Incentive-Based Environmental Regulation: A new era from an old idea?"
(1991) 18(1) Ecology Law Quarterly 1-42; and R Stewart, (1992) "Models for Environmental Regulation:
Central planning versus market-based approaches" Boston College Environmental Affairs Law Review
547-62.

128
C Sunstein, "Paradoxes of the Regulatory State" (1990) 57 University of Chicago Law Review 407-41.

129
W E Orts, "Reflexive Environmental Law" (1995) 89 Northwestern University Law Review 1227.

130
However, contrast the innovation inhibiting effect of technology based standards in the USA (see
emdonte above) with the operation of such standards in Germany where law requires Best Available
Technologies (BATs) in such a way as to give incentives to companies to implement innovative and
cutting edge environmental technologies (S Breyer, Breaking the Vicious Circle: Toward effective risk
regulation (1993), Harvard University Press, Cambridge; and Bernstein (1993); and J Bernstein,
Alternative Approaches to Pollution Control and Waste Management - Regulatory and Economic
Instruments (1993), The World Bank, Washington DC).
 99

131
J Braithwaite & T Makkai, "Trust and Compliance" (1994b) 4 Policing and Society 1.

132
T Anderson, "At Home on the Range with the Wolves: Making a Liability into an Asset" (1995) 2
(June) [Link].

133
More than one scholar has built a reputation on the identification of regulations which appear senseless,
or, if they make any sense at all, are less sensible than a variety of alternatives otherwise available.

134
J A Sigler & J E Murphy, Interactive Corporate Compliance: An alternative to regulatory compulsion
(1989), Quorom Books, New York.

135
R Leone, Who Profits? Winners, Losers and Government Regulation (1986), Basic Books, New York;
and B A Ackerman & W T Hassler, Clean Coal/Dirty Air or How the Clean Air Act became a
Multibillion-Dollar Bail-Out for High-Sulfur Coal Producers and What Should Be Done About It (1981),
Yale University Press, New Haven.

136
See for example C Sunstein, "Constitutionalism after the New Deal" (1987) 101 Harvard Law Review
448-451 at 421.

137
R A Harris & S M Milkis, The Politics of Regulatory Change: A tale of two agencies (1989), Oxford
University Press, New York.

138
See National Law Journal (USA), 1993 Corporate Counsel Survey, Aug 30, 1993 at s1.

139
B A Ackerman, & R B Steward, "Reforming Environmental Law" (1985) 37 Stanford Law Review
1333 at 1364.

140
D J Fiorino, "Towards a New System of Environmental Regulation: The case for an industry sector
approach" (1996) 26(2) Environmental Law 457-489; A Moran, "Tools of Environmental Policy: Market
instruments versus command and control" in R Eckersley (Ed), Markets, the State and the Environment
(1995), Macmillan Press, Melbourne, pp 73-85; and W E Orts, "Reflexive Environmental Law" (1995) 89
Northwestern University Law Review 1227.

141
B J Raffle & D Mitchell, Effective Environmental Strategies: Opportunities for innovation and
flexibility under Federal environmental laws (1993), p1.

142
W J Clinton & A Gore Jr, Reinventing Environmental Regulation (1995), Washington DC.

143
W J Clinton & A Gore Jr, Reinventing Environmental Regulation (1995), Washington DC, p 36.

144
W J Clinton & A Gore Jr, Reinventing Environmental Regulation (1995), Washington DC, p 36.
 100

145
US Environmental Protection Agency, Sustainable Industry: Promoting strategic environmental
protection in the industrial sector: Phase 1 Report (1994), US EPA, Washington DC, p 1.

146
S Schuler "New Jersey's Pollution Prevention Act of 1991: A regulation that even the regulated can
enjoy" (1992) 16 Seton Hall Legislative Journal 814-832.

147
A T Iles, "Adaptive Management: Making environmental law and policy more dynamic,
experimentalist and learning" (1996) 13(4) Environmental and Planning Law Journal 288-309 at 299.

148
R Gerits & J Hinssen, "Environmental Covenant for the Oil and Gas Producing Industry: A valuable
policy instrument?" (1994) 24(6) Environment Policy and Law 323.

149
Netherlands National Environment Policy Plan 2 (1995); J M Van Dunne, Environmental Contracts
and Covenants: New instruments for a realistic environmental policy? (1993), Koninkliijke, Vermande.

150
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994), May, OECD, Paris.

151
However, this approach confronted many serious obstacles and was far from successful, at least in its
early years. See K Allott, Integrated Pollution Control: The first three years (1994), Environmental Data
Services, London, UK.

152
Council Directive 96/61/EC 1996. This Directive proposed to minimise or eliminate polluting
emissions to all media by establishing a unified permitting system in each Member State which complies
with a general framework of principles.

153
This approach is most developed in the related area of occupational health and safety. See N
Gunningham, "From Compliance to Best Practice in OHS" (1996) 9(3) Australian Journal of Labour Law
221-246.

154
E Bardach & R Kagan, Going by the Book: The problem of regulatory unreasonableness (1982);
Washington and Lee Law Review, "Regulation Symposium" (1988), 45 Washington and Lee Law Review
pp 1245-1390; and G Teubner; L Farmer; & D Murphy (Eds), Environmental Law and Ecological
Responsibility (1994), Wiley, UK.

155
For example, in Australia, there are at least 500 self-regulatory arrangements administered by industry
and professional associations, in areas as diverse as service and advertising standards; information
disclosure and customer complaint handling; professional standards; and stock exchange and futures
market controls (Trade Practices Commission (TPC) (Australia), Self-regulation in Australian Industry
and the Professions (1988), AGPS, Canberra).
 101

156
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994) May, OECD, Paris, p 7.

157
J V Rees, Reforming the Workplace: A study of self-regulation in occupational health and safety
(1988), University of Pennsylvania Press, US, p 9.

158
This is explored more fully in chapter 4 below.

159
J V Rees, Hostages of Each Other : The transformation of nuclear safety since Three Mile Island
(1994), University of Chicago Press, Chicago, US. INPO is a private regulatory bureaucracy with about
400 employees who develop standards, conduct inspections, and investigate accidents. With an annual
budget of nearly US$54 million, INPO has achieved significant improvements in safety and environmental
performance within the industry.

160
A utilisation plan is prepared by each association and approved by a government agency. Enforcement
of the plan is largely the responsibility of the association. See further Environmental Law Institute
(ELI), Brazil's Extractive Reserves (1995), Environmental Law Institute, Washington DC, Ch
V. At the time of writing it is too early to assess the success of this scheme.

161
This code of practice was devised in response to European boycott initiatives and premised on industry
awareness that national and international market forces demand independent, reliable certification
systems. See further G T Rhone, Canadian Standards Association Sustainable Forest Management
Certification System (1996), Industry Canada, Ottawa, Canada.

162
For example, in Alanya, Turkey, overfishing has been very effectively prevented by the introduction of
an innovative self-regulatory scheme devised by the locals themselves which allocates fishing rights in
particular locations on a rotational basis. According to Elinor Ostrom, "all fishing boats have an equal
chance to fish at the best spots. Resources are not wasted searching for or fighting over a site. No signs of
overcapitalisation are apparent" (E Ostrom, Governing the Commons: The evolution of institutions for
collective action (1990), Cambridge University Press, Cambridge, New York, p 19. See also F Berkes,
"Marine Inshore Management in Turkey" in National Research Council, Proceedings of the Conference
on Common Property Resource Management (1986), National Academy Press, Washington DC, pp 63-
83.

163
See further N Gunningham & V Rees, "Industry Self-Regulation" (1997) Law and Policy
(forthcoming).

164
See further I Ayres & J Braithwaite, Responsive Regulation: Transcending the regulation-deregulation
debate (1992), Oxford University Press, UK.
 102

165
J Braithwaite & B Fisse, "Self Regulation and the Costs of Corporate Crime" in C D Shearing & P C
Stenning Private Policing (1987), Sage Publications, Beverley Hills. USA; Blakeney & Barnes,
"Advertising Deregulation: Public health or private profit" in R Tomasic Business Regulation in Australia
(1984), CCH Australia, North Ryde, NSW; and Page (1980).

166
J Braithwaite, "Responsive Business Regulatory Institutions" in C Cody & C Stampford (Eds),
Business, Ethics and Law (1993), Federation Press, Sydney, p 91.

167
K Webb & A Morrison, "The Legal Aspects of Voluntary Codes", a draft paper presented to the
Voluntary Codes Symposium, Office of Consumer Affairs, Industry Canada and Regulatory Affairs,
Treasury Board, Ottawa, September 1996 and to be included in Exploring Voluntary Codes in the
Marketplace, edited by D. Cohen & K. Webb, Government of Canada, Ottawa, (forthcoming) p1.

168
Whether it is economically rational for an enterprise to adopt self-regulation is more problematic than
it might appear, because there may be a substantial gap between long term and short term self interest. For
example, it may be in the long term interests of firms to invest in environment protection measures which
would not only demonstrably reduce costs and increase profits of individual enterprises in the long term
but would also enhance the environmental credentials of the entire industry. However, for those who are
economically marginal, or for managers whose performance is judged in the short term, such investments
may not be practicable in the absence of some form of external pressure.

169
See further N Gunningham & J V Rees, "Industry Self-Regulation" (1997) (forthcoming).

170
See further N Gunningham & J V Rees, "Industry Self-Regulation" (1997) (forthcoming).

171
J V Rees, Hostages of Each Other : The transformation of nuclear safety since Three Mile Island
(1994), University of Chicago Press, Chicago, US.

172
M Olson, The Logic of Collective Action (1965), MIT Press, Cambridge. US. See also J Q Wilson,
Political Organisations (1973), Basic Books, New York, ch 8.

173
See D S Cohen, "The Regulation of Green Advertising: The state, the market and the environmental
good" (1991) 25 University of British Columbia Law Review 225. Cohen cites the case of the Canadian
Care Labelling program, which has few free riders, in part because of active lobbying by consumer
groups. He also suggests that the GAP Inc's Sourcing Principles and Guidelines, and the Canadian Eco-
Labelling program, are examples of codes that employ the market to curb free-riders.

174
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992),
Oxford University Press, New York.

175
Environment Policy and Law "Environmental Caveats (1994) 24(4) Environment Policy and Law 191.
 103

176
See Dutch study in M Aalders, "Regulation and In-Company Environmental Management in the
Netherlands" (1993) 15(2) Law and Policy 75.

177
Quoted in P Grabosky & J Braithwaite, Of Manners Gentle: Enforcement strategies of Australian
business regulatory agencies (1986), Oxford University Press, Melbourne, p 184.

178
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994) May, OECD, Paris, p 7.

179
Grants to facilitate specific projects are also classified as voluntary instruments notwithstanding that
they also provide a financial incentive provided that the grant is intended to provide only partial financial
support for the project, which still relies heavily on the voluntary efforts of the recipients for its successful
completion.

180
See further J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994),
CSIRO Division of Wildlife and Ecology, Canberra, p 13; D Farrier, "Conserving Biodiversity on Private
Land" (1995) 19(2) Harvard Environmental Law Review pp 304-405; D B Botlain, Discordant
Harmonies (1990), Oxford University Press, New York, pp 195-6; K L Wallace & S A Moore,
"Management of Remnant Bushland for Nature Conservation in Agricultural Areas of South-Western
Australia - Operational and Planning Perspectives’ in D A Saunders; G W Arnold; A A Burbidge; & A J
M Hopkins (Eds) Nature Conservation: The role of remnants of native vegetation (1987) , Surrey Beatty
and Sons, Chipping Norton, NSW, p 259; J Bowers, Incentives and Mechanisms for Biodiversity:
Observations and Issues (1994), CSIRO Division of Wildlife and Ecology, Canberra, p 14; Land Use
Consultants, Countryside Schemes and Nature Conservation (1994), London, UK.

181
A S Miller, "The Origins and Current Directions of United States Environmental Law and Policy: An
overview" in B Boer; R Fowler; & N Gunningham (Eds), Environmental Outlook: Law and Policy
(1994), Federation Press, Sydney.

182
S Arora & T N Cason, "An Experiment in Voluntary Environmental Regulation: Participation in EPA's
33/50 Program" (1995) 28(3) Journal of Environmental Economics and Management 271.

183
A S Miller, "The Origins and Current Directions of United States Environmental Law and Policy: An
overview" in B Boer; R Fowler; & N Gunningham (Eds), Environmental Outlook: Law and Policy
(1994), Federation Press, Sydney.

184
Communication from the Commission to the Council and the Parliament on environmental covenants
Com (96) s61.

185
The basic problem derives from the fact that private landholders (or indeed other private users of
resources) commonly lack any economic incentive to take account of the social costs of their actions. That
is, we encounter a classic externalities problem where the direct benefits of biodiversity loss (eg increased
 104

agricultural production from clearing land) go to individual property owners, whereas the costs (in terms
of loss of species, ecosystems, genetic resources and other potential uses) fall on society at large. The
problem is that the impact of one landholder clearing their land will make little impact on the overall
problem, nor will this individual decision influence the behaviour of other landholders. Accordingly, each
landholder will be tempted to take advantage of the willingness of others to protect the environment while
continuing to despoil it themselves. See M Olson, The Logic of Collective Action (1995), Harvard
University Press, Cambridge, MA.

186
A Bennett; G Backhouse; & T Clark (Eds), People and Nature Conservation: Perspectives on private
land use and endangered species recovery (1995), Surrey Beatty and Sons, Chipping Norton, UK.

187
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994), May, OECD, Paris, p 7.

188
See further, J M Hopkins & D A Saunders, "Ecological Studies as a Basis for Management" in D A
Saunders; G W Arnold; A A Burbidge; & A J M Hopkins (Eds) Nature Conservation: The role of
remnants of native vegetation (1987) , Surrey Beatty and Sons, Chipping Norton, NSW, p 15.

189
Consequently, to achieve dependability, the most effective management agreements are underpinned by
a conservation covenant designed to protect the resources in the longer term. For example, a conservation
covenant attached to the land title could require the existing landholder and all subsequent landholders to
neither damage nor threaten that habitat.

190
A great deal of environmentally inappropriate behaviour may arise not from perversity or selfishness,
but rather from ignorance. Therefore, the greater one’s knowledge of environmental issues and/or action
strategies, the greater one’s tendency to adopt good environmental and resource management practices (J
Hines; H Hungerford; & A Tomera, "Analysis and Synthesis of Research on Environmental Behaviour: A
meta-analysis" (1987) 18(2) Journal of Environmental Education). Similarly, research-based management
advice was identified as a major need in a survey of landholders and managers of remnant lowland native
grassland (L Gilfedder & J B Kirkpatrick, A Survey of Landholder Attitudes and Intentions Towards the
Long Term Conservation of Native Lowland Grasslands (1995), Report to the Grasslands Ecology Unit,
Australian Nature Conservation Agency, Canberra). Programs such as Victoria’s Land for Wildlife
scheme already address the central role of education and information through a series of booklets for
landowners which provide advice on matters such as native vegetation management, wetlands and
waterway management and weeds control (see M D Young; N Gunningham; J Elix; J Lambert; B Howard;
P Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based,
property-right, and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series
Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra, p 107).

191
They are however, rarely used in isolation. That is, they are a supplementary instrument.
 105

192
For example, where informed resource users have a self-interest in protecting biodiversity, then
educational programs, appropriately designed, can bring about very substantial benefits. If, for example,
eutrophication of a lake is due to farmers using more fertiliser than is necessary to maximise profits, it
may only be necessary to bring this to their attention. Enlightened self-interest may then be sufficient to
solve, or at least reduce, the problem. Education and information provision can assist to improve
management of common-property resources such as a fishery. Fishers may learn that the continued use of
a certain type of net will reduce stocks to such an extent that they would lose their livelihoods (see M D
Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future:
An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra, p 107).

193
Australia and New Zealand Environment and Conservation Council (ANZECC), Revised Strategy for
Ozone Protection in Australia Report No. 30 (1994), AGPS, Canberra.

194
Often, the only sources of professional expertise which small business proprietors routinely access are
their lawyers, their accountants, and, perhaps, their bank managers. These professionals may be useful
conduits for information relating to regulatory compliance, particularly as it may effect the nature of
professional services in question.

195
The service covers: technical matters; legal obligations; proposed new standards; and environmental
conferences and seminars. If an enquiry is dealt with in less than four hours, no fee is charged. (J Holmes,
Managing into the 1990's - Manufacturing and the Environment: An executive guide (1992), Department
for Enterprise (DTI), London.

196
D Owen, "A Critical Perspective on the Development of European Corporate Environmental
Accounting and Reporting (1996), a paper presented at the 1996 Australian Academy of Science Fenner
Conference on the Environment: Linking Environment and Economy Through Indicators and Accounting
Systems, 30 September to 3 October, The University of New South Wales, Sydney.

197
Such disclosures may contain: an overall environmental policy statement; an overview of significant
environmental impacts; targets for reducing emissions and wastes and quantitative performance against
those targets; descriptions of environmental management systems in place; relevant research and
development activities; breaches of environmental regulations; and the results of environmental audits (C
Deegan, "Corporate Environmental Reporting in Australia - a review and critical assessment" (1996), a
paper presented at the 1996 Australian Academy of Science Fenner Conference on the Environment:
Linking Environment and Economy Through Indicators and Accounting Systems, 30 September to 3
October, The University of New South Wales, Sydney). The reporting is predominantly non-financial in
nature.
 106

198
C Jasch, Environmental Information Systems in Austria (1993) 13(2) Social and Environmental
Accounting 7-9.

199
M Rae, "Why Do Corporate Environmental Reporting? If You Don't, Your Company Will Die!"
(1996), a paper presented at the 1996 Australian Academy of Science Fenner Conference on the
Environment: Linking Environment and Economy Through Indicators and Accounting Systems, 30
September to 3 October, The University of New South Wales, Sydney.

200
Emergency Planning and Community Right to Know Act 1986, 42 USC et seq Public Law 99-499. A
number of State governments in the United States, such as New Jersey, introduced "right to know" laws as
early as 1983, requiring environmental surveys to be submitted to the State EPA.

201
See further National Pollutant Release Inventory for Canada (1992), Multi-Stakeholder Advisory
Committee, Environment Canada.

202
M Purdue, "Integrated Pollution Control in the Environmental Protection Act 1990: A Coming of Age
of Environmental Law?" (1991) 54 Modern Law Review 534 at 538-539.

203
N Gunningham & A Cornwell, "Legislating the Right to Know" (1994) 11 Environmental and
Planning Law Journal 274-288.

204
J T Hamilton, "Pollution as News: Media and stock market reactions to the TRI data" (1993) 27(1)
Journal of Environmental Economics and Management 38048.

205
Pollutant Release Transfer Register p 2. Within this broad objective, the are many variables which will
dictate the final make-up of the inventory. These include: scope of the inventory; who must report; what
substances must be reported; what information must be reported; to whom the information is reported;
access to that information; and how the inventory should be enforced (See N Gunningham "Issues and
Options in Designing an NPI" in Minter Ellison (Eds) Final report to the Environment Protection Agency
for the Development of Legislative Modelling for the National Pollutant Inventory and Associated
Community Right to Know in Australia (1995), Minter Ellison, Melbourne).

206
W Reilly, Aiming Before We Shoot: The quiet revolution in environmental policy (1990), address to
the National Press Club, Washington DC, September 26.

207
C Browner cited in W E Orts "Reflexive Environmental Law" (1995) 89(4) Northwestern University
Law Review 1227.

208
N Rose & P Miller, "Political Power Beyond the State: Problematics of government" (1992) 43 British
Journal of Sociology 173-205.
 107

209
One must concede that such attention may at times be in furtherance of non-compliance, as in the case
of mining companies which tamper with apparatus for the monitoring of dust levels.

210
D Vogel, Lobbying the Corporation: Citizen Challenges to Business Authority (1978), Basic Books,
New York, 131-136; and Allan et al, Paper Profits: Pollution in the pulp and paper industry (1972), MIT
Press, Cambridge MA.

211
S Dawson & N Gunningham, "The More Dolphins There Are the Less I trust What They're Saying:
Can green labelling work?" (1996) 18(1) Adelaide Law Review pp 1-34.

212
D S Cohen, "The Regulation of Green Advertising: The state, the market and the environmental good"
(1991) 25 University of British Columbia Law Review 225.

213
Organisation for Economic Co-operation and Development (OECD), Environmental labelling in
OECD Countries (1991), OECD, Paris.

214
For some of the difficulties surrounding eco-labelling programs, see J A Grodsky, "Certified Green:
The law and future of environmental labelling (1993) 10(1) Yale Journal on Regulation 147-227.

215
J A Grodsky, "Certified Green: The law and future of environmental labelling (1993) 10(1) Yale
Journal on Regulation 147-227.

216
S Dawson & N Gunningham, "The More Dolphins There Are the Less I trust What They're Saying:
Can green labelling work?" (1996) 18(1) Adelaide Law Review pp 1-34.

217
See P Menell, "Educating Consumers about the Environment: Labels versus Prices" in E Eide & R van
den Bergh (Eds), Law and Economics of the Environment (1996), Juridisk Forlag, Oslo.

218
J Gardiner & G Balch, "Getting People to Protect Themselves: Information facilitation, regulatory and
incentives strategies" in J Brigham & D Brown (Eds) Policy Implementation: Penalties or incentives
(1980), Sage Publications, Beverly Hills CA; and P N Grabosky, "Regulation by Reward: On the use of
incentives as regulatory instruments" (1995b) 17(3) Law and Policy 256-280.

219
Awards may be conferred in recognition of exemplary behaviour by third parties, as well as by
industry.

220
J Elkington; P Knight; & J Hailes, The Green Business Guide (1992), Victor Gollancz, London.

221
Even in the absence of a monetary component, symbolic rewards may still have substantial
instrumental value (R Goodin, "Making Moral Incentives Pay" (1980) 12 Policy Sciences 131-145). The
reputational capital which can be generated by an award may be worth a considerable amount (C Stone,
"Choice of Target and Other Law Enforcement Variables" in M Friedland (Ed), Sanctions and Rewards in
the Legal System (1989), University of Toronto Press, Toronto).
 108

222
L R Jones & J H Baldwin, Corporate Environmental Policy and Government Regulation (1994), JAI
Press, Greenwich Connecticut.

223
A Wallace, Eco-Heroes: Twelve Tales of Environmental Victory (1993), Mercury House, San
Francisco.

224
G Bakkenist, Environmental Information: Law, policy and experience (1994), Cameron May.

225
T Panayotou, Economic Instruments for Environmental Management and Sustainable Development
(1994) August, a report presented to the UNEP Expert Group Meeting on Use and Development of
Economic Policy Instruments for Environmental Management, UNEP, Nairobi.

226
J Hines; H Hungerford; & A Tomera, "Analysis and Synthesis of Research on Environmental
Behaviour: A meta-analysis " (1987) 18(2) Journal of Environmental Education.

227
Those who have been informed of the advantages of biodiversity conservation in certain contexts (eg
eco-tourism) will be more inclined to develop self-regulatory mechanisms that seek to maintain
biodiversity values by, for example, agreeing not to drop boat anchors on coral reefs and to drive only on
designated tracks. Those who have been informed of the financial savings available from energy
efficiency measures will be more likely to adopt those measures voluntarily.

228
A Bennett; G Backhouse; & T Clark (Eds), People and Nature Conservation: Perspectives on private
land use and endangered species recovery (1995), Surrey Beatty and Sons, Chipping Norton, UK.

229
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994), May, OECD, Paris, p 8.

230
Personal communication, John Bradsen 5/10/95.

231
S Kelman, "Economic Incentives and Environmental Policy: Politics, ideology, and philosophy" in T
Schelling (Ed), Incentives for Environmental Protection (1983), MIT Press, US, pp. 291-331.

232
R Eckersley, Markets, the State and the Environment (1995), Macmillan Press, Melbourne; and E
Rehbinder, "Environmental Regulation Through Fiscal and Economic Incentives in a Federalist System"
(1993) 20 Ecology Law Quarterly 57-83.

233
W E Orts, "Reflexive Environmental Law" (1995) 89 Northwestern University Law Review 1227 at
1241.

234
T Panayotou, Economic Instruments for Environmental Management and Sustainable Development
(1994), a report to the UNEP Expert Group Meeting on Use and Development of Economic Policy
Instruments for Environmental Management, Nairobi, August 1994.
 109

235
G Hardin, "The Tragedy of the Commons" (1968) 162 Science 1243-48.

236
That is, it requires the full social costs of the environmental harm to be borne by a private party causing
the harm rather than being passed on to taxpayers, consumers or to future generations.

237
Organisation for Economic Co-operation and Development (OECD), Economic Incentives for the
Conservation of Biodiversity: Conceptual framework and guidelines for case studies (1994), Group on
Economic and Environment Policy Integration, Expert Group on Economic Aspects of Biodiversity,
OECD, Paris.

238
Olstrom argues that some commons problems are solved neither by privatisation nor centralisation but
rather by local people getting together to solve their own problems (E Olstrom, Governing the Commons:
The evolution of institutions for collective action (1990), Cambridge University Press, New York, p 18).
However, she concedes that such solutions are more likely where communities are small, stable,
communicate effectively and have a strong concern for the future.

239
T H Tietenberg, "Economic Instruments for Environmental Regulation" (1990) 6(1) Oxford Review of
Economic Policy 17-33.

240
T Swanson, "Economic Instruments and Environmental Regulation: A critical introduction" (1995)
4(4) Review of European Community and International Environmental Law 287 at 289.

241
Kinrade, (1995), 96.

242
M Hinchy; S Thorpe; & B S Fisher, A Tradeable Emissions Permit Scheme (1992), ABARE Research
Report 93.5, ABARE, Canberra.

243
Bureau of Industry Economics, Environmental Regulation: The Economics of Tradeable Permits - A
survey of theory and practice, Research Report 42, (1992), AGPS, Canberra. They would then be in a
position to sell excess permits for profit. Depending on the type of tradeable permit scheme applied, new
entrants may also be required to develop novel non-polluting technologies if they wish to compete with
existing firms but are prevented from purchasing permits.

244
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra

245
For a useful summary, see The Keystone National Policy Dialogue on Ecosystem Management, Final
Report (October 1996), Keystone Center, Colorado.
 110

246
T Swanson, "Economic Instruments and Environmental Regulation: A critical introduction" (1995)
4(4) Review of European Community and International Environmental Law, 287.

247
D James, Using Economic Instruments for Meeting Environmental Objectives: Australia's experience
(1993), Department of the Environment, Sport and Territories, Canberra, p 22.

248
Geographical difficulties associated with permit use, such as transboundary pollution or high
concentrations of pollutants exceeding ambient limits, may be addressed by attaching transfer coefficients
to permit trades. When a trade takes place, the permit value may increase or decrease depending on the
nature of the coefficient attached. Coefficients could be based on, for example, proximity between permit
buyers and sellers, concentric zones around a fixed location or even prevailing wind directions. By
manipulating transfer co efficients regulators are able to engineer regulatory outcomes.

249
Except where that mix impacts on a common environmental problem, such as ozone depletion, and the
relative contributions of different substances have been quantified in the form of transfer coefficients.

250
Environment Protection Agency, EPA Acid Rain Program (1996), Update No. 3 Technology and
Information, EPA, Washington DC.

251
With many permit schemes in operation the actual number of trades taking place between firms is well
below expectations - this has perplexed policy-makers. One market for effluent permits experienced only
one trade in 6 years (A Moran, "Tools of Environmental Policy: Market instruments versus command and
control" in R Eckersley (Ed), Markets, the State and the Environment (1995), Macmillan Press,
Melbourne, pp 73-85). Explanations include: (i) insufficient players for a competitive market to emerge;
(ii) too many regulatory controls which inhibit trading by making it costly; (iii) abatement technologies are
limited and require discrete amounts of investment. This results in "lumpy" investments which would need
to be matched by an equivalent parcel of permits; (iv) the initial allocation of permits may be overly
generous resulting in firms which have more than enough permits for their needs and therefore no
incentive to trade; and (v) hoarding of permits to limit new entrants or drive out competitors.

252
See in particular the experience of the South Coast Air Quality Management District, Southern
California RECLAIM program evaluated in P Leyden, "Trading in Southern California" (1997), a paper
delivered to American Bar Association 26th Annual Conference on Environmental Law, Keystone,
Colorado, March.

253
Taxes and charges embody the "Polluter Pays Principle", or in the case of natural resource use, the
"User Pays Principle".

254
W Baumol & W Oates, The Theory of Environmental Policy (1988) (2nd ed), Cambridge University
Press, Cambridge, New York.
 111

255
In theory at least, the inherent cost effectiveness of tradeable permits and taxes should be identical (K
Hamilton & G Cameron, "Simulating the Distributional Effects of a Canadian Carbon Tax" (1994) XX(4)
Canadian Public Policy: Analyse de Politiques 385-96). If the marginal cost of abatement is known with
some degree of certainty, then there is no obvious theoretical reason to choose tradeable emission permits
over taxes or vice versa. However, practical difficulties associated with the enforcement of permits and the
number, size and location of polluters may sway the choice towards taxes.

256
D James, Using Economic Instruments for Meeting Environmental Objectives: Australia's experience
(1993), Department of the Environment, Sport and Territories, Canberra, pp 10-11.

257
J B Opschoor & H B Vos, Application of Economic Instruments for Environmental Protection in
OECD Countries (1989), OECD, Paris, pp 82-88.

258
Project 88, Project 88 - Round II: Incentives for Action (1991), Washington DC.

259
R Eckersley (Ed), Markets, the State and the Environment (1995), Macmillan Press, Melbourne.

260
Further problems include the high administrative (collection) costs, difficulties in tailoring the regional
aspects of pollution and economically regressive impacts on the community.

261
D James, Using Economic Instruments for Meeting Environmental Objectives: Australia's experience
(1993), Department of the Environment, Sport and Territories, Canberra, pp 12.

262
For example, the consumption of petrol for private motor vehicle use is very price inelastic: because of
the unavailability of alternative fuels, the price of petrol would need to be very high before consumers
would substantially change their driving behaviour.

263
W Baumol & W Oates, The Theory of Environmental Policy (1988) (2nd ed), Cambridge University
Press, Cambridge, New York; P Palmquist, "Pollution Subsidies and Multiple Local Optima" (1990) 66
Land Economics 394-401; and R Kohn, "When Subsidies for Pollution Abatement Increase Total
Emissions" (1992) 59(1) Southern Economic Journal 77-87.

264
World Bank, China: Southern Jiangsu Environmental Protection Project (1993), Staff Appraisal
Report 11370-CHA, Washington DC.

265
See further chapter 3 pp 00 below.

266
S Rose-Ackerman, "Public Law Versus Private Law in Environmental Regulation: European Union
proposals in the light of the United States experience" (1995) 4(4) Review of European Community and
International Environmental Law 312-319. Proposals for reversal of the onus of proof or for strict
liability, would serve to mitigate some of these problems, but would leave others untouched. Even in the
litigious United States, in recent years only a small number of tort cases have been used to prevent
 112

prospective injuries and only a few cases have provided equitable relief to abate pollution (A W Reitze,
"A Century of Pollution Control Law: What worked; what's failed; what might work" (1991) 21
Environmental Law 1549-1646). See also P S Menell, "The Limitations of Legal Institutions for
Addressing Environmental Risks" (1991) 5(3) Journal of Economic Perspectives 93-113.

267
As Brunet (1992 321) puts it, this approach: "ignores the unequal positions of individuals vis-a vis
large business organisations, the investigative and litigative expertise of agencies, the economies of scale
achievable by an agency, and the consequent deterrent effects which flow from this". Consequently, the
contribution of liability schemes to environmental policy is likely to be modest at best (S Rose-Ackerman,
"Public Law Versus Private Law in Environmental Regulation: European Union proposals in the light of
the United States experience" (1995) 4(4) Review of European Community and International
Environmental Law 312-319).

268
An alternative, but related, mechanism is risk insurance. There might, for example, be advantages in
compelling the taking out of insurance cover before engaging in a particularly hazardous activity.
Widespread applications are limited by difficulties in setting appropriate premiums and no provision for
ongoing "maintenance, repair, administration, monitoring or compensation beyond the life of the project"
(R Ramsay & G C Rowe, Environmental Law and Policy in Australia (1995), Butterworths, Australia, pp
211-212).

269
D James, Using Economic Instruments for Meeting Environmental Objectives: Australia's experience
(1993), Department of the Environment, Sport and Territories, Canberra.

270
J B Opschoor & H B Vos, Application of Economic Instruments for Environmental Protection in
OECD Countries (1989), OECD, Paris, pp 82-88.

271
Nine states of the US, several Canadian Provinces, a number of European nations, and South Australia
have all introduced deposit refund schemes to recycle beverage containers (Project 88, Project 88 - Round
II: Incentives for Action (1991), Washington DC).

272
Many perverse incentives have become so entrenched over a long period of time that the recipients
now do not regard them as subsidies and thus fiercely resist their removal.

273
Organisation for Economic Co-operation and Development (OECD), Making Markets Work for
Biological Diversity (1996), OECD, Paris.

274
As described in the preceding pages.

275
E B Barbier; J C Burgess; & C Folke, Paradise lost? The ecological economics of biodiversity (1994),
Earthscan Publications Ltd, London.
 113

276
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra, p 9.

277
L S Lohman, "Economic Incentives in Environmental Policy: Why are there white ravens?" in H
Opschoor & K Turner (Eds), Economic Incentives and Environmental Policies: Principles and practice
(1994), Kluwer Academic Publishers, Dordrecht, p 22.

278
N Gunningham and M D Young "Towards Optimal Environmental Policy: The Case of Biodiversity
Conservation" (1997) 24(2) Ecology Law Quarterly 244-297 at 292.

279
C Perrings & D Pearce, "Threshold Effects and Incentives for the Conservation of Biodiversity" (1994)
4 Environmental and Resource Economics 13-28.

280
For example, markets may not always be conducive to recycling. Many recycling initiatives worthy
from the social/ecological standpoint have not been economically viable because the price of goods made
from raw material with which recycled goods must compete does not reflect the full environmental and
other costs of its production. Similarly, poorly designed economic instruments "can inflict costs on the
community that are as high as those associated with command and control systems" (D James, Using
Economic Instruments for Meeting Environmental Objectives: Australia's experience (1993), Department
of the Environment, Sport and Territories, Canberra, p 5). On the limitations of free markets generally, see
R Kuttner, Everything For Sale: The virtues and limits of markets (1997), Alfred A Knopf, New York.

281
S Surrey, "Tax Incentives as a Device for Implementing Government Policy: A comparison with direct
government expenditures" (1970) 83(4) Harvard Law Review 705-38.

282
D Cohen, "Voluntary Codes: The Role of the Canadian State in a Privatized Regulatory Environment",
a draft paper presented at the Voluntary Codes Symposium, Office of Consumer Affairs, Industry Canada
and Regulatory Affairs, Treasury Board, Ottawa, September 1996 and to be included in Exploring
Voluntary Codes in the Marketplace, edited by D. Cohen & K. Webb, Government of Canada, Ottawa,
(forthcoming), p 2.

283
For example, taxes and charges are another form of government regulation: government sets the charge
and polices the system, prosecuting those who breach the rules.

284
T L Anderson & D R "Leal Free Market Versus Political Environmentalism" (1992) 15 Harvard
Journal of Law and Public Policy 297-310.

285
J E Krier, "The Tragedy of the Commons, Part Two" (1992) 15 Harvard Journal of Law & Public
Policy 325-47.

286
M Jacobs, "Sustainabiltiy and the 'Market': A typology of environmental economics" in R Eckersley
(Ed), Markets, the State and the Environment (1995), Macmillan Press, Melbourne.
 114

287
Chisholm & Moran (1993).

288
T L Anderson & D R Leal "Free Market Versus Political Environmentalism" (1992) 15 Harvard
Journal of Law and Public Policy 297-310.

289
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra.

290
Zimbabwe's CAMPFIRE program is perhaps the best known and most effective case in its attempt to
institute species protection. Under this program, local communities have been given the right to use
wildlife as they wish. The result has been a substantial shift in community attitudes to wildlife and the
emergence of many innovative market arrangements. Generally, the people involved see wildlife as an
asset worth preserving.

291
T M Swanson & E Barbier, (Eds) Economics for the Wild: Wildlife, wildlands, diversity and
development (1992), Earthscan, London; T M Swanson, Intellectual Property Rights & Biodiversity
Conservation: An interdisciplinary analysis of the values of medical plants (1995), Cambridge University
Press, New York; and R Yeager & N Miller, Wild Death Land Use and Survival in Eastern Africa (1986),
State University of New York Press in association with the African-Caribbean Institute, Albany, New
York.

292
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra, vol I p 36.

293
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra, vol 2 p 31.

294
T L Anderson & D R "Leal Free Market Versus Political Environmentalism" (1992) 15 Harvard
Journal of Law and Public Policy 297-310.

295
Cross reference to section on liability rules.

296
E Brunet, "Debunking Wholesale Private Enforcement of Environmental Rights" (1992) 15 Harvard
Journal of Law & Public Policy 321-2.
 115

297
Past experience demonstrates that it is more often public interest groups that initiate civil suits, not
individuals; this emphasises the importance of collective solutions over narrow private interests (E Brunet,
"Debunking Wholesale Private Enforcement of Environmental Rights" (1992) 15 Harvard Journal of Law
& Public Policy 321-2).

298
W Funk, "Free Market Environmentalism: Wonder drug or snake oil?" (1992) 15 Harvard Journal of
Law and Public Policy 511-12.

299
B Schauzenbacher, Economic Instruments as Policy Instruments for Environmental Management and
Sustainable Development (1995), UNEP, Environment and Economics Unit, Nairobi.

300
M C Blumm, "The Fallacies of Free Market Environmentalism" (1992) 15 Harvard Journal of Law &
Public Policy 371-89.

301
J E Krier "The Tragedy of the Commons, Part Two" (1992) 15 Harvard Journal of Law and Public
Policy, 325-47.

302
E Brunet, "Debunking Wholesale Private Enforcement of Environmental Rights" (1992) 15 Harvard
Journal of Law & Public Policy 321-2.

303
Cross reference to section on liability rules.

304
Past experience demonstrates that it is more often public interest groups that initiate civil suits, not
individuals; this emphasises the importance of collective solutions over narrow private interests (E Brunet,
"Debunking Wholesale Private Enforcement of Environmental Rights" (1992) 15 Harvard Journal of Law
& Public Policy 311-24)

305
W Funk, "Free Market Environmentalism: Wonder drug or snake oil?" (1992) 15 Harvard Journal of
Law and Public Policy 511-12.

306
B Schauzenbacher, Economic Instruments as Policy Instruments for Environmental Management and
Sustainable Development (1995), UNEP, Environment and Economics Unit, Nairobi.

307
J E Krier, "The Tragedy of the Commons, Part Two" (1992) 15 Harvard Journal of Law & Public
Policy 325-47.

308
J E Krier, "The Tragedy of the Commons, Part Two" (1992) 15 Harvard Journal of Law & Public
Policy 325-47.

309
W F Pederson, "Can Site Specific Pollution Control Plans Furnish an Alternative to the Current
Regulatory System?" (1995) 25 Environmental Law Reporter 10486.
 116

310
See for example M Kenny, "Use of Marketplace Incentives in California to Improve Air Quality"
(1997), a paper delivered to American Bar Association 26th Annual Environmental Law Conference,
Keystone, Colorado, March 1997.

311
See for example E Rehbinder, "Environmental Regulation Through Fiscal and Economic Incentives in
a Federalist System (1993) 20 Ecology Law Quarterly 57-83. See also Organisation for Economic Co-
operation and Development (OECD), Evaluating Economic Instruments for Environmental Policy (1997),
OECD, Paris.

312
Organisation for Economic Co-operation and Development (OECD), Meeting on Alternatives to
Traditional Regulation (1994), May, OECD, Paris, p 4.

313
T Samson, An Important Step But No Giant Leap: An assessment of the Victorian Accredited
Licensing System, (1996), October, Australian National University Honours Thesis, Australian National
University, Canberra.

314
T Davies & J Mazirek, Industry Incentives for Environmental Improvement: Evaluation of US Federal
initiatives (1996), a report to the Global Environmental Management initiative (GEMI), Washington DC.

315
In the United States, the most important of these are the new 1991 Clean Air Act and RCRA
"Corrective Action". See also M Landy, "National Regulation in a Global Economy: The dynamics of
interdependency" (1997), a paper delivered at University of California, Berkeley, February.
 CHAPTER THREE

PARTIES, ROLES AND INTERACTIONS

Peter Grabosky, Neil Gunningham and Darren Sinclair

Traditionally, the regulatory process has been thought of as a dance between two participants -

government and business, with the former acting in the role of regulator and the latter as

regulatee. However, beneath the surface of this simplistic image lies a far more complex reality

in which a wide variety of instruments can be used by a multiplicity of regulatory participants

and where informal social orderings play as significant a role as formal ones. As we will argue,

the traditional view of regulation as exclusively a governmental function has become outmoded.

In developing this theme, we will show how the rich array of instruments described in the

previous chapter are available not just to government, but also in many cases to industry and

third party actors and provide important (but largely unrecognised) opportunities for each of

these major institutions to play an important role in environmental protection. Moreover, in

addition to their ability to use individual regulatory instruments, third parties can play a number

of other roles, acting as agents of informal social control, in a variety of interactions with other

regulatory participants.

We will also argue that there are important but largely neglected roles that government can

play, over and beyond the conventional one, of invoking its own policy instruments.

Specifically, the state can enlist the support of a variety of non-governmental institutions in

furtherance of the regulatory process. By guiding a range of market forces, and through other

unobtrusive forms of activity, government can leverage public interest groups, commercial third

parties and industry itself to act as quasi-regulators, thereby facilitating innovative and

pluralistic regulatory activity.

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Finally, our exploration of instrument and institutional interaction, building upon the insight

derived from chapter two that each of the main categories of instruments has limitations as well

as strengths, and that combinations of instruments are likely to work better than individual

instruments alone. However, from the present chapter it will be apparent that more than this is

needed, because regulatory space is three dimensional rather than two dimensional. That is,

there are a rich variety of third parties as well as first and second parties that can potentially be

harnessed to perform quasi regulatory functions and the broader question becomes not just one

of mixing instruments with each other but also of mixing instruments and institutions. As we

will see in part four of this chapter, this is a process with many pitfalls and, unless skilfully

done, can result in negative rather than positive policy mixes.

We begin by identifying a number of very different types of third parties and articulating in

broad terms the actual and potential techniques which may be employed by each of them, and

the factors which determine their effectiveness in influencing environmental outcomes. We also

examine the extent and means whereby they may act as surrogate or de facto regulators, and the

opportunities for constructive interaction with other regulatory actors.

1. Third Parties: public interest groups

In most developed countries, public interest groups have become influential participants in the

regulatory process. They have been instrumental in placing environmental issues high on the

public agenda, and in keeping them there. A significant proportion of environmentally

beneficial activity by government and industry only occurs because of the vigilance and the

pressure exercised by public interest groups. For present purposes, we particularly focus on the

roles they can play in strengthening the effectiveness of environmental policy instruments, and

as a force of informal social control in their own right, and on how the judicious use of

government policy can enhance both these roles.

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Despite a common interest, there is often a lack of unity in the environmental movement.

Environmental activism exists on a continuum, from "deep green" fundamentalists at one

extreme, to the most pragmatic partners in the policy process, at the other. 316 Its institutions can

be global in membership and concern, such as Greenpeace, or quite limited in focus, in the

genre of "surfers against sewage". However, the diversity of citizen environmentalism is almost

certainly more of a strength than a weakness: a constructive diversity rather than a divisive one.

The current division of labour among environmental interest groups entails a set of groups

specialising in dramatic action to call attention to particular environmental problems, (such as

toxic waste) or issues (such as wilderness preservation), others specialising in the recruitment

and socialisation of new members of the environmental cause, and those who labour over

submissions to public inquiries and engage in face-to-face interaction in policymaking forums.

Their energies tend to be focussed on their respective tasks, rather than on internecine conflict.

Among the most important contributions of environmental activists are: (i) educating the

community; (ii) providing information to regulators and regulatees; (iii) fulfilling a watchdog

role; (iv) acting as private enforcers; (v) seeking compensation or preventing harm; and (vi)

reforming the law. Since these roles are widely understood (unlike the potential roles of

commercial third parties below) they will be summarised fairly briefly here.

Public interest groups perform an important general educative function. By raising public

awareness about policy issues, they contribute to a more informed community. Public interest

groups can also contribute to agenda setting - raising an issue and enhancing its priority. By

attracting public and governmental attention to particular issues, whether local, national or

global, they may elevate these issues from obscurity to political prominence. For example,

Greenpeace succeeded in focusing world attention on whaling, and the World Wide Fund for

Nature has made endangered species an issue of international concern. In the annals of

regulation, entire regimes have been created or restructured in the aftermath of citizen activity

which succeeded in placing an issue on the public agenda.317

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Public interest groups can also be an important source of information for government

authorities, providing a perspective which might not be otherwise readily available to elected

officials and public servants.318 Public interest group participation in the regulatory process

ensures that not only an industry view but also an environmental standpoint, will be forcefully

presented. It may arguably achieve better policy outcomes, and will certainly enhance the

legitimacy of those outcomes which are produced.

Public interest groups are also in a position to act, in a watchdog role, to identify any

shortcomings in the development and implementation of government policy. Their potential to

effectively monitor the operations of government has led some observers to call for an

institutionalised role for public interest groups to enhance the accountability of the public

sector.319 John Braithwaite (1991) in particular, has argued that by giving citizens the right to

formally challenge non-enforcement by government agencies, one greatly enhances the

prospects of industry compliance.320 Public officials not wishing to be upstaged by members of

the public will be more motivated in securing and monitoring compliance.321 Similarly, action-

forcing suits initiated by citizens may compel regulatory agencies to make difficult decisions, as

officials of the United States EPA have acknowledged.322 At the very least, the threat of citizen

suits may force government and industry to the negotiating table.323

In addition to pressuring regulators to take appropriate action, public interest groups, and

indeed individuals, may assume direct responsibility for the private enforcement of government

regulations.324 Such citizen enforcement need not pre-empt government enforcement entirely,

but rather may serve as a complement to state action. The primary justification for this form of

action is efficiency. Yeager (1991) observes that, in the United States, public interest groups

have been able to bring a larger number of enforcement actions than public regulatory

authorities, at a fraction of the cost.325 Similarly, in the United Kingdom, the generally available

right of private prosecution is frequently exercised in the public interest by third parties. For
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example, the Royal Society for the Prevention of Cruelty to Animals investigates tens of

thousands of complaints, successfully prosecuting about 2,000 cases each year.326

Some commentators have sought to design optimal combinations of state and third party

enforcement. For example, it has been suggested that government should establish baseline

standards and then contract out enforcement.327 An alternative division of labour between

government regulatory authorities and citizen litigants would entail the former specialising in

the detection of regulatory offences and the latter in litigation.328

In contrast with conventional regulation, the role of public interest groups interacting with the

use of economic instruments, particularly taxes and charges, is likely to be restricted to

influencing policy formation, as opposed to its operation.329 This is because the primary aim of

economic instruments is to place decision-making in the hands of industry itself through the

manipulation of price signals with limited government or third party involvement.

Public interest groups may also initiate litigation in order to seek compensation for any previous

damage to the environment, or to prevent impending harm. Compensation may entail

redemption of damage, or payment of monetary compensation. Barriers to compensation for

damages resulting from pollution may be formidable. To succeed in a private civil action a

plaintiff must usually prove, on the balance of probabilities, the existence of personal injury or

damage to personal property directly attributable to acts or omissions on the part of the polluter.

Preventative litigation may be used as a means of gaining time, of holding off development

proposals until their full implications become apparent to the public and to decision makers. 330

And finally, public interest groups may use litigation to reform the law, that is, to make it a

more useful instrument in achieving any of the above objectives. Reform-oriented litigation

moves beyond matters of prevention and compensation, and is aimed at changing the rules of

the game. To this end, litigants may seek to set precedents, develop doctrine, or to contribute to
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the evolution of rules which may bear upon citizen access to law generally, or other specific

objectives.331

The use of the legal process can complement other forms of citizen participation in furtherance

of environmental interests. Regardless of its immediate goal, litigation can be a form of

political expression. As with protest activity and other, more flamboyant forms of political

action, litigation can serve to attract attention to a group and to its cause, to focus public

attention upon an issue or to criticise government or industry. Litigation may have a political

impact well beyond the immediate case. Although less dramatic and much less conducive to

visual depiction than public protest, legal action, through the attention which it may attract, can

serve as a means of mobilising public support and as a rallying point, to generate or to maintain

public momentum for a cause.332

Public interest group-industry interactions

In addition to the roles of public interest groups outlined above, which by and large are indirect

means of influencing industry's environmental performance,333 such groups may also bring

pressure to bear directly on companies and industries. This is an important example of the

interaction between private parties in the policy mix that may, but need not, include a role for

government, and of the potential for these groups to act as an informal instruments of social

control.

Pressures exerted by interest groups on companies can be formidable - even in the absence of

any government facilitation of NGO activity, and sometimes despite strong government

opposition. For example in June 1995, when the British Government was content for an

obsolete drilling platform to be sunk on site in the North Sea, rather than be transported ashore

and dismantled, an international campaign by Greenpeace, aimed directly at the producer,

prevailed upon the company to reverse its decision. Public scrutiny and criticism of Dow

Chemical, beginning during the Vietnam War and continuing through the 1970s, contributed
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significantly to the company’s improving its environmental performance on a number of fronts,

to the extent that it has become one of the more respected corporate citizens of the United

States. Thus can well orchestrated publicity campaigns by environmental interest groups

influence corporate conduct when governments are unable or unwilling to act.

The relationship between interest groups and industry is not, however, inevitably adversarial. 334

Indeed, some of the most interesting developments in environmental policy during the past

decade have involved industry-environmentalist partnerships, a relationship which we refer to

as "constructive engagement". Such engagement may take a variety of forms. "Good neighbour

agreements" between chemical industry firms and local residents are common in Europe and

the United States.335 They feature means by which concerned citizens have access to

information relating to regulatory compliance, and the right to inspect facilities and to review

compliance and accident plans. For example, under the United States EPA's Project XL,

community organisations and other local stakeholders have the opportunity to shape and vet a

company's environmental management strategy.336 With community support, the strategy

becomes a legally enforceable contract.

In Japan, citizen interaction with industry is facilitated by what are termed "pollution control

agreements". These instruments contain detailed terms and conditions for management of the

enterprise, including emission levels, and provisions for monitoring and reporting and involve a

type of contract between management of an enterprise on the one hand, and local government

or citizens' group on the other.337

Environmental interest groups may also directly engage industry through the provision of

"green" endorsements. With firms spending millions of dollars to present themselves

(justifiably or otherwise) as environmentally benign, the blessings of environmentalists may be

a boon to marketing. As mentioned in the previous discussion of education and information

strategies, environmental groups may directly influence the behaviour of industry, as well as

individuals, through the provision of prizes and awards, and the operation of eco-labelling
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schemes. For example, the Banksia Environmental Foundation in Australia presents the

Banksia Awards each year, which recognise individuals and corporations for their

environmental achievements in such categories as Rural Community Groups, Land

Management, and Resource Conservation and Waste Minimisation Management, and the World

Wide Fund for Nature carries out licensing arrangements with companies wishing to use its

Panda symbol. In Sweden, the forest industries and leading environmental organisations are

working jointly towards a forest certification system: a breakthrough of international

importance.

In recognition of the fundamental importance of industry cooperation in reducing

environmental degradation, public interest groups are increasingly gearing their operations to

maintain an active dialogue with business.338 For example, Greenpeace and the World Wide

Fund for Nature both have business units which deal exclusively with business. In the aftermath

of its successful engagement with McDonald's, the Environmental Defence Fund and the Pew

Charitable Trust (a private philanthropy) co-founded the Alliance for Environmental

Innovation, a body specifically designed to develop new partnerships with major corporations

in the United States.339 By strategically engaging highly visible market leaders, particularly

those in consumer products industries, public interest groups hope to bring about not only

improved environmental performance on the part of individual firms, but also entire industries:

the visibility of the process can have an educative effect beyond the immediate participants.

Government support for the role of public interest groups

There are several ways in which government can facilitate the engagement of public interest

groups in the regulatory process. First, they may directly subsidise them. The extent to which

public interest groups can make a contribution to the design and implementation of

environmental regulation depends, at least in part, on their level of resourcing, which in turn

may be related to government policy. There is usually a massive imbalance between the
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resources of environmental NGOs and their adversaries which government funding can at least

begin to mitigate. Although some groups, in order to maintain both the appearance and the

reality of independence, refuse to accept government funds, others are often the beneficiaries of

government financial assistance, though commonly only to a very limited extent. Any decision

to reduce such funding will obviously impinge on the ability of public interest groups to

actively participate in the regulatory process.

Second, government may supplement direct funding of public interest groups with financial

incentives, and through taxation policy (for example, making contributions to such groups tax

deductable). They could also, in order to actively encourage private enforcement, offer

financial rewards to third parties for successful litigation. 340 In the United States, for example,

the Clean Water Act provides a modest incentive for citizen enforcement by allowing for

recovery costs incurred in enforcement litigation.341 It is not difficult to imagine a more

attractive reward system facilitating the emergence of regulatory "bounty hunters". Indeed, the

precursor to modern United States environmental protection legislation, the Refuse Act of 1899,

authorised citizen-informants to receive up to half of the amount of fine imposed upon a

convicted offender.342

Third, government may provide greater access to the prime currency of public interest groups:

information. Starved of information about the activities of industry, the state of the environment

and government policy, their effectiveness will be severely curtailed. There are several

mechanisms by which government can improve access to information. As discussed above,

these include community right to know legislation - for example the United States Toxic

Release Inventory (TRI) - state of the environment reporting, environmental accounting,

corporate environmental reporting and product certification. Such information gives community

groups increased political leverage both through the media and in plant level negotiations,

enabling them to more effectively pressure polluters to reduce emissions.343 For example, in the

United States, some of the worst polluters, conscious of the likely public reaction now that their
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environmental record is in the public domain, have voluntarily implemented pollution control

measures on a scale far greater than previously contemplated.

Fourth, government may improve the legal standing - the right to bring an action before a court

- of public interest groups. The question of legal standing is central to the issues of private

enforcement and compensation. Such a right may be conferred explicitly by statute, or may be

inferred by judicial interpretation. The key issue in the determination of standing is the balance

between private and public interest. Governments may enhance public interest group activities

by widening the legal rights to standing. The notion of private enforcement of public law is

more common in some jurisdictions, particularly the United States, than others, such as Europe

and Australia.344 In the latter, the law of standing has tended to favour private parties, those

seeking to vindicate a personal stake, as opposed to those seeking to act on behalf of a wider

public.345

Beyond the impediments entailed by restrictions on standing, citizen participation in the legal

process may be inhibited by the expense of accessing requisite legal services. These costs often

exceed the financial capabilities of individuals or environmental interest groups. In addition to

bearing the costs of a legal action, prospective litigants are faced with the likelihood, if their

action should fail, of having their opposing party's costs awarded against them as well.

Government could improve public participation in the legal process by changing the costs rules

for cases brought forward by private litigants that are demonstrably in the public interest. For

example, courts could be given discretion in such cases to direct that each party only bear their

own costs.

Fifth, while recognising that some initiatives between public interest groups and business may

take place entirely independent of government, governments may intervene in such a way as to

nurture and facilitate constructive engagement between business and NGOs. Necessarily, what

is appropriate will vary with the circumstances of the case, but obvious possibilities include

government endorsement and public recognition for such initiatives, tax incentives or other
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financial support for those engaging in them,346 regulatory relief and flexibility where

alternative means of achieving environmental outcomes can be demonstrated,347 and providing a

formal contractual underpinning for what would otherwise be informal and unenforceable

arrangements.348 There is also ample opportunity for governments to engage environmental

representatives in the process of establishing and operating self-regulatory and co-regulatory

agreements with industry. For instance, such representatives, as already discussed, could be

members of independent audit teams, or participate in wider community consultative fora, as is

the case under the United States EPA's Project XL.

Overcoming the shortcomings of public interest group engagement

The contribution of public interest groups to environmental policy is not one of unmitigated

virtue. As recent history has shown, there are participants on all sides of contemporary

environmental policy debate to whom accommodation and compromise are anathema. In

pressing their position, the credibility of public interest groups may be tainted by the use of

sensationalism, falsehoods or distortion. There is also the danger that public interest groups

will: (i) focus on "trendy" environmental issues such as the loss of mega-vertebrates at the

expense of less popular issues such as soil erosion; and (ii) encourage the "NIMBY" 349

syndrome at the expense of sound environmental policy. The challenge of democratic

government is to ensure that contending interests receive a fair hearing, that the marketplace of

ideas remains a fair marketplace, and that no one interest dominates public discourse.

Governments may facilitate this outcome by distributing funding to a variety of public interest

groups, by providing genuine opportunities for public interest groups to participate in the

regulatory process, at both the planning and implementation stages, and by ensuring that

reliable data on environmental issues, such as pollution inventories, is placed on the public

record.
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Perhaps one of the most commonly voiced objections to public interest group involvement is in

relation to private litigation. It is often claimed that widening the law of standing to permit

private enforcement of pollution control regulations would open the floodgates to litigation, and

invite a gaggle of frivolous and vexatious busybodies to court, at great expense and

inconvenience. However, there is precious little evidence to support this allegation, and the

experience of environmental law judges and litigators is to the contrary.350

There are nevertheless, some genuine problems inherent in private litigation. 351 Citizen suits in

the United States for example, may be directed not at the most serious offenders, but at those

most likely to settle, and enforcement which is left entirely to the market may threaten whatever

underlying logic exists in environmental policy.352 Relationships between regulatory agencies

and regulated companies tend to be of an ongoing nature, and efficient regulatory outcomes

often result from a subtle mix of cooperation and deterrence. Violations occurring within such a

relationship may be more appropriately dealt with by informal means. Private enforcement may

thus disrupt what might otherwise be a workable regulatory arrangement.

Private enforcement also carries with it the potential for inconsistency and unpredictability. 353 A

variety of private enforcers, acting independently from what might be a variety of motives, may

not be expected to produce consistent enforcement outcomes. Moreover, some citizen

enforcers, no matter how well motivated, may lack the competence to prosecute effectively, and

may thereby spoil an opportunity for effective enforcement action. Private enforcers are also

likely to be unfamiliar with the organisational pathology which underlay the offending

behaviour in question, and are thus ill-equipped to prescribe a remedy.354

Ideally, citizens would complement, not replace enforcement by government agencies. The

challenge is to harness the constructive elements of private enforcement, neutralise those

elements which might be counterproductive, and combine them systematically with public

enforcement. On the one hand it is important that public interest groups be empowered so that

they can fulfil legitimate and important roles: challenging government policy; regulatory
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decision-making; and business behaviour and acting as surrogate regulators. On the other hand,

it is also important that public interest groups should not be tempted to abuse their position as a

defender of the environmental interest, that there should not be opportunities for excess or to

override carefully devised regulatory compliance strategies. The optimal ordering for citizen

enforcement would entail some provision for private actions, with safeguards against abuse.

"Gatekeeping" strategies, invoking judicial discretion as to the granting of standing where

competing principles are at stake, are likely to play a central role in achieving that balance. 355

2. Third Parties: commercial

The role of commercial interests as de facto regulators and as instruments of informal social

control capable of shaping future environmental outcomes has been largely neglected in the

literature on environmental regulation.356 Yet as we shall see, their influence can be profound.

In this section we identify these interests and explore their potential contribution in determining

the environmental performance of industry. Our focus is on significant third-party non-

governmental resources which can expand and strengthen the regulatory net, on circumstances

where commercial environmentalism can act as a powerful institution of corporate social

control, and on the potential roles of government in facilitating or otherwise encouraging such

initiatives.

Green Consumers

Growing public sensitivity to environmental issues is reflected in consumer behaviour.

Consumers who are environmentally aware are inclined to purchase products which they

perceive to be environmentally appropriate, and to favour products of manufacturers who have

otherwise demonstrated concern for the environment. Collectively, such consumers have the

economic muscle to demand that environmentally unsound products are either improved or

replaced. Companies which are in a position to demonstrate their credibility as environmentally

responsible corporate citizens and thereby benefit from consumer preferences, will thus enjoy a
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competitive advantage.357 Indeed, consumer preferences may be more exacting than government

regulatory requirements. Substantial public relations and marketing advantages can flow from a

legitimately earned reputation as an environmentally responsible company.358

The purchase of environmentally preferable goods and services entails an implicit rejection of

less acceptable alternative products. The boycott, or concerted avoidance of certain purchases,

may be mobilised against products or producers deemed to be environmentally harmful. 359 An

example of a consumer environmental boycott is the boycott of Norwegian fish products

organised in 1993 by Greenpeace in protest against that nation's resumption of whaling. Boycott

organisers maintained that the loss of foreign markets significantly exceeded the commercial

value of Norway's whale catch.360

More recently, the establishment of independent certification of "well managed forests" through

the forest stewardship council, a body whose existence owes far more to the initiative of major

environmental groups, than to government, gives paper and timber buyers considerable leverage

over forest methods.

An essential prerequisite to consumers exercising green preferences is access to reliable

information which reflect products' relative environmental impact. The inevitable self-interest

of manufacturers dictates that the source of such information should come from an independent

party. This may be either a third party or government. As we have suggested, government can

fulfil this role indirectly by enacting truth in advertising legislation, and directly, by introducing

eco-labelling programs.361 Environmental public interest groups can also certify "green"

products362 or organise boycotts, and in some cases, retailers may provide green lines of

products to their customers.363

Government can also more directly guide the power of consumption to favour environmentally

preferable products through use of economic instruments, such as taxes and charges. A

government may tax environmentally harmful inputs or practices.

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Direct influence by Government on manufacturers can take place through its considerable

purchasing power. In many markets, government is in fact the dominant purchaser. For

example, government consumption of office equipment and motor vehicles far exceeds an other

single purchaser. Government may therefore provide a leadership role in dictating market

preferences for products by developing and implementing a green purchasing policy. The

Clinton Administration’s acquisition of energy efficient computers is but one example.

There are several limits to consumers exerting their green purchasing power. 364 First, the

difficulty for government in establishing workable eco-labelling programs is well documented.

Establishing meaningful criteria for a range of products across a range of environmental issues

is an extremely complex and difficult task. Second, where there has been comprehensive life

cycle analysis of products, the overriding factor in determining overall environmental impact is

often how the consumer uses a product. For example, although one washing machine may be

deemed to be more environmentally benign than a competitor, if the consumer choses to wash

in hot water and overfill the machine, then any advantage will be completely negated. Third, in

the absence of reliable eco-labelling requirements, commercial appeals to environmentalism

may be designed to pre-empt or to neutralise negative publicity. Finally, it could be argued that

green consumer campaigns fail to address the core issue of unsustainability, that of over-

consumption. Instead, they merely reinforce existing notions of the right to consume, albeit in a

slightly more benign form. These difficulties in effectively exploiting the undeniable power of

consumer preferences means that it remains a largely untapped resource.

Buyer-Supplier Relations

The power of consumer preference is by no means wielded solely by the ultimate purchaser.

Companies, driven by their own internal priorities, or mindful of their corporate image and their

customers' preferences, commonly affect each others' behaviour. Purchasers often have leverage

over suppliers which they may use to influence the latter's environmental performance. The
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interchange between industrial buyers and suppliers also generates incentives to innovate and to

respond to market demands.365 As one of our interviewees told us: "When McDonald’s says

‘jump’, six hundred suppliers ask, ‘how high?’"

Large firms in particular, may be able to use their market power to impose product and process

preferences on their smaller upstream suppliers and downstream buyers. This capacity may

prove very important, given the difficulties confronting governments in applying conventional

regulatory instruments to small enterprises366 (many of whom will be buyers and suppliers).

Some larger firms have taken steps to influence the behaviour of small firms through the

practice of "product stewardship". This entails taking corporate responsibility for the whole life

cycle of a product, from the extraction and consumption of raw materials, through its

manufacture, to its final disposal. Firms may exert their purchasing power to ensure that

suppliers actually implement environmental safeguards by, for example, requesting information

on storage, handling use and disposal practices, and insisting on the introduction of appropriate

environmental management systems.367

A related development, in terms of encouraging firms to engage in systemic improvement of

their environmental practices, is the growth of "off the peg" EMSs. As we shall see in chapter

four, the adoption of the most widely recognised such system, International Standards

Organisation's ISO 14001 environmental management standard, may also come to be driven

principally by supply chain pressure. If so, the result will be that many enterprises which would

not choose to adopt such a system voluntarily, may nevertheless be prevailed upon to do so as a

result of third party pressure, even in the absence of legislation mandating such a requirement.

The influence of the retail sector in driving innovation is widely recognised. 368 A supplier's

business practices can bear upon a retailer's public image, and buyers are increasingly sensitive

to the risk of being tainted by a supplier's questionable environmental performance. To this end,

buyers are tending increasingly to scrutinise products from cradle to grave, noting such
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considerations as energy efficiency in manufacture, minimisation and responsible disposal of

waste, economical use of materials in packaging, and recyclability of product. 369

In 1990, the McDonald’s Corporation began a program to purchase $100 million worth of

products made from recycled materials each year. The British retail chemist, Boots, set a goal

to reduce the volume of packaging of its merchandise by 75 percent by 1997. 370 Another firm in

the United Kingdom requires every supplier to have a company environmental policy, affirmed

by an audit.371 The same firm has also developed a comprehensive questionnaire to obtain

information from prospective suppliers.372 Successful suppliers are required to sign codes of

conduct and to manage their activity in accordance with specified principles. Non-compliance

may lead to the buyer obtaining a new source of supply.

Wal-Mart, a large retailer in the United States, encourages its suppliers to reduce

overpackaging, and actively seeks environmentally sound changes to their products.373 The

retailer then actively publicises their achievements. In the words of one sign, prominently

displayed in retail stores:

Our Commitment: Land-Air-Water. Our Customers are concerned about the quality of our

air, land and water and want the opportunity to do something positive. Together with our

manufacturing partners, we'll provide you with information on products which have been

environmentally improved.374

The company is even developing prototype "green" stores, which would be designed and

managed consistent with principles of low energy consumption, low waste generation, and

recyclability.375

By calling public attention to their environmental policies and practices, retailers perform an

educative function which extends well beyond the conventional marketing role. 376 This in turn

can help shape future consumer preferences. For example, it has been suggested that
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Americans' awareness of, and preferences for, motor vehicle safety design was enhanced

significantly by commercial advertising.377

The good small business is often able to adapt to changing market opportunities, and to meet

the requirements of buyers. In some cases, buyers are willing to assist in this process. For

example, the Body Shop cosmetics retailer assists suppliers in self-assessment, and works with

them to improve their environmental performance. At other times, the approach of retailers can

be more adversarial, and more demanding. For example, the Body Shop advised a supplier that

they would consider increasing their purchases if the supplier were to adopt a formal

environmental policy, publish a comprehensive audit report, and end "unnecessary

confrontation with environmental groups".378

Scrutiny of suppliers is hardly the sole province of retailers. Manufacturers are also in a

position to influence supplier behaviour. Volvo, for example, asks that its suppliers comply

with its environmental standards. In the chemicals sector, several prominent companies such as

Dow Chemicals and Du Pont have introduced relatively sophisticated forms of product

stewardship where suppliers are encouraged to meet high environmental standards, and have

their performance assessed by independent auditors.379 Such relationships are inevitably

unequal; large manufacturers are able to impose their standards on smaller suppliers and/or

buyers. However, this is one of the few potentially effective ways of addressing the chronic

weakness of many forms of environmental regulation in targeting small and medium sized

firms.

It is important to recognise that the above influences are wielded quite independently of any

government authority. There are, nevertheless, several ways in which government can enhance

the quasi regulatory function of commercial third parties.380 Innovative regulatory approaches

such as EMSs, co-regulation and flexible license and accreditation schemes may include

provisions for product stewardship. For example, government could require accredited EMSs to

include provisions that explicitly address buyer-supplier relationships - only those firms that
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complied would obtain more flexible cost effective forms of accreditation. Similarly,

government could place a duty of care on producers to ensure, for example, that their wastes are

handled and disposed of in an appropriate manner by registered contractors. Government

sponsored "green" award schemes could also recognise the contribution of upstream suppliers

and downstream buyers. Corporate environmental reporting is another avenue where product

stewardship could be encouraged through, for example, official government recognition of

suitably comprehensive reporting systems. Economic instruments are also a potentially potent

tool for sensitising buyer-supplier relationships to environmental factors. By taxing

environmental undesirables, for example the carbon content of fossil fuels, close to the source,

an environmental price signal will filter through the entire downstream myriad of buyer-

supplier relationships.

Institutional Investors

There is a long history of socially responsible investment. For example, the seventeenth century

Quakers in Britain and the United States refused to profit from slavery or war. More recently,

international investment boycotts of South Africa arguably played an important role in the

downfall of apartheid.381 The emergence of specialised environmentally conscious investment

funds over the last two decades has resulted in the expansion and entrenchment of this

approach.382 Such green institutional investors avoid companies and industries with poor

environmental reputations, and/or specialise in environmentally reputable companies. This

provides an opportunity for environmental interest groups. For example, in 1993, Greenpeace

worked with "green" fund managers in the United Kingdom to prevent the float of an

Indonesian timber company accused of irresponsible forestry practices.383

Beyond the ethical imperatives behind environmentally responsible investment, there may be

sound financial incentives. Environmental performance is increasingly regarded as an indicator

of business health. Good environmental management reflects good management in general. To

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the extent that this perception is shared by financial markets (and there is increasing evidence

that it is), pressure on companies to improve corporate environmental citizenship will be that

much greater. There is also the desire to avoid businesses that may face costs associated with

environmental liability.

As opposed to the relatively limited financial clout of specialised "green" investment funds, the

potential influence of large institutional investors can be substantial. In 1991, the twenty largest

pension funds in the United States controlled over $620 billion in assets. Even here, there is

considerable scope for leverage. In a number of United States jurisdictions, state pension fund

managers are required to give preference in their investment decisions to companies in

compliance with the Valdez (now CERES) Principles.384 One trustee of the New York City

Employees Retirement System, with $21 billion in assets, was quoted as saying:

We hold the view that when corporations treat the environment badly, they treat their

investors badly - by subjecting the company to harmful publicity and by exposing

themselves to enormous liability. The pension funds have become activists in protecting our

investments by working to protect the environment.385

Market influence is further enhanced by regulatory requirements that shareholders and financial

markets must be kept informed of potential environmental liabilities. 386 In the absence of

disclosure requirements mandated by government, institutional investors themselves are

increasingly in a position to demand that the companies in which they invest account for their

environmental performance.

The extent to which investors are able to effectively discriminate between companies that do

and do not have a commendable environmental practices will ultimately determine the overall

impact of environmentally responsible investment. Government can facilitate the potential good

work of investors by ensuring that there are reliable sources of information about firm

environmental performances for the market to access. Relevant examples include CRTK

legislation and corporate environment reporting requirements387. Of course, if private

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institutions can require disclosure and contribute to informed markets without assistance from

government, so much the better.

The limitations of green institutional investing may be similar to those facing eco-labelling

schemes. There are uncertainties in determining what qualifies as a green product or firm.

Further, it may be difficult to keep track of a firm’s environmental performance if it is a

multinational with subsidiaries operating in several different jurisdictions. Despite these

potential problems, the enormous financial clout of investment institutions makes them a

tantalising prospect as surrogate environmental regulators. Developing credible assessment

criteria that can accommodate the intricacies and complexities of actual performance,

potentially across different jurisdictions, would be a constructive step forward, particularly for

the large investment institutions which are not ostensibly "green", and could be developed with

the assistance of government, environmental interest groups and businesses themselves.

Financial Institutions

In addition to their activities as institutional investors, banks and other lending institutions are

in a position to exercise considerable influence over their clients' behaviour. Lenders have a

consistent record as effective regulators of business behaviour - particularly given the central

role they play in the economy. Many now recognise the risk to their own commercial well-

being posed by questionable environmental practices on the part of a borrower. Beyond the

lender's obvious interest in the commercial viability of the borrower, banks must now be

concerned about the environmental risks posed by any assets which they might hold as security

for a loan. In the event of foreclosure, banks could end up owning a liability rather than an

asset.388

The pressures which the banking industry can exert in furtherance of a borrower's

environmental citizenship can be considerable. Schmidheiny (1992) predicts that an

environmental audit report is likely to become an integral part of a loan application. 389 One
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prospective lender already requires a comprehensive assessment of all risks associated with a

proposed loan: a seventeen page environmental compliance checklist comprises part of the loan

application.390 Canadian banks have begun to require detailed information from prospective

commercial borrowers regarding all aspects of the latter's environmental exposure. 391

More broadly, a group of international banks, working with UNEP, has produced the Statement

by Banks on Environment and Sustainable Development, which urges banks to:

...expect, as part of our normal business practices, that our customers comply with all

applicable local, national and international environmental regulations [and] will seek for

business relations with suppliers and subcontractors who follow similarly high

environmental standards.392

Not surprisingly, the major way in which government can foster a "green" lending philosophy

amongst financial institutions is through strong liability legislation. A lender can be exposed to

liability in a number of ways. For instance, a business that is forced to pay for clean-up costs

may find it increasingly difficult to meet loan repayments. A contaminated property held as

security may dramatically reduce in market value and thereby undermine a financial

institution's asset base. Certain legislation (eg the United States Comprehensive Environmental

Response, Compensation and Liability Act 1980 (CERCLA)) may make a lender directly liable

for contaminated site remediation expenses. It is also possible for government to subordinate a

lender's lien to an unrecorded lien by a government authority. This approach to liability

legislation is more common in the United States.

The behaviour of banks in that country has been profoundly influenced by the enactment of

CERCLA and its interpretation in the case of United States v Fleet Factors Corp.393 CERCLA

empowers the EPA to recover costs for the clean up of contaminated sites from a number of

parties beyond the current owners.394 In Fleet it was held that a bank can be held liable for

cleaning up a site if it has "operated" a site through involvement in the management of a

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borrower, regardless of whether or not the bank chose to exercise that capacity to influence the

borrowers’ environmental decisions.

Increased lender liability may eventually lead to a reduction in the number of environmentally

damaging activities that are financed and, in turn, to industries or businesses of a particularly

environmentally damaging nature being forced from the market. Liability legislation for

contaminated sites is, however, not without its critics. CERCLA, in particular, is criticised for

having introduced a legal minefield that is a large drain on public and private resources, without

having yielded any significant environmental improvements.395

Government can also contribute to more environmentally sensitive financial decisions by

supplying information. For example, one way banks and other financial institutions might

evaluate the environmental credentials of their would-be clients is through environmental

reports, and financial institutions are increasingly cited as potential customers of such reports.

However, they are at present put off by the diversity of reporting styles and lack of consistent

and comparable data.396 By ensuring that enterprises report consistently on actual and potential

liabilities (as firms are to some extent required to do under United States SEC legislation) the

capacity of financial institutions to assess and act upon their client's environmental credentials

would be considerably enhanced.

Finally, a note of caution is appropriate for those who would regard finance as a fail-safe

instrument for environmental protection. First, the influence of financiers may not always be

beneficial. For example, purveyors of agricultural finance may specify the use of ecologically

harmful fertilisers and pesticides as a condition of obtaining their product. Thus, where the

scope of risk is narrowly defined, finance may be environmentally counterproductive. 397

Second, because banks must compete for business, no single lending institution can afford to

insist upon its clients having far higher environmental credentials than others, because to do so

would be to risk a substantial loss of business. The temptation (tempered by the particular

liability rules in force and the degree to which borrowers "forum shop") will be to relax
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environmental standards in order to increase the flow of business. Third, large institutions may

be able to by-pass banks altogether, for example through the issue of corporate bonds.

Insurance Institutions

Provided it is possible to create a viable market, environmental insurance is a powerful policy

tool. Just as financial institutions have become sensitive to the environmental performance of

their borrowers, so too do insurers have strong incentives to control their policyholders. 398 The

availability of insurance, and the cost of insurance premiums, have begun increasingly to reflect

a prospective policyholder's environmental record. Schmidheiny (1992) has commented that

companies with an unfavourable record of environmental compliance "will find it increasingly

difficult and expensive to get insured".399

In many cases, insurers now subject their policy holders to scrutiny beyond that which

government authorities can bring to bear, and may hold their policyholders to standards well in

excess of that which regulators are in a position to require. With poor environmental performers

paying higher insurance premiums, the insurance market provides incentives for responsible

corporate conduct, and disincentives for noncompliance.400 The influence of insurers is by no

means limited to private sector policyholders. Yandle (1989) observed that smog problems

confronting the city of Los Angeles were a cause of concern to those insurance companies

which held municipal bonds and/or issued insurance to the city.401 They in turn exerted pressure

on the city to begin dealing with the smog problem.

In recent years, marine insurance underwriters have been concerned about inadequate

government inspection of maritime vessels, particularly those flying "flags of convenience". To

compensate for this regulatory shortfall, and to ensure that the vessels which they insure are

indeed seaworthy, underwriters have engaged their own marine surveyors to inspect the vessels

of prospective clients. Similarly, insurance underwriters in the oil and gas industry may engage
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specialised loss prevention consultants to advise on the insurability of particular activities and

on the pricing of specific policies.402

In Australia, as a result of legislation, insurance companies may require a certificate of audit

before offering environmental liability insurance to corporations. 403 So far, the Australian

insurance industry has been slow to respond to this situation, and most Public Liability and

Industrial Special Risk policies currently provide only very limited cover or even exclude

entirely, environmental liability claims. However, as Fowler (19 ) points out, "once such

special liability cover becomes available in Australia, environmental audits are likely to become

a routine prerequisite to the obtaining of such insurance".404

More broadly, general insurance companies: "have a major role to play in effective

management of the environment by helping industries understand the importance of preparing a

risk management plan which addresses pollution reduction and avoidance. Without the plan,

insurance will be difficult to obtain, and extremely expensive".405

However, insurance is unlikely to realise its potential as an environmental policy tool in the

absence of outside intervention. There has been a general withdrawal of cover for

environmental impairment activities deriving from anything other than a sudden and accidental

event, except in the case of a very limited number of industries and circumstances. As Freeman

and Kunreather (1996) have pointed out, currently, most environmental risks do not satisfy the

basic conditions of insurability and marketability: the ability to quantify the risk and to set

premiums for each individual customer or class of customers.406 A crucial role for governments,

is to create the conditions conducive to private insurance functioning effectively. Specifically,

this involves "the design of regulations and the creation of market conditions to permit the

insurance industry to play a central role in environmental policy. In large measure, the

government can both create and destroy the conditions that would permit insurance to be

developed and sold."407 For example, if governments set well specified standards and provide

the predicability the industry needs then insurance company inspectors can, inter alia, inspect
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against the legal standard and calculate risks in terms of it. Governments can foster a regulatory

role for insurance by requiring insurance as a condition of licensing, or as a condition of

authorisation to engage in activities which pose environmental risk.

As is the case with finance, however, insurance cannot be regarded as a fail-safe instrument for

environmental protection. For example, purveyors of crop insurance may also require

environmentally inappropriate fertilisers and pesticides as a condition of their policy. Thus,

where the scope of risk is narrowly defined, insurance may be environmentally

counterproductive.408 Further, in some settings, insurance may not fulfil its potential as a

regulatory instrument. A great deal of very costly insurance litigation arises from disputes

between insurer and policyholder over the scope of coverage; this carries no environmental

benefit. At the extreme, in the face of accumulating liabilities, (and a failure by government to

create appropriate conditions) insurers may simply abandon the pollution insurance market.

And finally, large commercial entities may choose to self-insure, thereby placing themselves

beyond the influence of an insurer.

Environmental consultants

In addition to the environmental audit function discussed above, the use of independent

environmental consultants to assess and prescribe the environmental performance of firms has

been a significant development in recent years. Environmental consultants vary widely in terms

of the services which they provide. Some are limited to specific industries, such as mining and

agriculture. Others provide specific services such as audit and compliance monitoring. Larger

and more diversified consultants provide a range of services, including risk assessment,

training, process engineering, hazardous waste management, and pollution prevention.

Although the relationship between firms and consultants differs from other commercial third

party situations in the sense that consultants are generally financially dependent on the

patronage of firms, not usually the reverse409 consultants can provide firms with significant
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commercial incentives. Specifically, their professional services are claimed to reduce exposure

to litigation and criminal penalties, to improve risk management, operating performance and

planning, to reduce costs through recycling, waste minimisation and material substitutions

(which might otherwise not be identified as viable) and to achieve environmental goals more

efficiently and with less application of government resources.410

In some cases, the use of independent consultants may be more effective in ensuring

compliance with environmental standards than would traditional regulatory instruments. For

example, Mitchell (1994)411 has demonstrated that in the case of reducing oil pollution at sea,

classification societies (which effectively act as independent auditors) have been far more

successful at enforcing technical specifications for segregated ballast tanks and crude oil

washing than governments have in preventing ballast discharges at sea. Mitchell makes the

point that classification societies are international corporations whose revenues depend on their

public reputation, and as such, they have strong incentives, as well as the means and the

authority, to withhold licenses from non-complying ships.

In some circumstances, industry will have commercial incentives to use environmental

consultants, and will do so voluntarily. In others, they may be disinclined to do so. For

example, the result of audits, if made publicly available, could reveal valuable commercial

information to competitors, or in the case where regulatory transgressions are discovered,

unintentional or not, then this may invite third party litigation.412 Such concerns may act as a

powerful deterrent to the use of environmental audits. It may be necessary, therefore, for

government to ensure that the results of purely voluntary audits remain confidential, for

example, by making audit results inadmissible in court. In cases where audits are conducted as

part of a co-regulatory scheme, or required as a result of regulatory compliance, the results of

which are consequently made available to regulatory authorities, then the same regulatory

authority may undertake to give participating firms a "period of grace" in which to rectify any

identified problems.413
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There are also numerous ways in which government can positively encourage the use of

environmental consultants, who may then work to improve their clients’ environmental

performance. Take environmental auditors as an example. First, government may directly

subsidise environmental audits conducted, for example, by small and medium sized business

that would otherwise lack sufficient financial resources. This approach has been adopted by

governments in the United Kingdom and Australia. Second, government may provide tax

incentives to undergo audits. This would potentially target a much wider range of firms, but

may not be as an efficient and equitable use of public resources as direct subsidies. Third,

through license accreditation systems, government may undertake to regulate more lightly those

firms which voluntarily enter an audit scheme. Fourth, government may provide substantial

public relations benefits to firms participating in a voluntary audit scheme, as has occurred

under the European Union's Environmental Management and Audit Scheme. Fifth, government

could provide preferential treatment to firms which have conducted an approved audit. This

could take the form of preferential government purchasing or tendering, or preferential access

to other government programs such as business improvement programs. Sixth, government and

industry could build independent audits into self-regulatory or co-regulatory arrangements. For

example, self-regulatory environmental covenants in the Netherlands require participating firms

to have regular third party audits. Alternatively, co-regulatory agreements which contain

provisions for product stewardship may encourage larger firms to audit smaller upstream

suppliers and downstream buyers. Seventh, corporate environmental reporting may include

provisions for independent environmental auditing, in a similar fashion to that required for

financial reporting. Finally, government may enact strong lender and insurance liability which

would encourage financial institutions to use external audits as a normal part of doing business.

A greater use of independent environmental audits would ease some of the regulatory burden of

government and, in particular, free up resources that could more productively be applied to

enforcing standards on the worst industry performers. There is a danger, however, that auditors

will be subject to the same regulatory capture pressures that have befallen government
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regulators. Indeed, by being financial dependent on industry, auditors have an added incentive

"not to bite the hand that feeds it". There are, however, several ways in which the independence

of auditors can be reinforced.414 These include creating a pool of government accredited

auditors which are required to meet high independence standards, and including an

environmental and/or independent technical expert on audit teams. Other possible measures

include: (i) using government agencies to act as auditors (which will not be subject to the same

commercial pressures); (ii) establishing a body of external verifies to validate the methodology

of accredited independent auditors; (iii) instituting a system of peer review between auditors;

and (iv) legislating a system of national standards to regulate the activities of auditors. 415

3. Governing at a distance

In the previous sections we have argued that both commercial and non-commercial third parties

can play important roles in environmental protection. However, institutional actors will not

necessarily order themselves to meet specific environmental objectives, and in the absence of

external intervention, many of the potential opportunities for third party intervention may never

be realised. Thus there is an essential policy role for government to shape market orderings and

to facilitate the constructive activities of non-governmental institutions. That is, at the same

time as the state is retreating from may of its traditional regulatory functions, numerous

opportunities arise to forge creative new roles, harnessing private institutions and resources in

furtherance of public policy.

Governments can, for example, act as facilitators and brokers. Through the judicious use of

incentives, or by wielding their own purchasing power, governments are often able to structure

a marketplace so that market outcomes fulfil public purposes. In these ways, the behaviour of

business can be guided at a distance by governments, and further conditioned by commercial

and non-commercial third parties to produce outcomes more advantageous than might be

achieved by directions imposed from above.

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There are a number of legislative or administrative mechanisms by which the state may harness

non-governmental resources in furtherance of regulatory goals. 416 Since we have so far referred

to these only indirectly, it may be useful to articulate them explicitly here. Governments may:

• conscript third parties to assist with some aspect of compliance. Just as banks are required to

report transactions over a certain threshold, so too can institutions be compelled by law to

disclose environmental breaches committed by others;

• require that targets of regulation engage the machinery of private institutions. Mandatory

environmental audit requirements are perhaps the best example. Similarly, government

might require regulated entities to hold liability insurance as a condition of doing business,

for example in circumstances of extreme environmental risk;

• with a view to informing markets or other private institutions in a position to foster

compliance, require disclosure of certain aspects of a regulatee's activities. This is the basis

for toxic release inventories, and CRTK legislation discussed above;

• confer entitlements upon private parties, leaving it up to those private parties to enforce

those rights. For example, private enforcement provisions in laws which prohibit misleading

advertising can be used by environmental groups against "greenwash' tactics by some

corporations. Alternatively, the government may empower third parties to undertake

enforcement actions on the part of the state;

• offer incentives directly to targets of regulation to induce compliance, or to engage in a

desired course of conduct, or they may also offer incentives to third parties for the co-

production of regulatory services. Regulatory authorities may offer incentives for self-

regulatory investments, or for the engagement of professional services which would foster

compliance. Rewards and bounties to third parties for surveillance and enforcement activity

are common in many regulatory systems;

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• seek to engage private consultants rather than rely upon information or services from

organised interests. The state may also contract out one or more regulatory functions, from

specialised testing to an entire regulatory regime. For example, the program for motor

vehicle emissions testing in British Columbia was contracted out to private interests; 417

• accept standards developed in the private sector and give them official status. In some

regulatory systems, the task of developing rules is delegated to private interests.

Considerable rule making function is delegated to professional self-regulatory organisations.

Galanter418 refers to such technologies as "regulatory endowments"; and

• relinquish a direct regulatory role in deference to market forces. In this case, the role of

government is to monitor the behaviour of markets, intervening only in the event of market

failure.

4. Instrument and institutional interactions

By now it will be apparent that instruments and institutions may not be independent, but rather

that they often impact upon and influence each other, and there is much to be learned from

studying both functional and dysfunctional instrument and institutional interactions. The

following section contributes to our basic framework for the design of regulatory systems, by

introducing some of the fundamental forms of instrument and institutional interaction and

analysing their impact. In so doing, we herald some of the successes and failures of regulatory

life which hold lessons for participants in the regulatory process, and which will be discussed in

greater detail in chapters four and five.

A typology of interactions

The interaction of regulatory institutions and of the instruments which they command may take

a variety of forms. Such interactions can be grouped in three general categories. First, there are

those interactions which are generally positive, in which one or both instruments or institutions
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become active or more effective. Next, there are other circumstances in which they simply co-

exist, without directly impacting the performance of each other. And finally, there are those

which entail negative impacts, where the effect of one or more instrument or institution is

diminished, or functions in a counterproductive manner. Over and above the categories, it

should be noted that some instrument interactions will be contextual, that is, where the nature

of the interaction is largely determined by the overriding policy objectives, while others will be

intrinsic, that is, where the inherent qualities of instruments dictate the interaction

independently of the policy objectives.

1. Complementary interactions

In this category we examine circumstances in which the use of one instrument, or the role of a

particular institution, has a beneficial effect on another instrument or institution. For example,

the law of liability, with the ultimate risk of potentially catastrophic losses for insurers, has

moved many insurers to impose strict conditions upon policyholders. These in turn may

undergo environmental audits to ensure that they remain in compliance with the terms of their

insurance contract.

A specific form of positive interaction occurs when a particular institution or instrument is

stimulated by, contingent upon or requisite to the functioning of another (activation). For

example, Huppes et al (1989) have observed that command and control methods may be a

prerequisite for some financial instruments: "A tax on effluents may only be administered if the

installation of piping and measurement apparatus is made obligatory". 419 This is an example of

positive intrinsic instrument interactions because the complementary relationship exists

irrespective of the particular regulatory context.

Activation occurs when the mobilisation of a particular instrument creates a demand for

another. As we will see below in chapter four, the establishment of a self-regulatory regime, as

in the chemical industry’s Responsible Care Program, generated a demand on the part of
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participating firms for environmental auditing services. The availability of a legal defence of

due diligence will stimulate the design of corporate compliance programs and other self-

regulatory initiatives, and may also create a demand for environmental audit services. The

likelihood of any of these instruments being mobilised in the absence of the activator is often

remote.

Activation can also be produced by positive stimuli. Government purchasing preferences for

recycled products or for investment in clean technology may help create and nurture markets

when these would not arise or thrive spontaneously. Buying power can thus activate markets for

recycled materials. Regulatory enforcement by public agencies might not occur but for the right

of private prosecution. Public authorities, reluctant to enforce the law in the normal course of

events, may be informally embarrassed or legally compelled to take action as a result of the

threat or reality of citizen legal action. In his book on environmental protection in the United

States, Yeager (1991:121) observes how citizen suits may actually force executive action. 420

The use of private prosecution can thus activate public enforcement actions when these would

not otherwise occur. Other positive forms of interaction occur in which each instrument

enhances the effect of the other.

As we will see below in chapters four and five, optimal regulation in both the chemical

manufacturing and agricultural sectors requires the use of synergistic combinations of

instruments. The conservation of biological diversity in particular lends itself to a combination

of measures - enhancing those activities which have a positive impact, and minimising those

which have a negative impact.421 Subsidies for the preservation of remnant vegetation may be

combined with penalties for unauthorised clearance. The prospective penalty renders the

prospective subsidy that much more attractive at the same time as the prospective subsidy

makes the potential penalty that much more burdensome. The carrot becomes even more

attractive when the alternative is the stick: punitive instruments are made even more

undesirable in the face of an inducement.

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For example, this occurs when adherence to specified regulatory standards is made a condition

of insurance. The insurance contract thereby reinforces regulatory requirements, which, under a

relaxed regulatory regime, might be ignored. Regulatory noncompliance thus entails a risk not

only of enforcement action, but also cancellation of insurance. The terms of an insurance

contract can thus strengthen the salience of regulatory standards. In the case of what is termed

cross-compliance: the provision of support for one objective is made subject to prior

compliance with regulatory requirements relating to another. Thus, the eligibility to receive

drought relief may be conditional upon having taken specific measures in furtherance of habitat

preservation.

2. "Neutral" interactions

There are some circumstances where instruments or institutions simply co-exist, without

impacting upon each other for better or worse. For example, one institution may duplicate the

activities of another. For example, the proliferation of public interest groups, often with similar

agendas and practices, is a common feature of the contemporary regulatory landscape. An

example of a neutral intrinsic instrument interaction, as we shall discover in chapter four, is

where large multinational chemical companies have voluntarily adopted, or indeed gone well

beyond, environmental provisions required under the industry wide self-regulatory program of

Responsible Care.

Many neutral interactions which might appear to serve no positive function, may result in a net

benefit. As we will see, given the flawed nature of most individual instruments, there may in

fact be good reasons for '"backing up" one instrument with another. For example, while some

would regard duplication as inherently wasteful, it is not invariably bad. In some circumstances

it may have particular virtues. Competition in the delivery of public policy, rather than entailing

waste, may lead to improved outcomes, or may serve some higher purpose. Again, one should

not necessarily lament the fact that three different citizens' groups may independently campaign
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for the protection of endangered species. Democratic participation often has virtues irrespective

of outcome.

In contrast to duplication, where two instruments essentially overlap, there are other

circumstances where instruments might be described as adjoining: where one instrument

achieves related or residual objectives which remain unmet through the operation of another.

For example, in most regulatory settings, informational instruments alone will bring about

desired conduct by some actors, but not by others. Those who are not sufficiently motivated by

informational instruments may require some form of inducement, or perhaps even threat, before

improving their performance. Similarly, if a regulatory strategy-based on negotiation and

persuasion achieves only partial compliance, a complementary strategy of administrative

sanctions may win over the remaining noncompliant actors. This is an example where intrinsic

neutral interactions may be exploited to achieve a common policy goal.

The essence of such complementarity is an efficient division of labour. Cheit (1990:222) notes

that comparative institutional advantages may flow from public and private standard setting. 422

He observes complementarity rather than redundancy in the sharing of responsibility for the

development of safety standards. Moreover, as we know from our experience with safety

systems, a degree of duplication provides insurance against failure. As we shall see, in

circumstances where effectiveness is more important than efficiency, then policymakers would

be wise to consciously build dependability into regulatory design. Consider, for example, the

situation of HCFC's where self-regulation is "backed up" by tradeable permits in the event of

the former failing (see chapter six).

3. Counter productive interactions

Finally, there are circumstances in which one instrument or institution may weaken or block

another. One might use the term neutralisation to refer to the effect of one instrument in

diluting the effects of another. This can be a "designed-in" feature of regulatory systems:
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checks and balances may be intentionally created in order to prevent an excessive concentration

of power. The goal in such circumstances is to produce a creative tension between contending

interests, rather than policy gridlock.

More frequently, neutralisation occurs unintentionally as the result of independent policies

designed to appease contending interests. Indeed, it can occur when instruments are introduced

by entirely different regulatory regimes. As we will observe in chapter five, subsidies for

certain types of agricultural production and tax deductions for expenditures incurred in land

clearance (traditional agricultural policies) may coexist with, and effectively neutralise,

incentives for the conservation of remnant vegetation. The term "countervailing subsidies" has

been used to refer to this phenomenon.423 Similarly, price supports, crop subsidies, and tax

incentives for the use of pesticides and fertilisers will encourage exploitation of marginal land,

and will neutralise instruments deployed in furtherance of conservation. 424 These are examples

of contextual instruments interactions, where neutralisation is a result of contradictory policy

objectives rather than the inherent incompatibility of instruments.

Another form of negative interaction occurs when one institution blocks the effects of another,

or slows down or impedes the interaction of two others. For example, it might be argued that

the use of litigation by companies and/or industry associations, by deterring an environmentalist

organisation's dissemination of information critical of a particular polluter or regulatory

authority, inhibits the influence which the citizens’ group’s message would otherwise have on

regulatory enforcement policy or on the corporate conduct responsible for the adverse

environmental impact. Dialogue between citizens’ groups and other institutional actors is thus

inhibited.

Perhaps the most vivid example of institutional inhibition may be drawn from what have

become known as Strategic Lawsuits Against Public Participation (SLAPP). 425 Directed

primarily against citizen interest groups, these lawsuits are intended to deter public criticism of

questionable corporate or governmental conduct. Causes of action which may serve as the basis
 153

of SLAPP suits include business interference, abuse of process, and especially, libel. For

example, public concern over use of the pesticide Alar and other agricultural chemicals moved

agribusiness interests to promote "veggie libel" statutes, which make disparagement of certain

agricultural products actionable as libel.426 Targets of successful SLAPP suits may be silenced,

if not bankrupted. But the inhibiting effect of SLAPPs can extend well beyond the immediate

target. The mere threat of SLAPP litigation undoubtedly has a chilling effect on some public

protest. As a result, information has less influence on voluntary corporate compliance

behaviour or on regulatory enforcement.

Other rules relating to litigation may discourage the collection of information. Rules which

enable the results of voluntary environmental audits to be used against a company in a

subsequent enforcement action have precisely this effect, with the result that a potentially

valuable environmental instrument is far less used than it might be.427 On other occasions

litigation is used to limit information which would otherwise be employed in furtherance of

regulatory prosecution or civil action. In the absence of such information, these instruments are

less effective. For example, corporations in Australia sought (unsuccessfully) to invoke the

privilege against self-incrimination in order to prevent the results of pollution self-monitoring

mandated by legislation, being used against them in court.428

The power of inhibition is by no means limited to coercive instruments. One can also see how

subsidies such as tax deductions for the introduction of "end of pipe" pollution abatement

technology might distract attention from policies designed to encourage pollution prevention

strategies, for example, the introduction of environmental management systems. Such subsidies

can thus lessen the perceived attractiveness of going "beyond compliance" through the

integration of environmental improvement with broader business objectives. This is an example

of negative intrinsic interactions, in that the measures would be inhibitory irrespective of the

particular context.
 154

Challenges for regulatory design

The previous pages have provided a basic description of the ways in which instruments may

impact upon each other in a regulatory system. It has not sought to provide broader lessons for

regulatory design: for this is the theme of the final section of the book. However, the present

account may serve to sensitise the reader to some of the complexities involved in answering

that question.

In particular, our description underscores the systemic nature of regulatory life. For example, as

Harter and Eads (1985) have reminded us, changes in a given instrument can effect an entire

regulatory system.429 Imposition of command and control regulation, perceived as draconian

may alienate regulated industries, and in the process discredit less controversial instruments or

policies administered by the agency merely by association.

Because of this interconnectedness of different instruments and institutions, a particular

instrument which may appear attractive when looked at on its own, may work quite differently

when introduced alongside others. At times, this can be highly desirable, as when one

instrument provides leverage over another, and through it, generates preferred outcomes which

might otherwise be unattainable. At other times, the impact can be counterproductive, and the

outcomes negative. Thus the attributes of a regulatory package may differ from those of its

component instruments.

So too can the relative strength or salience of a particular instrument effect the properties of the

entire system. Vesting a particular interest with the power to veto regulatory policy may impede

system effectiveness. Overweighting a system with community consultation may enhance its

popular legitimacy, at the expense of efficiency. An instrument which is inefficient, alone or in

context, may merit inclusion in a regulatory package if it contributes to the realisation of

important secondary goals such as civic education or the building of self-regulatory capacity.

Above all, systemic problems are likely to require systemic solutions.

 155

5. Conclusion

In this chapter we have seen that there is much more to environmental regulation than purely

the work of government. Some of the most powerful institutions of corporate social control

exist in the private and non-profit sectors. In some cases at least, these functions are performed

more effectively and more efficiently and with greater legitimacy (from the point on view of the

regulatee) by non-governmental institutions than by government agencies. We have shown how

both industry itself (through self and co-regulation)430 and commercial and non-commercial

third parties have the capacity to act as surrogate regulators and to perform other quasi-

regulatory functions in a wide variety of circumstances.

This is not to suggest that government no longer has an important role to play in environmental

regulation and policy design but rather that that role may be changing. Government has a far

wider range of options in choosing how it intervenes, than is commonly recognised. Some

environmental problems may be amenable to command, others to a kind of orchestration and

others still to facilitation. That is, not only can governments intervene directly, but they can also

engage in more subtle manipulation of incentives and the creation of opportunity structures

("steering", rather than "rowing" to use the metaphor popularised by Osborne & Gaebler

(1992)431). There will inevitably remain those institutions which must be left to their own

devices.432 Others will entail a combination of design and spontaneity.433

We have also described both the opportunities and the pitfalls involved in utilising

combinations of instruments and in utilising a broader range of social actors. In particular we

have set out a typology of positive, negative and neutral mixes, emphasised the

interconnectedness of different instruments and institutions and the systemic nature of

regulatory life. Above all, we have indicated the complexities of regulatory design.

Against this backdrop, our attentions now turn to the principles for the design of regulatory

systems, with a focus on that which is theoretically desirable, while being mindful of the
 156

constrains imposed by what is politically and socially practicable. We do not, for example,

assume an omniscient or omnipotent state with unlimited resources. On the contrary, we

recognise the informational asymmetry between industry and government, the often limited

reach and competence of regulatory agencies, a political context of considerable fiscal

constraint and a prevalent ideology which is hostile to greater taxation or a larger role for

government.

The object of this book is to suggest ways in which governments, operating under such

constraints, might at times: intervene directly to produce desired environmental outcomes; act

to foster constructive activity by non-governmental institutions; and enjoy the benefits of non-

state institutions functioning independently in constructive ways. More broadly, it is to develop

a framework and a broader vision of regulatory design which integrates instruments and parties

in a synergistic and complementary fashion in such a way as to optimise the policy mix.

Recognising that the greatest insights are likely to be generated by a detailed examination of

specific contexts or industry sectors rather than across the board, chapters four and five will

seek to envisage what form of regulatory system is most appropriate to minimise environmental

harm which results from chemical manufacturing, and from critical aspects of agriculture.

There we explore in more detail, and at a concrete level, the interactions between instruments

and actors.

316
C Manes, Green Rage: Radical Environmentalism and the Unmaking of Civilisation (1990), Little
Brown, Boston.; M Dowie, Losing Ground: American environmentalism at the close of the twentieth
century (1996), MIT Press, Cambridge.

317
A Marcus The Adversary Economy: Business responses to changing government requirements (1980),
Quorom Books, Westport CT.

318
J Mansbridge "A Deliberative Theory of Interest Representation" in M Petracca (Ed) Interest Groups
in the Political Process (1992), Westview Press, Boulder, Colorado, pp 32-57.
 157

319
I Ayres & J Braithwaite, Responsive Regulation: Transcending the regulation-deregulation debate
(1992), Oxford University Press, UK.

320
J Braithwaite, "Policies for an Era of Regulatory Flux" in B Head and E McCoy (eds) Deregulation or
Better Regulation? (1991), Macmillan Press, Melbourne, pp 21-34.

321
Anon, "Ruckelshaus Worried Citizen Suits Will Reveal Poor Enforcement Record" (1984), May 11,
Inside EPA, United States Environment Protection Agency, p 1.

322
B Boyer & E Meidinger, "Privatising Regulatory Enforcement: A preliminary assessment of citizen
suits under Federal environmental laws" (1985) 34 Buffalo Law Review 833-964 at 863.

323
In the United States, regulations under the Surface Mining Control and Regulation Act 1977 allow
citizens to request an inspection by Federal regulatory authorities. The citizen must submit a signed
written statement which would give regulatory authorities reason to believe that a violation exists. The
citizen may accompany the inspector in the course of the inspection, and is entitled to receive a copy of
the inspector's report. In the event that no inspection is conducted, the citizen is entitled to a written
explanation for the decision in question (N Shover; D A Clelland; & J Lynxwiler, Enforcement or
Negotiation: Constructing a regulatory bureaucracy (1986), State University of New York Press, Albany,
New York).

324
G S Becker & G T Stigler, "Law Enforcement, Malfeasance, and Compensation of Enforcers (1974)
3(1) Journal of Legal Studies 1.

325
P C Yeager, The Limits of Law: the public regulation of private pollution (1991), Cambridge University
Press, Cambridge, New York, p 321; and see also W Landes, & R Posner, "The Private Enforcement of
Law" (1975) 4 Journal of Legal Studies 1; and M Polinsky, "Private Versus Public Enforcement of Law"
(1980) 9 Journal of Legal Studies 105.

326
C Harlow & R Rawlings, Pressure Through Law (1992), Routledge, London.

327
M Cohen & P Rubin, "Private Enforcement of Public Policy" (1985) 3(1) Yale Journal on Regulation
167-194.

328
J Coffee, "Rescuing the Private Attorney General: Why the model of the lawyer as bounty hunter is not
working" (1983) 42 Maryland Law Review 215-288.

329
However, note the existence of radical proposals for private collection of taxes.

330
M Wilcox, "The Role of Environmental Groups in Litigation" (1985) 10 Adelaide Law Review 41-8.

331
In the United States, citizen litigation (usually provided for by statute) has been central in the creation
and development of environmental law. Here, the law has been an important instrument by which citizens
 158

oversee and reinforce the regulatory process. The United States legal system is relatively accessible to
citizens who contend that regulatory authorities have failed to fulfil their legislative mandate. Most federal
pollution control legislation empowers any person to begin an enforcement action against a polluter (A
Fadil, "Citizen Suits Against Polluters: Picking up the pace" (1985) 9 Harvard Environmental Law
Review 23-82; J Austin, "The Rise of Citizen Suit Enforcement in Environmental Law: Reconciling the
private and public Attorney-General" (1987) 81 Northwestern University Law Review 220-62; and M
Greve, "Environmentalism and Bounty Hunting" (1989) 97 The Public Interest 15-29), and citizen
enforcement reinforces government regulatory activity.

332
M Wilcox, "The Role of Environmental Groups in Litigation" (1985) 10 Adelaide Law Review 41-8 at
42. In Japan, for example, the publicity attracted by citizens' environmental litigation was instrumental in
mobilising support for anti-pollution movements (M McKean, Environmental Protest and Citizen Politics
in Japan (1981), University of California Press, Berkeley, p 79). Even though the immediate goal of these
legal actions is compensation for injury and illness occasioned by pollution, the publicity which they
attract tends to focus attention on the dangers of pollution and the inadequacies of prevailing pollution
controls.

333
In that they generally involve government, regulatory authorities or the courts as intermediaries.

334
In some cases, interests between environmentalists and industry converge. In Germany, Greenpeace
collaborated with a whitegoods manufacturer in the development of an "ozone-friendly" refrigerator. In
the United States, the Environmental Defence Fund assisted the McDonalds Corporation to develop a plan
for the purchase of products made from recycled materials for use in the latter's restaurants. Subsequent
environmental gains, including a 40% reduction in solid waste output, significantly benefited McDonalds'
corporate image. In Australia, the Australian Conservation Foundation and the National Farmers'
Federation share an appreciation for the problem of soil degradation, and have developed an alliance to
develop policies for remediation (M C Smith, Morality and the Market: Consumer pressure for corporate
accountability, Routledge, London (1990) p 116). Their joint involvement in the Landcare program is
arguably one of the most impressive examples of such co-operation.

335
Although less common in Australia, an agreement was reached between industry, state regulatory
authorities, and local citizens concerned about environmental and health issues of a chemical facility. The
agreement involved the creation of an ongoing monitoring committee comprising representatives of the
three parties (D Robinson, Pollution Control and Public Interest Litigation (1991), Environmental
Defender's Office, Sydney, p 10.

336
D J Fiorino, "Towards a New System of Environmental Regulation: the case for an industry sector
approach" (1996) 26(2) Environmental Law 457-489.
 159

337
K Kato, "The New Frontiers of Environmental Policy in Japan" in [Link] (ed) Environmental
Liability (1991), International Bar Association Section on Business Law, 7th Residential Seminar on
Environmental Law, Graham and Trotman, London, pp 47-62.

338
F K Long & M B Arnold, The Power of Partnerships (1995), Harcourt Brace, New York; and
Tomorrow (1994).

339
The Green Business Letter, "Grand Alliances: A new network of nonprofits is helping environmental
partnerships grow and prosper" (1996) (March) The Green Business Letter; and Business and the
Environment, "Alliance for Environmental Innovation to Start First Projects This Spring" (1996) VII(3)
(March) Business and the Environment.

340
P N Grabosky, "Citizen Co-Production and Corruption Control" (1990) 5 Corruption and Reform 125-
51.

341
Mann (1991).

342
33 USCA s 411(12).

343
Data from the US National Toxic Release Inventory indicates that release of toxic chemicals has
decreased approximately 20 per cent since 1987 (W S Pease "Chemical Hazards and the Public's Right-to-
Know: How effective is California's Proposition 65?" 30(10) Environment 9, quoted in P Adams & M
Ruchel, Unlocking the Factory Door (1992), Report of the Coode Island Review Panel by the Hazardous
Materials Action Group, Melbourne, Victoria, p 24), which noted that "on the eve of the first national
release of US Toxic Release Inventory data in 1987, Monsanto Corporation went public with a preemptive
pledge to reduce by 90 per cent the company's worldwide toxic emissions to air by 1992".

344
One might predict that all else being equal, litigation would be more common where government
activity in furtherance of environmental protection is less. This does appear to be the case in relation to
enforcement activity in the United States. An inverse relationship was observed there in the early 1980's
between citizen litigation and government enforcement activity. As the deregulatory ethos of the Reagan
era was accompanied by a decrease in enforcement activity by the EPA, the number of citizen
enforcement actions increased significantly (J Miller, Citizen Suits: private enforcement of Federal
pollution control laws (1987), John Wiley, New York, p 12; J Austin, "The Rise of Citizen Suit
Enforcement in Environmental Law: Reconciling the private and public Attorney-General" (1987) 81
Northwestern University Law Review 220-62 at 233; P C Yeager, The Limits of Law: the public regulation
of private pollution (1991), Cambridge University Press, Cambridge, New York, pp 320-321).

345
According to prevailing legal policy, defence of the common good and supporting the public interest
are the responsibilities of government.

346
For example Australian Landcare.
 160

347
In Australia, Victoria's accredited licensing scheme contemplates such relief (see pp 00).

348
See Project XL above.

349
Not In My Back yard.

350
For example, in the Australian State of New South Wales, where the rules of standing are very liberal,
the incidence of third party appeals is quite small, and very few of these could be categorised as frivolous
(N Pain, "Third Party Rights Public Participation Under the Environmental Planning and Assessment Act
1979 (NSW): Do the floodgates need opening or closing?" (1989) 6(1) Environmental and Planning Law
Journal 99 26-35; and J Hodgson, "Third Party Appeals in South Australia 1972-1993" (1996) 13(1)
Environmental and Planning Law Journal pp 8-28).

351
M Greve, "Environmentalism and Bounty Hunting" (1989) 97 The Public Interest 15-29 at 16.

352
Nor are environmentalists themselves, universally enthusiastic about the use of the legal process. As a
former president of the Australian Conservation Foundation stated: "Environmental groups hate getting
involved in legal cases. They cost a lot of money. They are very distracting. Environmentalists realise that
they do distort the decision making process ... The environmental movement would much rather debate
issues on their merits in public fora" (M Wilcox, "Retrospect and Prospect" in T Bonyhady (ed)
Environmental Protection and Legal Change (1992), Federation Press, Sydney pp 206-30 at pp 228-9).

353
In contrast, the interests of business (not to mention the interests of justice) are best served by a stable,
predictable regulatory environment. The absence of any coordinating mechanism in a decentralised system
of complementary private enforcement may jeopardise consistency and predictability. Contradictory
postures of public and private enforcers may impede business planning. This is undesirable, and illustrates
the need for the legal process to "maintain a stable system of signals" (J Coffee, "Rescuing the Private
Attorney General: Why the model of the lawyer as bounty hunter is not working" (1983) 42 Maryland
Law Review 215-288 at 226).

354
Corporate behaviour cannot simply be reduced to questions of greed and the bottom line. While some
pollution behaviour may arise from deliberate premeditation and calculation, other offending may result
from ignorance and negligence (R Kagan, & J Scholz, "The Criminology of the Corporation and
Regulatory Enforcement Strategies" in K Hawkins and J Thomas (eds) Enforcing Regulation (1984),
Kluwer-Nijhoff, Boston, pp 67-96).

355
Environmental Offences and Penalties Act 1989 NSW s 13 (2A) allows for third party action.

356
The most notable exception is the excellent contribution of Ronald Mitchell, Intentional Oil Pollution
at Sea (1994), MIT Press, Cambridge.
 161

357
R Stewart, "Models for Environmental Regulation: Central planning versus market-based approaches"
(1992) Boston College Environmental Affairs Law Review, 547-62.

358
P N Grabosky, "Green Markets: Environmental regulation by the private sector" (1994) 16(4) Law and
Policy 419-448.

359
For discussions of various aspects of consumer boycotts (see M C Smith, Morality and the Market:
Consumer pressure for corporate accountability, Routledge, London (1990); M Friedman, "Consumer
Boycotts: A conceptual framework and research agenda" (1991) 47(1) Journal of Social Issues 149-168;
P Fahey, "Advocacy Group Boycotting of Television Advertisers, and its Effect on Programming
Content" (1992) 140 University of Pennsylvania Law Review 647-709; C Joyner, "The Transnational
Boycott as Economic Coercion in International Law: Policy, place and practice" (1984) 17(2) Vanderbilt
Journal; of Transnational Law 206-286; and M C Harper, "The Consumer's Emerging Right to Boycott:
NAACP v Claiborne Hardware and its implications for American Labor Law" (1984) 93(3) Yale Law
Journal 409-454).

360
Boycotts can, however, be a double edged sword. For example, in 1989, representatives of the United
States timber industry called for the boycott of a brewer which sponsored a controversial television
documentary on forests which had been produced by an environmental group, the National Audubon
Society (P Fahey, "Advocacy Group Boycotting of Television Advertisers, and its Effect on Programming
Content" (1992) 140 University of Pennsylvania law Review 647-709 at 679).

361
Above pp 00

362
See further S Dawson & N Gunningham, "The More Dolphins There Are the Less I Trust What They're
Saying: Can green labelling work?" (1996) 18(1) Adelaide Law Review pp 1-34.

363
For example, K-Mart has introduced a number of in house green products, such as recycled motor oil.

364
S Dawson & N Gunningham, "The More Dolphins There Are the Less I Trust What They're Saying:
Can green labelling work?" (1996) 18(1) Adelaide Law Review pp 1-34.

365
M Porter, The Competitive Advantage of Nations (1990),Macmillan Press, London, p 590.

366
The difficulties for government in regulating the environmental performance of small businesses are
well documented (R Kagan, "Regulatory Enforcement" in D H Rosenbloom & R D Schwartz (eds)
Handbook of Regulation and Administrative Law (1994), Marcel Dekker, New York, pp 383-422; and N
Shover; D Clelland; and J Lynxwiler, Enforcement or Negotiation: Constructing a regulatory
bureaucracy (1986), State University of New York Press, Albany). Regulators find it easier to keep tabs
on and interact with larger firms. But as Alm (A L Alm, "A Need For New Approaches: Command and
control is no-longer a cure-all" (1992) 18 May/June EPA Journal p 6) correctly identifies, the
accumulative effect of pollution from many small firms may outweigh that from a few large firms.
 162

367
N Gunningham, "Environment, Self-Regulation and the Chemical Industry: Assessing responsible
Care" (1995) 17 Law and Policy 55-107.

368
M Porter, The Competitive Advantage of Nations (1990),Macmillan Press, London, p 502 and 523.

369
G Stuart, "Marketing Reports on Environmental Concerns in the Packaging Industry" (1992) Reuters
News Service, 20 August.

370
Reuters, "It's Green for Go in Boots the Chemist" (1992) Reuters News Service, 13 June.

371
G Stuart, "Marketing Reports on Environmental Concerns in the Packaging Industry" (1992) Reuters
News Service, 20 August.

372
Similarly, British Telecom encourages prospective suppliers to explain their environmental programs,
and encourages them to be responsible the environmental impact of their products (G Stuart, "Marketing
Reports on Environmental Concerns in the Packaging Industry" (1992) Reuters News Service, 20 August;
and P N Grabosky, "Green Markets: Environmental regulation by the private sector" 16(4) Law and
Policy 429). A company questionnaire seeks information from prospective suppliers on the use of
recycled materials in their products, and the potential for re-use and recycling of products. It further seeks
to identify any environmental hazards which may be arise during the course of the product's life, energy
consumption entailed in manufacture, and the supplier's plans for improving its overall environmental
performance. British Telecom also encourages supplier buy-back of products after their normal life.

373
J Elkington; P Knight; & J Hailes, The Green Business Guide (1992), Victor Gollancz, London p 126.

374
Quoted in G Berle, The Green Entrepreneur (1991), Liberty Hall Press, New York, p 143.

375
N Platt, "The Rise of the Eco-Consumer Has Big Business Seeing Green" (1992) Reuters News
Service, 25 May.

376
S Schmidheiny, Changing Course: A global business perspective on development and the environment
(1992), MIT Press, Cambridge, p 112.

377
For a discussion of "the Volvo effect" and its wider implications, see Harvard Law Review, "Note:
Harnessing Madison Avenue: Advertising and products liability theory" (1994) 107 Harvard Law Review
895-912.

378
Greenpeace, Community Right-to-Know and the Myth of Self-Regulation" (1994), Greenpeace,
Melbourne.

379
See further ch 4 below.
 163

380
P N Grabosky, "Using Non-governmental Resources to Foster Regulatory Compliance" (1995) 8(4)
Governance, an International Journal of Policy and Administration 527-550.

381
R Sparkes, The Ethical Investor (1995), Harper Collins, London, ch 8.

382
M C Smith, Morality and the Market: Consumer pressure for corporate accountability, Routledge,
London (1990) p 175-6.

383
R Sparkes, The Ethical Investor (1995), Harper Collins, London, ch 11, pp 98-9.

384
J Elkington; P Knight; & J Hailes, The Green Business Guide (1992), Victor Gollancz, London, p 71.

385
Reuters, "New York City Fund Wants Green Stance from Four Companies" (1992) Reuters News
Service, 10 December.

386
For a less optimistic perspective on the effects of ethical investing, see M Dowie, Losing Ground:
American environmentalism at the close of the twentieth century (1996), MIT Press, Cambridge.

387
For example, in Australia, the Australian Stock Exchange now requires listed companies to make a
statement in their annual report about how they identify and manage environmental risks to their business.

388
For a comprehensive attempt to examine how financial markets can support the goals of eco-efficiency
and sustainable development, see S Schmidheiny and F Zorraquin, Financing Change: The Financial
Community, Eco-Efficiency and Sustainable Development (1996), MIT Press.

389
S Schmidheiny, Changing Course: A global business perspective on development and the environment
(1992), MIT Press, Cambridge, pp 64-5.

390
S Schmidheiny, Changing Course: A global business perspective on development and the environment
(1992), MIT Press, Cambridge, p 258.

391
Deloitte Touche Tohmatsu International, Coming Clean: Corporate environmental reporting (1993),
Deloitte Touche Tohmatsu International, London, p 40.

392
UNEP, Advisory Committee on Banking and the Environment (1992), UNEP, Nairobi, 2.2 p 1.

393
901 F2d 1550 (11th Cir 1990).

394
Specifically, to banks, insurance companies, landlords on behalf of their tenants, and successor
corporations. Thus bankers, for example, could find themselves liable for the remediation of land
contaminated by client when they foreclose on properties. See G Anhang, "Cleaning Up the Lender
Management Participation Standard under Comprehensive Environmental Response Compensation and
Liability Act 1980 in the Aftermath of Fleet Factors" (1990) 15 Harvard Environmental Law Review 235.
 164

For background see: (1986) 87 Stanford Environmental Law Review. For UK perspective note "Digging
Deep: Re-using Contaminated Land" (1991) 87 Conveyancer & Property Lawyer 249.

395
M K Landy, & M Hague, "The Coalition for Waste: Private interests and Superfund" in M S Greve &
F L Smith Jr, (eds))Environmental Politics: Public costs, private rewards (1992), Praeger Publishers,
New York.

396
See above pp 00.

397
D T Hornstein, "Lessons from Federal Pesticide Regulation on the Paradigms and Politics of
Environmental Law Reform" (1993) 10 Yale Journal on Regulation 369-446.

398
The insurance industry has another reason to be sensitive to environmental considerations. It has been
suggested that an increase in the frequency of natural disasters in recent years, specifically catastrophic
storms, has resulted from climate change. Global warming may produce financial ruin (R Sparkes, The
Ethical Investor (1995), Harper Collins, London, p 99).

399
S Schmidheiny, Changing Course: A global business perspective on development and the environment
(1992), MIT Press, Cambridge, pp 64-5.

400
M Katzman, Chemical Catastrophes: Regulating environmental risks through pollution insurance
(1985), Richard Irwin, Homewood, IL.

401
B Yandle, The Political Limits of Environmental Regulation, (1989), Quorum Books, New York.

402
R Salter, "Market Credit for Loss Prevention in the Petrochemical Industry" in D D Peng (Ed)
Insurance and Legal Issues in the Oil Industry, (1993) Graham & Trotman, London, pp 55-64.

403
On insurance audits: see Lloyds List 29 June l990 at 4; ll September l991 at 10; 29 March 199l at l8; 6
November 1990 at 5; and 26 October l99l at l2 [via Reuters Textline]. J McDonald, "Key Issues in
Environmental Insurance Litigation" (199l) 8 Environmental and Planning Law Journal l45.

404
Fowler (and add date to text).

405
R Jones, Environmental Risk Management 91996), Paper delivered to 3M Conference, Canberra.

406
P Freeman & H Kunreather, "The Roles of Insurance and Well Specified Standards in Dealing With
Environmental" (1996) 17 Risk Management and Decision Economics 513-530 at 530.

407
P Freeman & H Kunreather, "The Roles of Insurance and Well Specified Standards in Dealing With
Environmental" (1996) 17 Risk Management and Decision Economics 513-530 at 530.
 165

408
D T Hornstein, "Lessons from Federal Pesticide Regulation on the Paradigms and Politics of
Environmental Law Reform" (1993) 10 Yale Journal on Regulation 369-446.

409
An exception is where audits are required by lending or insurance institutions prerequisite for
commercial transactions, particularly in response to contaminated site liability legislation (N Gunningham
& J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform" (1993) 15 Sydney Law
Review 492-526).

410
See generally N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and
reform" (1993) 15 Sydney Law Review 492-526 and footnote 3.

411
R B Mitchell, International Oil Pollution as Sea, (1994), Massachusetts Institute of Technology.

412
N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform"
(1993) 15 Sydney Law Review 492-526.

413
N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform"
(1993) 15 Sydney Law Review 492-526.

414
See N Gunningham, "Who Audits the Auditors?" 1993 11(4) Environmental and Planning Law Journal 229-238.

415
N Gunningham, "Who Audits the Auditors?" 1993 11(4) Environmental and Planning Law Journal 229-238.

416
P N Grabosky, "Using Non-governmental Resources to Foster Regulatory Compliance" (1995) 8(4)
Governance, an International Journal of Policy and Administration 527-550.

417
E Baar, "Contracting Out Regulatory Implementation" (1993), paper delivered at the Canadian law and
Society meeting, Ottawa, June 8.

418
M Galanter, "Justice in Many Rooms" (1981) 19 Journal of Legal Pluralism 1-47.

419
G Huppes, & R Kagan, "Market-Oriented Regulation of Environmental Problems in the Netherlands"
(1989) 11(2) Law and Policy, 215-239.

420
P C Yeager, The Limits of Law: the public regulation of private pollution (1991), Cambridge University
Press, Cambridge, New York, p 121.

421
Organisation for Economic Co-operation and Development (OECD), Group on Economic and
Environment Policy Integration, Expert Group on Economic Aspects of Biodiversity, Economic
Incentives for the Conservation of Biodiversity: Conceptual framework and guidelines for case studies
(1994), OECD, Paris, p 13.
 166

422
R Cheit, Setting Safety Standards: Regulation in the private and public sectors (1990), University of
California Press, Berkeley, p 222.

423
J B Opschoor & H B Vos, Application of Economic Instruments for Environmental Protection in
OECD Countries (1989), OECD, Paris, p 112.

424
Organisation for Economic Co-operation and Development (OECD), Group on Economic and
Environment Policy Integration, Expert Group on Economic Aspects of Biodiversity, Economic
Incentives for the Conservation of Biodiversity: Conceptual framework and guidelines for case studies
(1994), OECD, Paris.

425
G W Pring & P Canan, SLAPPs: Getting sued for speaking out (1996), Temple University Press,
Philadelphia.

426
G W Pring & P Canan, SLAPPs: Getting sued for speaking out (1996), Temple University Press,
Philadelphia, p 191.

427
See N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform"
(1993) 15 Sydney Law Review 492-526.

428
J McDonald, "Corporate Confidentiality After Caltex: How safe is your audit?" (1994) 11(3)
Environmental and Planning Law Journal 193-210.

429
P J Harter & G C Eads, "Policy Instruments, Institutions, and Objectives: An analytical framework for
assessing "alternatives" to regulation" (1985) 37(3) Administrative Law Review 221-58.

430
Above ch 2 pp 00.

431
D Osborne & E Gaebler, Reinventing Government (1992), Addison Wesley, Reading.

432
Thompson et. al. (Eds) Markets, Hierarchies and Networks: The coordination of social life (1991),
Sage Publications, London.

433
F von Hayek, "Spontaneous ("grown") Order and Organized ("made") Order" pp. 292-301 in
Thompson et. al. (Eds) Markets, Hierarchies and Networks: The coordination of social life (1991), Sage
Publications, London.
 PART II

REDESIGNING REGULATION: A SECTOR SPECIFIC ANALYSIS

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CHAPTER 4

THE CHEMICAL INDUSTRY

Neil Gunningham

Introduction

In this chapter we begin our exploration of sector-specific policy mixes. We provide a brief

introduction to the chemical industry, its economic contribution and its environmental

problems, and we identify the key features of that industry that are likely to influence the

possibilities for regulatory design. We then summarise the main components and limitations of

current regulatory regimes in North America, Western Europe and Australia, before going on to

the main task of the chapter: the design of regulatory policy harnessing a broader mix of

instruments and institutional actors and tailored to the particular circumstances of the chemical

industry.

The problems upon which we focus are necessarily a sub-set of the environmental problems

confronting the industry as a whole. Our principal focus is on point source pollution, which,

together with chemical accidents, has been the major environmental concern with which the

industry is associated.434 As we shall see, this is not without good cause: the chemical industry

is, by a large margin, the most polluting industry sector both in the United States and in a

number of other countries. The solutions we suggest, however, have resonance far beyond the

chemical industry itself.

 169

The chemical industry and its environmental impact

The chemical industry, conventionally defined,435 is a key manufacturing sector in most of the

industrialised world, transforming natural raw materials such as metals, minerals, coal, oil,

natural gas, vegetable oils, and animal fats into thousands of organic chemicals for commercial

use. The chemical industry produces tens of thousands of products whose many applications

include raw and basic or intermediate materials for other industries, and finished products for

industry, construction, service, agriculture, business and individual consumers.

During the early part of the 20th century, the industry expanded substantially in the areas of

explosives, synthetic dyes, pharmaceuticals and petrochemicals, and successfully diffused

chemical industry products into many other industrial sectors. In so doing, it established its

current dominant role within the manufacturing sector of most developed and many developing

countries. More recently, the has been a trend away from bulk chemicals towards higher added

value products including pesticides, herbicides, dyestuffs, and biotechnology applications.

Almost all the largest chemical companies are transnationals, most of whom expanded from

their original base in North America or Western Europe to establish substantial foreign

subsidiaries. Such an expansion was particularly evident from the second half of the 1980’s

until the 1991 to 1992 recession, during which period such companies opened new markets and

built new plants, especially in the Asia-Pacific region. During the same period, world gross

output in chemicals grew from US$744 billion to US$1.136 trillion.436 In addition to a small

number of large firms, the industry also includes many smaller operators. These include

specialty chemical manufacturers, distributors and others to whom chemicals are supplied (eg

upstream suppliers, and buyers for manufacturers downstream).

The chemical industry is a keystone of the United States economy. It has some 1.1 million

employees, over $316 billion in sales and is the second largest manufacturing industry in that

country.437 It is also a leading industry in Western Europe, where it accounts for an estimated
 170

one-third of the world turnover of chemical production and 37 percent of the total European

trade balance of manufacturing.438 In Australia, the chemical industry similarly plays an

important role, as a key supplier of raw materials to the overall manufacturing industry, and to

key export industries such as agriculture and mining.

The chemical industry is a major source of environmental pollution. It is the United States'

largest consumer and generator of highly toxic chemical substances.439 Roughly half of all

releases and transfers reported through the TRI, and 80 to 90 percent of hazardous waste

generation reported through the Resource Conservation and Recovery Act, are attributed to the

industry.440 These figures represented a total of three times that of the next major contributor to

pollution, the metal industry. The United States chemical manufacturing facilities also

dominate individual facilities top-ranked for the largest total emission of hazardous waste. 441

Within most countries in Western Europe, although comparable statistics are lacking, the

chemical industry has a broadly similar environmental profile, 442 as indeed it does in a number

of other developed nations.443

The industry is not only a very substantial contributor to environmental point source toxic

chemical pollution but is also, in its capacity as a supplier of intermediate products to other

sectors, the most important developer/vendor of toxic chemical products, although it is only the

former role that has received significant attention. The chemical industry is a contributor to

ozone layer depletion and the enhanced greenhouse effect, and its activities have implications

for toxic waste management, the transportation of hazardous materials, and the safety of

foodstuffs.444 Finally, there are risks of accidents and explosions to chemical facilities

themselves which can inflict serious damage on local communities as well as broader

environmental damage.

It is this last threat, and the consequences of individual dramatic and highly publicised chemical

accidents, that have evoked the greatest public outcry and industry response. 445 For example, in

1984 at Bhopal in India, at least 2,000 people were killed and some 200,000 injured when
 171

twenty tons of lethal methyl isocyanide escaped from a union carbide chemical plant.446 A

number of other serious accidents, have occurred in a wide range of other countries.447

Responding to public concern and the costs of accidents, both about point-source emissions and

accidents, the chemical industry has during the last decade significantly improved its

environmental performance. Since 1987 the United States chemical industry claims to have

reduced by 49 percent releases of toxic chemicals to the environment. 448 The industry has also

reduced disposal in deep-wells by 46 percent and off-site transfer for treatment and disposal by

56 percent. A survey by the United States Chemical Manufacturers Association (CMA) showed

reductions by its member companies of 16 percent for releases, 14 percent for underground

injection and 21 percent for transfers, excluding transfers for recycling and energy recovery. 449

The industry claims that its environmental control actions have necessitated capital

expenditures for pollution abatement and control which have totalled over US$22 billion since

1973.450 The United States chemical industry pollution abatement spending in 1993 was

claimed to be US$4.4 billion. In the year 2000, the CMA, using EPA figures, estimates that it

will spend roughly $6 billion in complying with environmental regulations.451

European chemical companies have similarly responded to environmental concerns with

substantial expenditure on improved environmental performance. The Commission of the

European Union estimates that environment-related expenditure in 1992 amounted to 3.5

percent of the turnover of the chemical industry in the European Union.452 In the United

Kingdom the share of capital spending on environmental protection has risen from 8 percent in

1990 to 14 percent in 1992.453 The pattern of expenditure in Australia is similar.454

Characteristics of the chemical industry

The chemical industry has a number of important characteristics which will be crucially

important in designing an appropriate regulatory regime. First, most chemical industry pollution

is point source pollution (eg from smokestacks or other discharge points) or the result of
 172

chemical accidents. Both sources are readily identifiable by regulators and the community and

it is accordingly difficult for the industry to deny the connection between its activities and their

environmental consequences. It is also comparatively easy for regulators to monitor and take

action against unlawful emissions or other illegalities by chemical companies.

Second, there are many differences amongst chemical producers. As we shall see, these

differences have considerable implications for regulatory design. The dominant group are the

limited number of large companies (most of them transnationals). These companies all have

very high public profiles, and reputations which it is very important for them to protect. As

such, they are extremely vulnerable to adverse publicity, to shaming at the hands of public

interest groups and others, and to other informal sanctions beyond those imposed by

conventional command and control regulation. However, there are also a large number of

smaller players involved in the industry, who are particularly difficult to regulate. These

essentially fall into two groups, with some limited overlap between them: (i) the specialty

chemical manufacturers (who usually produce small volumes of a wide variety of specialty

chemicals as demand dictates); and (ii) the distributors, suppliers and buyers of wholesale

chemicals. These groups have very different characteristics to the large companies and are

likely to respond to very different pressures and incentives. Significantly, with the exception of

some distributors and specialty chemicals companies, they are commonly unsophisticated, in

some cases economically marginal. In most cases they trade with, and are to some extent

dependent on, the large companies (who in recent years have contracted out more work to fewer

firms).455 Both groups of small players present particular problems to regulators.456

Third, the long term viability of the industry probably depends (and is perceived by most large

companies to depend) upon its gaining and maintaining the trust of the public. At present, the

chemical industry as a whole suffers from a negative public image, not just individual firms,

and this image can only be improved (and with it the long term fortunes of the industry itself)

by a substantial improvement in the environmental performance of the industry as a whole.

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Given the transparency of chemical industry pollution, described above, only demonstrable

environmental performance, and not merely better public relations, can deliver improved public

trust and credibility.457

Fourth, the industry itself is mature and stable, having been operating on a large scale for many

decades. Similarly, given the substantial environmental problems generated by the industry, it

was one of the first industry sectors to be subject to regulation, with the result that the

regulatory regime which oversees its environmental performance is also a mature one. 458 That

regime is also very extensive: the industry is highly regulated across a variety of environmental

media.459

Fifth, and related to the last point, there is, in each of the major jurisdictions, a strong industry

association with the capacity to exert considerable influence over the behaviour of its member

companies. Indeed, for some years, in most developed countries, the industry association has

already performed such a role.460 Related to this, each industry association is acutely aware that

to the extent it does not put its own house in order in environmental terms, there will be heavy

pressure on government to do so. Since government has already regulated the chemicals sector

for many years, and there is substantial public support for more stringent regulation, there are

generally few obstacles to it ratcheting up the severity of that regulation.

Sixth, the threats caused by chemical industry pollution are likely to inflict damage not only on

the natural environment but also on human health, with the result that a broad range of groups

might potentially be mobilised to counter such pollution. For example, not just environmental

NGOs but also local communities living downwind or downstream from chemical complexes,

and perhaps also trade unions, may have a very active interest in curbing harmful emissions. 461

The overlap between occupational health and safety and environmental protection in the

chemical industry (for example, what is toxic when emitted outside a plant may also be toxic to

workers within it) further enhances the potential for common cause to be established between
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trade unions and environmentalists (though to date there are extremely few concrete examples

of such common cause).

Seventh, the chemical industry is driven by innovation and technological change, which many

regard as its very lifeblood.462 Moreover, processes within the industry are heterogeneous, being

so varied and complex as to make sector-wide standards difficult to establish.463 What is

appropriate for large plants may not be appropriate for small ones, what is appropriate for batch

chemicals will not be appropriate for continuous processes. Where sector-wide standards are

established, they can have a stultifying effect.464 As a result of these factors, a high priority of

individual companies, and of the industry association that represents them, is to avoid

prescriptive regulation or other intrusions into its affairs which might have the effect of

inhibiting such innovation.

The regulatory environment and its shortcomings

As indicated earlier, it is the manufacturing phase of production and the regulation of point

source pollution that are the principal subject matter of this chapter. Current strategies for

addressing point-source pollution by chemical manufacturers necessarily vary from jurisdiction

to jurisdiction, according to the political, economic and cultural characteristics of individual

countries. Here is not the place to engage in a detailed description of such regimes, but rather to

identify their main features, and their strengths and limitations, as a necessary precursor to the

main theme of this chapter: how chemical industry regulation might be redesigned to optimal

effect.

This preliminary task need not be an arduous one. Regulation of the chemical industry in almost

all developed countries has depended very heavily (though not exclusively465) on various forms

of command and control. Moreover, in many cases that regulation is much the same as that

which has been applied to other industry sectors, (though the trend is towards a sector-specific

approach).466 The result is that much of the general critique of direct (and more specifically,
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command and control) regulation in chapter two, is directly applicable to the circumstances of

the chemical industry.

As we saw in that chapter, governments throughout Western Europe and North America have

relied heavily on a regulatory standards approach involving the establishment of technology-

based standards for classes of industries or scheduled premises, or some combination of the

two. In the United States, (where command and control approaches are most entrenched) the

main environmental statutes require the installation of "best conventional pollutant control

technology" or "best practical control technology currently available" under permitting

arrangements. This approach has the advantage of providing "a measure of environmental

quality certainty" (provided there is adequate monitoring and enforcement), which may be

particularly important when potent and toxic substances are being released into the ambient

environment".467 However, it is inherently biased against technological innovation, which from

an industry perspective, is very unattractive, and provides little ongoing incentive for

continuous improvement.

Chemical manufacturing is a complex process involving rapid technological change. As such, it

is not well suited to the imposition of highly prescriptive legislation, since technological

processes can quickly become outdated. Similarly, the failure under current uniform standards

to acknowledge differences among chemical producers, given that technological capacity and

sophistication necessarily vary with size and operational circumstances, 468 imposes

considerable excess costs without providing demonstrable additional environmental benefits.

The traditional command and control approach has been widely criticised for being too

expensive, for interfering too much in private initiative, and for having too many unintended

consequences.469 In the United States, these problems are exacerbated by medium-specific

statutes encouraging a "toxic shell game" which provide incentives simply to transfer hazards

from the most highly regulated to the least regulated medium. In that country, where the
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regulatory regime is also characterised by hostility, distrust and adversarialism, a further result

has been a "progression towards more costly, detailed and intrusive forms of regulation". 470

Certainly, there are some exceptions to this characterisation of chemical industry regulation:

recent experiments intended to transcend these problems. As indicated in chapter two, these

include attempts to provide greater flexibility and encourage innovation.471 These have received

a mixed reception, being praised by some for overcoming regulatory rigidity and for

encouraging pollution prevention, while being criticised by others for not going far enough, and

for not confronting the central problems of the traditional system. 472 The jury is still out these

initiatives. Exhortations from bodies such as the President's Council on Sustainable

Development's Chemical Operations Team for the greater use of economic incentives, self-

auditing, and risk-based standards are also only slowly and partially eliciting responses. 473

For example, although much has been written about economic instruments, they have so far

been used only to a very limited extent: the most obvious example being the acid rain allowance

trading provisions of the 1990 Clean Air Act amendments.474 In 1991, one commentator

admirably summarised the situation as follows: "For twenty years economic approaches have

played a minor role in air pollution control while a very complex command and control system

has evolved. When economic approaches have been used in the past they have been

discouragingly complex, which may explain the business community's reluctance to

participate".475 The position has only changed modestly since that date.476 Notwithstanding

some encouraging later successes with tradeable permits in Southern California 477 the

regulatory regime remains, in essence: "medium-specific, largely command and control,

technology-based, and highly prescriptive".478

Since the early 1970s, chemical industry regulation in Canada, most Western European nations

and Australia has also relied largely upon direct regulatory instruments such as prohibitions,

permit requirements, standards, and planning obligations.479 However, regulation in these

countries, (notwithstanding some significant differences of emphasis in individual jurisdictions)

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can be distinguished from the United States approach at a number of levels. First, the very

processes of rulemaking, standard setting and enforcement commonly involve much more

willingness to compromise and seek consensus than does the United States approach.480 Second,

medium-specific approaches are rapidly being replaced by more holistic and integrated

approaches, addressing all environmental media within a single statute, and (for individual

enterprises) under a single permit or licence.481 Third, (with the most notable exception of

Germany482) there is a greater emphasis on performance outcomes, leaving industry with greater

freedom in how to reach a particular environmental goal.483

Although Western European, Canadian and Australian chemical industry regulation is, by and

large, more responsive than its American counterpart, most governments also increasingly

recognise that direct regulation of the chemical industry is reaching the limits of its usefulness,

being "very costly to monitor, inspect and, when necessary, punish those organisations subject

to traditional environmental legislation".484 It is also acknowledged that often only minimum

environmental standards can be imposed and it is difficult to cover all environmental effects -

particularly since many new chemicals are invented and put onto the market each year.

Moreover, the sheer volume of regulation to which the chemical sector is subjected to can have

a considerable cumulative effect. For example, the German chemical industry (perhaps the

closest European country to the American model) is now subject to an estimated 2000 different

laws.485

A further criticism, even of the more flexible forms of chemical industry regulation, is that it

does not encourage continuous improvement. Once an enterprise has achieved the legally

prescribed standard (eg an emission concentration of no more than 100 parts per million) there

is no further incentive (unless the standard is anticipated to change) to further reduce the level

of emissions. For this reason, it has been argued that "we should be adopting an approach which

seeks to enhance industry competitiveness by driving or luring industry towards best practice,

not in a manner which requires or rewards Health, Safety and Environment (HSE) best practice,
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but by creating a regulatory environment which strives for and allows for excellence in HSE

outcomes".486

However, despite the growing recognition of the limitations of traditional styles of regulation,

European Union environmental regulatory reform is a recent process which, notwithstanding

the urgings of the European Union Fifth Action Program "Towards Sustainability", has

progressed slowly.487 For example, economic incentives did not play a significant role until the

1990s, and then only in limited areas.488 If there is indeed a trend away from command and

control towards "conduct regulation" such as voluntary agreements and economic instruments,

then it is still in its very early stages489 (although the Dutch have advanced substantially

further)490. Such is also the case in Canada491 and Australia.492

There has however, in almost all the countries under discussion, been a move to supplement,

command and control with information-based strategies such as CRTK provisions in the United

States,493 the Seveso and Seveso II Directives494 in Europe and the proposed introduction of a

National Pollutant Inventory in Australia. CRTK provisions, while applying to most categories

of industry, have particular implications for the chemical sector, revealing to the public in

graphic and measurable terms, the high percentage of total emissions contributed by that sector,

and by individual enterprises within in.495 The role of community participation is also growing.

This is being facilitated by access to information through the mechanisms described above. 496

Finally, and of very recent origin, both in Europe and the United States, have been attempts to

introduce process based regulation emphasising risk and accident management in respect of

uncontrolled release of hazardous substances. Both the Seveso II Directive 497 In the European

Union and the United States' rule on Risk Management Programs for Chemical Accidental

Release Prevention498 require establishment of systems to oversee implementation of risk

management program elements: a considerable shift of emphasis (albeit only in one particular

area) which "reflects a growing recognition of systems' importance in accident prevention

strategy"499 which we will pursue as a theme later in this chapter.

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To summarise: notwithstanding significant differences between the regulatory approaches of

different countries (and particularly between the United States and most other developed

counties) the regimes for controlling chemical industry pollution are in each case based

predominantly on forms of direct (usually command and control) regulation. Indeed, the

chemical industry, because of its diversity, has attracted a larger number of environmental

regulations than probably any other industry.500 All of these regimes are (though in varying

degrees) expensive, cumbersome, time consuming, inflexible and inefficient. 501 Moreover, they

do not encourage industry to go "beyond compliance" with existing standards. Notwithstanding

some significant improvements in recent years, the system of chemical industry regulation, still

leaves much to be desired, both from an environmental and an economic standpoint.

So where should we go next in terms of environmental policy? According to two leading

American commentators, we are: "poised on the threshold between two fundamentally different

stages in the evolution of environmental protection".502 In essence, they argue that the old

command and control way of regulating chemical manufacturing - complicated, reactive and

legalistic, - "does not allow management of the industry's activities in ways that are compatible

with nature and therefore sustainable" and has run its course. They go on to suggest that there

are currently too few tools to advance environmental policy to the next stage: "from protection

to management, that is, from protection to sustainability". We concur with this diagnosis, and in

the following sections, offer our prescriptions for a cure.

Redesigning regulation: towards efficient and effective policy instruments

In the following sections we put forward an alternative vision of chemical industry regulation.

We explore a range of alternative policy mechanisms, we suggest ways to design

complementary combinations of instruments, and we argue the need to harness the resources of

a broader range of institutional actors than has so far been the case.
 180

In doing so, it is useful to articulate how we apply our evaluation criteria to point source

pollution in the chemical sector. As indicated in chapter one, our main goals are achieving

efficiency and effectiveness, while acknowledging that a range of other objectives may also be

important in particular circumstances. While efficiency and effectiveness may commonly be

complementary objectives this is not always the case. Where conflicts exist and trade offs are

inevitable, we place efficiency first, because with point-source pollution (with some exceptions

concerning extremely hazardous chemicals) the environment has some assimilative

capability.503 We place pollution prevention before pollution control and end of pipe solutions

because the latter merely entrench unsustainable practices rather than encouraging industry to

pursue sustainability.504 We also recognise the importance not just of transparency and

accountability but also of direct community consultation and involvement in decision-making

("political acceptability" in terms of the criteria identified in chapter one), which, while it may

well achieve greater effectiveness, is unlikely to be viewed as "efficient" given the time

consuming nature of this task.

Finally, approaches which encourage polluters to go "beyond compliance" with existing

regulation, are preferred to those which aspire merely to prevent polluters dropping below the

legal standard. This is represented diagrammatically in diagram 1 below. The diagram

represents the likely range of responses to government environmental regulation by individual

firms. This range can be envisaged as a bell curve, with a small tail of laggards not meeting

minimum obligations, the bulk of firms located at or near minimum compliance and a small

group of leaders achieving substantially higher levels of environmental performance. 505

 181

LAGGARDS LEADERS

BEYOND
Number of COMPLIANCE
Organisations

MINIMUM COMPLIANCE
(current legal standard)
Source: Modified from John Muir-Smith, Minenco, Australia (1996).

In our view, the goal of chemical industry regulation should be not merely to get all companies

up to the minimum legal standard, but to facilitate and encourage companies to move far

beyond that standard - to encourage them to go "beyond compliance" and in the long term to

develop sustainable business practices. This should be achieved in ways that are flexible and

efficient and well as effective in environmental terms. For example, in a range of

circumstances, creative regulation can encourage industry to achieve productivity and other

gains in tandem with environmental improvements: the classic "win-win" scenario.506

We begin by examining some important innovations in chemical industry regulation. Such

regulation, as indeed environmental regulation more generally, is in transition. A number of

reforms are in the process of being introduced, while others glimmer on the regulatory horizon.

For the most part, these new approaches, at least in their present manifestations, fall far short of

delivering optimal policy outcomes. Nevertheless, most of them contain something of value and
 182

some contain the seeds of more fundamental change. Our approach is to begin with these

innovations and to identify their benefits and limitations before going beyond them to envision

the design of instruments and instrument mixes that take advantage of their strengths while

compensating for their weaknesses.

The two innovations we examine are: (1) self-regulation, and in particular, the Responsible

Care program; and (2) systems-based approaches to environmental management and regulation,

and in particular the International Standards Organisation's EMSs standard, ISO 14001.

Responsible Care is a self regulatory scheme designed for, and relating exclusively to, the

chemical industry. ISO 14001 is derivative of total quality management (TQM) and systems-

based approaches, and is designed for use in any industry sector. As a regulatory mechanism, it

can be viewed variously as a means of "privatising compliance", as a form of process-based

regulation and as a vehicle for achieving regulatory flexibility.507 All are attempts by industry to

extricate itself from the perceived disadvantages of command and control regulation, and to

design alternatives which are more flexible and appropriate to industry needs. 508 As such, they

represent radically different approaches to that provided by traditional regulatory regimes. Both

of these developments are already now, and in the future will remain, of fundamental

importance to chemical industry regulation across a wide variety of nations. As we shall see,

they also have considerable implications for the future of environmental regulation generally,

and might play crucial roles in broader regulatory mixes.

1. Self-regulation and Responsible Care

In the following sections we explore the implications for regulation of the Responsible Care

Program - an extremely ambitious and very broad self-regulatory scheme which is intended to

reduce chemical accidents and pollution and to involve the community in decision-making.

Responsible Care operates in forty-one countries and reaches around 88 percent of the global

chemical industry.509
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Our study is based on empirical work510 conducted in Australia (one of the first countries to

adopt Responsible Care), and to a lesser extent, in the United States and Canada. Many of its

conclusions are likely to be applicable to Responsible Care internationally. 511 Moreover, its

arguments may have a broader resonance for other schemes involving self-regulation, co-

regulation and innovative regulatory design, both in the environmental arena and in other areas

of regulatory policy.

There is a further reason for examining Responsible Care in some detail, namely that it is a self-

regulatory scheme of considerable breadth and scope. Proponents have described it as "the most

ambitious and comprehensive environmental, health and safety improvement effort ever

attempted by an industry",512 as "an outstanding model for voluntary industry efforts to promote

chemical risk management, fulfil the objectives outlined in Agenda 21, and complement
513
environment, health and safety regulatory processes" and as "a journey of profound cultural

change".514 Notwithstanding the dangers of overstatement (not least by the chemical industry

itself), there can be little doubt that Responsible Care is not only the single most advanced and

sophisticated scheme of self-regulation in the environmental area, but it is also one of the most

developed and far-reaching regimes of self-regulation to be found anywhere in the western

world.515 Indeed, in the view of many, Responsible Care is likely to be the blueprint for such

self-regulatory initiatives that may evolve in other industries in the future.516

What is Responsible Care?

Under Responsible Care, chemical companies commit themselves to the improvement of all

aspects of their performance which relate to protection of health, safety and the environment.

This includes a commitment to improving relations with customers and communities, product

use and overall operation. These goals are to be achieved by two basic mechanisms. The first is

the progressive establishment of a number of Codes of Practice. The precise contents of the

codes, notwithstanding a common core, varies somewhat from jurisdiction to jurisdiction. For

example, in Australia the codes cover: transportation; community awareness and emergency
 184

response; waste management; warehousing and storage; CRTK; product stewardship;

manufacturing; and research and development.517 These are intended to: "become the rules (in

addition to prevailing legislation) by which member companies operate. Adoption of these rules

and compliance with them is a condition of Council membership."518 All the codes reflect

industry best practice. Taken as a whole, most of the obligations implied by the codes could be

discharged through the adoption of a management system approach.519 However, they also go

beyond the adoption of such a system and embrace a broader ethic, implying broader

responsibilities, and embodied in a set of guiding principles. See box 1 below.

International Council of Chemical Associations (ICCA)

Responsible Care Principles

• a formal commitment on behalf of each company to a set of Guiding Principles signed,

in the majority of cases, by the chief executive officer,

• a series of codes, guidance notes and checklists to assist companies to implement the

commitment,

• the progressive development of indicators against which improvements in performance

can be measured,

• an ongoing process of communication on health, safety and environmental matters with

interested parties outside the industry,

• provision of fora in which companies can share views and exchange experience on

implementation of the commitment,

• adoption of a title and a logo which clearly identify national programmes as being

consistent with and part of the concept of RC,

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• consideration of how best to encourage all member companies to commit to and

participate in RC,

• systematic procedures to externally verify the implementation of the measurable

elements of RC by member companies.

Source: CEFIC, 1993, p 5.

Box 1

The second characteristic of Responsible Care is the commitment to community participation

and consultation. In Australia this is achieved principally through the establishment and

functioning of the National Community Advisory Panel (NCAP), in the United States by a

National Public Advisory Panel and in Canada by a National Advisory Panel. For example, the

Australian NCAP comprises: "a cross-section of individual community thought leaders with

particular concerns for environmental safety and health issues". 520 NCAP is intended to provide

a vehicle through which the public may play an integral role in shaping the Responsible Care

initiative. NCAP members review proposed codes of practice from a public interest perspective,

and they alert Australian Chemical Industry Council (ACIC) to other emerging issues of public

concern.521

Broader public involvement is also contemplated through efforts to accommodate the particular

needs of local communities adjacent to manufacturing sites. According to ACIC, specific Codes

and operating plans: "would be sensitive to community concerns, provide information on

possible hazards, encourage community involvement in emergency response planning and

establish a regular process of positive communication"522. The formation of Regional

Responsible Care groups is also encouraged. These groups: "progressively work towards

establishing links with local community associations, whilst sharing knowledge on their

progress with Responsible Care and the resources available for emergency response situations".
 186

In all jurisdictions, the scheme promises a commitment to genuine improvement which goes

"beyond compliance" with existing environmental legislation. As the European Chemical

Industry Association (CEFIC) summarises the Responsible Care commitment: "Chemical

Companies are committed in all aspects of safety, health and protection of the environment, to

seek continuous improvement in performance, to educate all staff, and work with customers and

communities regarding product use and overall operation".523

Can Responsible Care deliver smarter regulation?

The chemical industry has characteristics that could make Responsible Care one of the minority

of cases in which industry interest and public interest are sufficiently coincident for self-

regulation to be a viable regulatory strategy. Responsible Care is driven by the large,

transnational corporations which dominate the chemical industry internationally, 524 and, as we

will see, these companies have both the motivation and the capacity to implement the changes

to industry practice and culture that the scheme contemplates.

The broader context for industry's increased environmental sensitivity is the continuing and

serious decline of the public image of the industry, closely connected to a series of chemical

accidents and wider concerns about the costs of accidents525 and the health and environmental

effects of chemical production generally.526 Large multinational corporations are heavily reliant

on their corporate image for their commercial success. Union Carbide learnt this lesson the hard

way in the wake of the Bhopal disaster. More recently, Exxon also suffered disastrous public

relations consequences (not to mention massive financial liability) when the Exxon Valdez ran

aground in the previously pristine waters of Prince William Sound. Corporations can respond to

these sorts of misfortunes in a variety of ways. One relatively cheap solution is for a company

to disassociate from potential disasters related to its activities. In future, we are unlikely to see

many oil tankers emblazoned with the names of their transnational corporate owners, and

ownership itself may well devolve to subsidiaries, shelf companies or independent contractors.
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In the case of the chemical industry however, such cheap means of protecting corporate image

are not available to anything like the same extent. Chemical disasters (and even incidents

without serious consequences) tend to be highly visible and readily identified with individual

installations and their corporate owners. Large chemical corporations usually find that it is not

possible to improve the corporate image without changing the reality through improved

environmental performance.527 As one senior executive put it, during the 1980s, the major

chemical companies concluded they: "just [could not] advertise their way out of it".528

Of course, there is nothing to prevent individual companies from improving their own

environmental performance without invoking Responsible Care, and many of them are in the

process of doing so.529 Here, the main motivators may include not just improved corporate

image and community relations, but also competitive advantage and increased profitability.

Firms that take a proactive stance on the environment commonly save substantial sums of

money and thereby increase profit directly, for example through improved energy efficiency or

recycling.530 They may also develop the environmental technology to compete more effectively

in the global environmental technology market.

However, it is clear that individual initiatives will not be sufficient to give the industry as a

whole the credibility it badly needs to survive and prosper in the long term. As one industry

spokesman pointed out: "Du Pont and other majors can't rest on their accomplishments. They

need to recognise that any incident in the industry destroys the credibility of everyone."

Canadian Chemical Producers Association President (1991), Jean Belanger, notes that: "if a

paint company or a plating company does something wrong the headlines the next day will

scream that chemicals have been wrongly handled and so we will all be tarred by the same

brush". Such an incident also exposes the industry to tougher regulatory requirements, obstacles

to development and community backlash.

A series of such incidents serves to reinforce the industry's very poor public image and results

in a host of other problems. In the long-term, the chemical industry's very poor public image is
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likely to result in a loss of public support, a regulatory backlash, extreme difficulty in

persuading communities to accept new chemical installations in their locality, and a host of

other problems: "affecting everything from government relations to the recruitment of

managerial and scientific talent". As one industry spokesman put it: "Businesses can only

survive whilst they have society's acceptance for their activities. Once that acceptance is lost,

there is only one way to go".531 Without a change in public attitudes, the chemical industry’s

long term survival is under threat.

What this means in practical terms is that each company in the chemical industry must act as its

brother's keeper. Thus a mechanism must be found, nationally and internationally, which

enables the industry to continuously improve the environmental performance of all companies,

large and small. Such a mechanism must be capable of improving the industry's poor public

image,532 restoring public faith in the industry's integrity and taking the heat out of demands for

stricter government regulation.533 Most importantly, for present purposes, it might also serve as

a complete alternative to conventional government regulation, or failing that, at least as an

important complement to it. Big companies decided that that mechanism should be Responsible

Care. But is it up to that task?

Certainly the chemical manufacturers associations are in a stronger position than most such

bodies to exert pressure for environmental improvement, in part because the industry's

characteristics facilitate the development of "social capital": the development of "the features of

social organisation, such as networks, norms and trust, that facilitate coordination and

cooperation for mutual benefit".534 As Rees has demonstrated,535 the industry is an incestuous

one in which companies constantly deal with each other. Strategic alliances, product swapping

and technology transfers are the norm rather than the exception. Building on these

characteristics of the industry, the chemical industry associations, through Responsible Care,

have facilitated the development of trust amongst their members, creating an environment

within which people work together, share information, provide mutual aid and establish policy.
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Tangible manifestations of this include Responsible Care's leadership groups, 536 workshops,

mutual assistance network and implementation guides. As a result, "by increasing interpersonal

trust and reducing uncertainty, the development of community lowers transaction costs and

makes collective action easier".537

More broadly, Responsible Care has enabled the development of an industrial morality, a set of

norms which generate a sense of obligation, emphasising particular values and structuring choice.

Such a morality provides:

...a form of moral discourse capable of challenging conventional industry practices - "This

is the way we always do business around here" - including the economic assumptions

underlying many of those taken-for-granted policies and practices. In this way, an industrial

morality ...legitimises aspirations other than profit as a good reason for action. It establishes

an alternative moral vocabulary, a rhetoric of organisational motive that competes with (and

critiques) the native tongue of the business organisation, the language of profits and

losses."538

Within such a context, there is also considerable scope for peer group pressure to act as an

effective driver of corporate change. For example, the leadership groups in particular, fulfil this

role, bringing together representatives of a number of companies to share their experiences,

their progress, and, by implication, their lack of progress.539

Similarly, there is the potential for Responsible Care to act as a vehicle for corporate shaming540

through the spotlight of public exposure of a polluter's moral failings. Certainly the

performance indicators and verification mechanisms currently being adopted under Responsible

Care, (described below) could form the basis for identifying recalcitrants and exposing them to

the glare of adverse publicity. There is also some anecdotal evidence that to a modest extent,

such shaming already takes place through the leadership groups. In these ways, Responsible

Care provides a vehicle for informal social control: regulation from the inside ("moralising social

control"),541 rather than regulation from the outside (based on external constraint).
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Overall, the various Responsible Care mechanisms designed to develop mutual trust among

competitors, to facilitate mutual aid, information and technology sharing, peer support,

pressure, for corporate shaming and dialogue with local communities, the public and

governments, create a climate which can motivate and drive corporate executives to do far more

in terms of environmental performance than the law could credibly require. However, despite

its considerable potential and strengths, there are also many obstacles to the success of

Responsible Care. Of these, the largest is that environmental protection and private profit do

not necessarily coincide, and are not perceived to coincide, particularly given the emphasis of

most corporations on short term profitability.542 For both corporations and individual managers,

the essential dilemma is that they will be judged essentially on short term performance, and if

they cannot demonstrate tangible economic success in the here and now, there may be no longer

term to look forward to.543

Having said that, it is clear that some types of enterprise are in a far better position to take a

long term view and to achieve long term objectives than others and it is here that the distinction

between large and small enterprises becomes crucial.544 It is clear that those firms which are

economically marginal (generally some SMEs)545 cannot afford the luxury of a longer term

view. For them, the likelihood of sacrificing environmental concerns for short term profit (or

survival) is very high indeed. Many firms must also be most heavily reliant on old, inefficient

plant and as a result, most commonly emit the greatest amounts of pollution. It is usually far

more expensive to retrofit such plant with advanced pollution technology than it is to

incorporate state of the art environmental technology into new plant.546

In contrast, in circumstances where companies have substantially higher profit margins and

rapidly changing or advanced technology, they are in a far better position to take environmental

initiatives which yield only long term dividends. Larger enterprises and transnationals in

particular, by virtue of their market share and other advantages, can usually afford to consider a

range of goals in addition to short term profits.547 These include the pursuit of long term
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strategies of enlightened self-interest. They routinely ask: where do we want to be in ten years

time? This connects closely to the question: what are the chemical industry's prospects in the

same time frame?

Thus there is a broad divide between the interests, attitudes and capabilities of large and small

firms when it comes to environmental protection and implementing Responsible Care. In

essence, for large corporations with a high public profile, the consequences of a poor

environmental record are likely to be both substantial and visible, making environment a high

corporate priority which they have both the technological capacity and the economic resources

to address. In contrast, many smaller enterprises do not have a public profile (they may indeed

never deal with the public directly) and their reputation and profitability may be far less

affected by a poor environmental record. Their capacity to address such problems is also often

very limited, given the economic and technological constraints within which many of them

operate.548 Indeed, as one industry respondent put it: "Once organisations start to apply the

codes of practice it hits home how much work is involved. It's OK for large companies like "X"

which is well down the track anyway, but a lot of cost and effort for many other companies."

Another industry respondent in Australia put it more bluntly: "Once they realise it will cost the

industry three billion dollars, they'll drop it like a hot brick." There is considerable empirical

support for this view, including, in Australia, the fact that the Chemical Specialty

Manufacturers Association (ACSMA) which represents many of the smaller companies has

withdrawn completely from Responsible Care, citing in part, the excessive costs and burdens

that the program would impose on its members.

The divergence of interests between large and small enterprises raises the first of two very

serious obstacles confronting the success of Responsible Care: how to overcome what are

known as "free-rider" and "mutual assurance" problems, or, generically, as problems of

collective action. Left to their own devices, many small companies will continue to inflict

substantial environmental damage, which may well in itself defeat Responsible Care’s attempt
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to improve the image of the chemical industry as a whole. If a significant number of smaller

companies do not comply, then large companies lose much of the incentive to continue their

own voluntary action. If the public fails to distinguish 'good' and 'bad' companies, but rather

blames the industry as a whole, for the sins of the worst transgressors, then environmentally

responsible companies will suffer the stigma, lack of credibility and public backlash caused by

the misdeeds of non-complying companies. As a result, any company spending on Responsible

Care, other than as a matter of immediate self-interest (which may include its "green"

credentials), puts itself at a competitive disadvantage to its more pragmatic rivals, who may

continue to pay lip-service to Responsible Care, but do little to further its long term ends; in

effect, "free-riding" on the efforts of others.549 At the very least, firms are likely to defect from

the scheme unless either free-riding can be prevented, or firms can be given the necessary

assurance that others will contribute their fair share ("mutual assurance").550

However, even the resolution of the collective action problem (ie overcoming free-riding and

mutual assurance issues) will not in and of itself guarantee the fulfilment of Responsible Care’s

fundamental objective - to change industry behaviour in ways that secure the trust and

confidence of the public. The second obstacle involves the core problems that beset many self-

regulatory schemes - namely that they involve regulation of the industry, by the industry, for the

industry, often coupled with limited transparency and accountability. In the case of Responsible

Care, we will argue that the "credibility obstacle" will be insurmountable unless mechanisms

are put in place that manifestly give the scheme teeth, and allow for transparency and effective

government and third party oversight.

At least in its first phase (until approximately 1996), Responsible Care was based exclusively

on self-monitoring and self-reporting. Individual companies evaluate their own performance in

complying with the codes of practice using mandatory agreed assessment procedures. 551 In

terms of enforcement, if moral pressure from peers and the ACIC is ineffective, then "in cases

where members clearly disregard their obligations in respect of Responsible Care and
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government expectations, their membership can be terminated".552 However, on the basis of

behaviour of the industry associations which administer Responsible Care, to date, the

likelihood of expulsion is extremely low553 As one of our respondents put it: "the biggest

problem with Responsible Care is there are no bodies": no one whom the industry association

has demonstrably taken disciplinary action against. And even if a member is expelled, it can

still exist profitably outside of the industry association. Some chemical industry associations

indeed, will not even disclose the identity of a firm that withdraws from Responsible Care, and

therefore from the association.

This structure raises in stark form, the crucial issue of accountability. As Peter Sandman (1991)

notes:

The chemical industry is long past the time when it can say we're doing x, y and z, and have

people take its word for it... While there is certainly more accountability in Responsible

Care than in other industry programs, there is still not enough teeth in it. 554

Put crudely, while companies are allowed to grade their own exam papers, there is an obvious

temptation to fudge the results of their own internal monitoring, and even in the unlikely event

that they fail themselves, there are no credible sanctions.

As a result of these limitations, Responsible Care will almost certainly fail to overcome either

the collective action/mutual assurance problems or the public trust problems identified above.

In terms of collective action, there is overwhelming evidence that moral suasion alone will be

insufficient to bring about effective self-regulation. With nothing to guarantee or enforce the

commitment of firms to the self-regulatory scheme, some firms will inevitably defect, and when

they do so, the entire social contract on which the agreement of the majority is based is

undermined.555 In these circumstances, firms that comply with Responsible Care risk putting

themselves at a competitive disadvantage as against those who do not. The free-rider problems

are overwhelming. In terms of gaining public acceptance and credibility, Responsible Care is at
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present, equally unconvincing, not only because it lacks effective strategies for monitoring and

enforcement but also because of a serious failure to engage the public in dialogue about its

concerns. Industry's progress might usefully be charted according to the categorisation

developed by Peter Sandman.556 At stage one (the Stonewall stage) the industry builds a stone

wall between itself and the public - maintaining that it knows best, that the public

misunderstands chemical risks and that there is nothing to talk about. At stage two (the

Missionary stage) the industry goes out to educate people about chemicals and chemical risks -

in effect trying to teach people they were wrong about the chemical industry. Finally, at stage

three (the Dialogue stage) the chemical industry openly acknowledges that it does have

problems and faults, and is prepared both to provide full information and to listen (a genuine

dialogue) rather than talk at the community. On current experience, the industry is now onto the

Missionary stage, but occasionally regresses to the Stonewall stage.

Related to this, the industry remains locked into a scientific paradigm which does not connect

well to the concerns and values of the groups they are seeking to influence. One commentator

has correctly characterised Responsible Care as representing "the traditional views of an

industry with strongly embedded roots in science and the laboratory as the source of truth and

correctness".557 It is argued that, so long as the industry remains convinced that its own

knowledge and expertise is the best, or indeed the only rational way to view the world, then it is

destined to fail in its quest to gain the trust of the various publics to which it appeals.

A number of other serious problems threaten Responsible Care's progress. These include: first,

the fierce opposition of some of the industry associations responsible for implementing

Responsible Care to any kind of government regulation (limiting constructive co-regulation);

second, the failure of many individual companies to act in the spirit of CRTK and of some to

honour their broader Responsible Care commitments; and finally, the relative ignorance of

many small companies, or even middle management and workers of large companies, of what

Responsible Care required of them.558

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Of these, probably the most serious problem is the first. The large majority of non-industry

respondents interviewed for this study were of the view that the chemical industry associations,

whether in Australia or North America, continue to behave largely as trade associations are

prone to behave - as lobbyists, committed to defending the sectoral interests of the industry as

narrowly defined by the most conservative element of the membership. As one industry

observer put it:

...they think they’re reflecting the members’ views but they always go for the lowest

common denominator. That way they’re less likely to be criticised by the membership. It’s

safer to be conservative... its safer to take a lowest common denominator approach.

Such an approach includes resisting proposed government regulation, on behalf of the

membership.559 This raises serious questions as to whether the association responsible for

industry public relations and for advocacy can credibly advance the Responsible Care

philosophy. As one government regulator in the United States put it: "Responsible Care is an

important initiative but the CMA is absolutely the worst body to implement it." 560

However, although Responsible Care in its present form is unlikely to deliver the environmental

benefits it promised, this is no reason for rejecting the scheme in its entirety. To do so would

"be to throw the baby out with the bathwater". For despite its flaws, Responsible Care has some

considerable virtues, and remains one of the most sophisticated and advanced self-regulatory

schemes yet developed. The codes of practice, by comparison with most other such schemes,

are both detailed and far-reaching in their effects. There is some genuine coincidence between

the self-interest of the industry in securing its long term future, and the public interest in

environmental protection, and many large and influential companies would indeed wish the

scheme to succeed. Mechanisms for nurturing peer group pressure, for sharing environmental

technology and for developing trust, and also substantially advanced under Responsible Care.

Finally, it has the traditional virtues which self-regulation claims over command and control
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regulation: flexibility, lower costs, and the capacity to encourage cost-effective industry

responses.

And Responsible Care has already delivered some important benefits. Certainly, there is

evidence of substantial emissions reductions and of continual improvement (as judged by

emissions reductions measured by the United States TRI561 and by the Canadian National

Pollutant Release Inventory),562 an increase in community involvement and in external

evaluation.563 There is also empirical evidence suggesting that Responsible Care has prompted

some important changes in firm organisation and practices, and in some cases values. While the

response of Responsible Care firms is not uniform, there seems to be more interaction and

involvement in environmental issues of corporate managers not typically responsible for

environmental management, more interaction with local communities on environmental

concerns, and greater discourse with distributors concerning expectations about how their

products should be handled and transported. Responsible Care seemingly also provides more

leverage to community relations and plant managers seeking support for outreach and

environmental activities. On the other hand, it has not resulted in ongoing dialogue with

environmental groups, training in Responsible Care principles is not widespread, and is

seemingly ineffective below management level, and it has not penetrated to product design.

And rather than transforming the industry's environmental approach, Responsible Care has

served to formalise and institutionalise existing environmental activities. Finally, some of the

changes in industry behaviour which the industry associations attribute to Responsible Care,

might have come about anyway as a result of other developments.564 Overall, the record is a

very mixed one.565

In our view, although Responsible Care may have so many limitations that it is not appropriate

for use as a "stand alone" or single instrument of environmental protection, it may still make an

important contribution, achieving far more than conventional regulatory approaches, provided it

is used in an integrated strategy in conjunction with other instruments and a broader range of
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institutional actors. Precisely how Responsible Care might be contribute towards an optimal

policy mix for the chemical industry sector, is the subject of the following sections. But first,

we examine a parallel development, the growth of EMSs, and their relationship with regulation.

2. Environmental Management Systems (EMSs) and ISO 14001

Put broadly, EMSs provide a framework for companies to identify, evaluate and manage their

environmental risks, enabling them to take a systematic and integrated approach to

environmental management. Within that framework, companies introduce their own policies,

objectives, programs, measurement and assessment methodologies. As we have seen,

Responsible Care itself, includes what is essentially a management system, though it also

covers a great deal more, (not least product stewardship, community dialogue, chemical

distribution and transport safety and various institutional mechanisms to facilitate technological

transfer, mutual support, peer group pressure and environmental leadership).

By the mid 1990s, EMSs had become an important policy tool, enthusiastically embraced by a

range of international, regional and national bodies, all seeking to develop "off the peg"

management system standards.566 The reasons for this enthusiasm are not hard to identify.

There is mounting evidence that poor environmental performance is attributable to system

failure more than individual failure.567 The underlying causes of most breaches of health, safety

and environmental standards are to be found in factors such as lack of accountability,

inadequate monitoring of performance, failures of communication, poor training and badly

maintained equipment: all indicators of a failure to pay systemic attention to environmental

performance and to take the policy, organisational and administrative measures necessary for

sustained improvement.

EMSs hold out the promise of overcoming such organisational pathologies. A range of studies

suggest that those enterprises that adopt such systems can achieve impressive outcomes in

terms of environmental performance.568 Approaches based on techniques of TQM,569 are

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claimed to be particularly successful. For example, the Global Environmental Management

Initiative (GEMI) and a sub-committee of the President’s Commission on Environmental

Quality570 have both examined the relationship between TQM and improved environmental

performance.571 On the basis of a number of sophisticated case studies, the latter concluded

that: "TQM and Pollution Prevention are complementary concepts" and that: "TQM offers an

approach that all companies can use to achieve environmental improvements".572 It went on to

document in considerable detail precisely how TQM tools could be applied to environmental

issues.573

Worldwide, the most important development towards an EMS approach has been the

introduction of the International Standards Organisation's ISO 14000 series of standards, and in

particular the environmental management standard, ISO 14001 (and in the European Union, the

similar but far from identical Eco-Management and Audit Scheme (EMAS)). ISO 14001 is a

voluntary standard which is still in its infancy, having been formally endorsed in 1996 and

gradually implemented over the next few years. Many fundamentally important questions about

the role of this standard are still being addressed. As we shall see, amongst these is the

appropriate relationship between ISO 14001 and environmental regulation.

ISO 14001 is based substantially on the ISO 9000 series on quality management. In broad

terms, it calls for an understanding and identification of significant environmental issues, the

setting of targets, monitoring of progress and continual review of how well the system is

working. It involves documentation control, management system auditing, operational control,

control of records, management policies, training, statistical techniques, and corrective and

preventive action (see table 1 below). Companies may seek third party certification to this

standard if they so wish but are not bound to do so. They may simply use the standard for

internal purposes. External pressures, rather than the ISO itself, will determine whether to seek

certification.
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Table 1

ISO 14001 Environmental Management System Elements

1 Environmental policy

2 Planning

2.1 Environmental aspects

2.2 Legal and other requirements

2.3 Objectives and targets

2.4 Environmental management program(s)

3 Implementation and operation

3.1 Structure and responsibility

3.2 Training, awareness and competence

3.3 Communication

3.4 Environmental management system documentation

3.5 Document control

3.6 Operational control

3.7 Emergency preparedness and response

4 Checking and corrective action

4.1 Monitoring and measurement

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4.2 Non-conformance and corrective and preventive action

4.3 Records

4.4 Environmental management system audit

5 Management review

A particular attraction of this type of systems-based approach is its perceived capacity to move

corporate thinking on environment from the sort of compartmentalisation, that characterised the

earlier generation of pollution control (vertical standards addressing discrete areas of activity),

to a horizontal standard that cuts across the functions of the organisation and integrates

environmental considerations with other corporate functions. Under the latter approach: "cost,

efficiency, productivity and environmental performance all become part of the same decision

making process".574

Moreover, when incorporated into regulation, a systems approach, unlike traditional command

and control, can encourage continual improvement and environmental stewardship on the part

of industry, and a commitment to go "beyond compliance" with existing regulation. 575 It also

enables firms to devise their own ways to reduce or prevent pollution rather than being

constrained by prescriptive government regulations. More broadly, proponents claim than

systems-based standards can change the culture of participating enterprises as regards to

environmental protection.

Whether in practice, systems-based approaches to regulation deliver such substantial benefits

depends greatly upon the characteristics of the management system itself, on the effectiveness

of its implementation, on the political context and upon a variety of other factors which we

examine below through the lens of the ISO 14001 standard. In doing so, we recognise that ISO

14001 is certainly not the only EMS on offer and very possibly not even the best (as we will see

below, EMAS is in some respects, much more ambitious). It is nevertheless the single
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management system recognised internationally and the basis on which regulators are most

likely to build: overcoming its limitations by adding further components under a process

becoming known as "ISO Plus".

Can ISO 14001 deliver smarter regulation?

ISO 14001 need not be used as a regulatory instrument. Indeed it was designed principally as a

management tool to improve environmental performance, and at least initially, ISO certification

will be used principally to gain an advantage in the international market, where major

corporations are likely to insist upon certification as a condition of trade. However, many

organisations and their representative bodies do see the ISO standard as having regulatory

implications. This perspective is not confined to any particular country or industry sector.

Throughout the developed world, there is a considerable industry push for an easing of the

regulatory burden. ISO 14001 is seen to provide a considerable opportunity to bring this

about.576 Many regulators too, see attractions in using EMSs as a regulatory tool, both because

it promises better environmental outcomes, and because it would place less demands on

regulatory resources.

There are a variety of ways in which ISO 14001 might be used either to replace or to

complement government regulation.577 We will see below how international standards can serve

as the basis for environmentally preferable commercial influences. But in general, by far the

most important would be its capacity to serve as a surrogate for conventional command and

control regulation: in effect acting as a form of process-based regulation which would provide

regulatees with considerable autonomy. By this we mean that companies which committed

themselves to implementation of ISO 14001 (and the internal company processes and systems it

implies) would be exempted from all or part of the regulatory requirements that would

otherwise be imposed. For example, a firm which committed itself to adopt ISO 14001 and to

meet certain other requirements (perhaps involving community consultation and disclosure of

regular environmental audits) might be granted licence fee reductions, an easing off or waiver
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of regular inspections, or even (most contentious of all) exemption from the sort of detailed

prescriptive requirements that characterise United States environmental regulation in particular.

This result might be achieved by legislation, as a term of a licence or permit, 578 or through an

environmental covenant.579 The result might be viewed either as a shift from prescriptive

regulation to regulatory flexibility implying de facto "privatisation of compliance". As one

major player put it: "Environmental management systems [standards] are an opportunity for

moving from the command and control and punish regulatory approach to one of self-

responsibility and co-operation".580

Unsurprisingly, there is considerable support from industry, across a range of developed

nations, for this sort of approach.581 In Europe, the hope of the chemical industry is that those

who adopt EMS under either ISO 14001 or under EMAS (with ISO 14001 as a component part

of it), coupled with third party certification, will in return be offered a relaxation of

conventional regulation by government.582 Similarly in the United States, so strong has been the

push for regulatory flexibility in return for ISO certification, that the CMA has suggested that

"alternatives to command and control - possible regulatory relief from inspections, and

reporting- will be a bigger pull [towards certified EMS] in the United States than market

pull".583

In essence, this is a plea for substantial decrease in the state's role in regulation. On the positive

side, those who argue for this approach are correct that it is the enterprise itself that has the

greatest capacity for making a systems approach work to optimal effect. Moreover, enterprises

are more committed to rules they write and enforce themselves, and such rules can be tailored

to match each enterprise's needs and functions.584 Given extremely limited inspectoral

resources, process-based regulation devolved largely to the industry itself, may seem an

attractive means of monitoring environmental performance on a continuous basis. However, as

indicated earlier in this chapter, experience suggests that regulation entrusted to the industry

itself, without outside scrutiny or oversight, is rarely capable either of overcoming the gap
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between public and private interest, or of providing the credibility necessary for public

acceptance.

There are three reasons why ISO 14001 (at least without some forms of external reinforcement)

is likely to be less than adequate as a regulatory tool. First, it suffers from a number of serious

internal weaknesses, consequent largely on the political compromises involved in its

inception.585 Second, there are serious risks of implementation failure. Third, the costs of

implementing ISO 14001 may exceed the economic benefits, at least in the short term, leaving

firms who are offered benefits for embracing it (eg regulatory flexibility) with a temptation to

merely "go through the motions". Moreover, unlike Responsible Care, there is no industry

association or peer group pressure to drive genuine environmental improvements. Turning first

to ISO 14001's internal weaknesses, there can be summarised as follows:

• Except for committing to continual improvement and demonstrating a commitment to

compliance with applicable legislation and regulations, the standard does not establish

absolute requirements for environmental performance. The result will be that companies

with widely differing levels of environmental performance, even within the same industry

sector, may all establish a management system that complies with ISO 14001. As Joe

Cascio, Chair of the United States Technical Advisory Group to ISO Technical Committee

207, puts it: "ISO 14000 isn't about compliance, it's about management. It will make no

statement regarding what is desirable for the environment. Neither will it lay out

environmental goals, performance levels or technology specifications." 586

• Even the commitment to continual improvement must not be taken too seriously, since the

standard states that: "The rate and extent of [continual improvement] will be determined by

the organisation in the light of economic and other circumstances ...the establishment and

operation of an EMS will not in itself, necessarily result in an immediate reduction of

adverse environmental impact". Moreover, ISO does not require a commitment to pollution
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prevention but only "prevention of pollution" which is a term of art with a much narrower

meaning.587

• Where conformance by a third party is sought,588 its credibility will depend substantially

upon the qualifications and approach of the third party certification bodies responsible for

verifying compliance of an enterprise's EMS against the requirements of ISO 14001. 589

There is a serious danger that many auditors, whose principal training does not relate to

environment, but who have either a systems or a quality assurance background, will simply

bring their existing skills (and limitations) to accrediting and auditing ISO 14001. This may

easily result in a "box ticking" mentality, and a mechanistic approach which ignores or

downplays important areas which only professional judgment, is capable of identifying. 590

• ISO 14001 does not require firms to make public their progress in attaining the objectives and

targets they set under the standard. In contrast, it is a requirement under the EMAS for

participating firms to provide a regular environmental statement detailing their activities, the

major environmental issues these activities raise, a summary of pollution emissions and waste

generation, and an evaluation of overall environmental performance.591 Taken together, the

verifiers' seal of approval and the validated environmental statement provide the public with

two important indicators of, and insights into, the performance of registered companies. The

lack of any comparable mechanism under ISO 14001 is a striking omission in terms of

transparency and accountability.592 ISO 14001 is similarly deficient in its lack of any

credible requirement for genuine dialogue with the community.593

• As a change agent, ISO 14001 is limited by the fact that all normative, or visionary (ie

consciousness changing) material has been removed from its content at the drafting stage.

The result is that "companies are told to develop objectives and targets, but given no vision

of the kind of world that would emerge through meeting these objectives. Admonitions to

include environment among the highest priorities of the firm are tempered with
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qualifications about limiting the boundaries of concern to legal requirements".594 There is,

for example, only one reference to sustainability in the entire document.

There is no requirement, but merely an option, for an independent third party audit under ISO

14001.595 This is particularly unfortunate, given the evidence (based on the experience of

companies registering under BS7750 or EMAS), that external audits have very considerable

value.596 Under EMAS, third party verifiers have found That: "many errors in the calculation

and measurement of the factual data presented in environmental statements"597 further

underscore the unreliability of anything short of independent oversight. Whether commercial

pressures will push most companies to seek third party audit rather than self-audit, remains to

be seen.

The second problem is that, against the success stories concerning the contribution of EMS

described earlier, must be balanced the evidence that these benefits can only be obtained if the

system is properly implemented. Indeed, superficial or tokenistic attempts to introduce an EMS

may well be totally ineffective and even counterproductive.598 The evidence suggests that any

enterprise planning to introduce a TQM system for the control of environmental degradation

will need:

• Top down integration with the normal business planning cycle;

• Compatibility with the corporate environmental direction and priorities;

• Meaningful participation by all levels of the organisation in plan development;

• Review and correction processes at appropriate organisational levels;

• Planned activities that result in meaningful and measurable tasks and targets at the

individual level, forming part of the annual staff performance appraisal; and

• Regular review of plans to ensure adequate completion.599

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However, the successful incorporation of all these elements into an EMS is problematic, and

the dangers of implementation failure must not be underestimated.600 For example, TQM

presents a challenge to conventional management techniques. A lack of understanding, or more

likely, a lack of commitment (in terms of effort or finance) to the TQM process amongst

management will seriously reduce the likelihood of success. There is also the serious possibility

that in some circumstances at least, enterprises lack the commitment to overcome the initial

implementation difficulties - an issue we return to below.

Finally, ISO 14001 has less chance of functioning as an effective self-regulatory or co-

regulatory mechanism than does Responsible Care. Responsible Care is structurally, very

different from ISO 14001. In the case of the former, the major players came to the conclusion

that "we are only as strong as our weakest link" because a major disaster caused by any one of

their members would taint the others and seriously damage the future of the entire industry. So

the industry as a whole has an interest in making self-regulation work across the entire industry

sector. Moreover, it has developed a sophisticated set of mechanisms at industry association

level (albeit inadequate) for the purposes of delivering such sector wide self-regulation, and for

policing the performance of recalcitrants.

None of this is the case with ISO 14001, which is intended for use by individual enterprises,

with no wider goal of improving environmental performance across an entire industry sector,

and with no mechanism for achieving the latter goal. Some of those to whom it is targeted will

have a self-interest in adopting such a system and improving their environmental performance

voluntarily. The promise of greater cost efficiencies, of developing and marketing globally, new

environmental technology, or the public relations advantages of environmental leadership may

be sufficient in some circumstances. However, commonly they will not. For the similar reasons

to those we identified earlier in respect of Responsible Care, the gap between short term

objectives, including profit maximisation, and long term environmental goals, will be too large.

Specifically, there are many circumstances under which the economic benefits of investing in
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environmental protection are tenuous or non-existent, and where the costs to business of

implementing environmental protection measures (including effective EMSs) will not be offset by

any resulting savings from improved economic performance.601 This leaves firms with the

temptation to adopt ISO 14001 in order to gain the benefits of regulatory flexibility, public

relations benefits or both, without committing the resources necessary to deliver improved

environmental performance.

From all of the above one might reasonably conclude that EMSs, used as a regulatory tool,

provides both opportunities and challenges. The opportunities are that, when systems work

effectively, they can achieve far greater leaps in environmental performance than are

imaginable under conventional regulation - delivering continual improvement, transforming the

culture of an organisation towards its environmental responsibilities, and taking it beyond

compliance with its legal duties. Moreover, because systems address environmental issues very

broadly, they will encourage companies to address even many environmental problems which

fall between the gaps of existing environmental regulations - in itself a very considerable

advantage over conventional regulation.

The challenge is that these gains are not easily achieved. These are considerable pitfalls, not

least the dangers that firms pay develop mere "paper systems" which serve the cynical function

of keeping the regulators off their backs without delivering the promised environmental

benefits, and that even some of those who are genuinely committed to this approach may falter

at the point of implementation, again failing to deliver environmental outcomes and perhaps

falling below the line set by conventional regulation. As with Responsible Care, the challenge

for policy design and regulatory strategy is to find ways of harnessing the considerable promise

of this initiative without succumbing to its limitations.

ISO 14001 is the outcome of hard fought negotiations at the international level. Given the depth

of the divisions between the United States and the European Union on this issue,602 the present

compromise seems unlikely to be renegotiated, at least for some considerable time ahead.
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However, the limitations of ISO 14001 need not constrain regulatory reformers. It is entirely

realistic to design more flexible, system-based regulation for leading enterprises specifying

parameters far more demanding than those contained in ISO 14001 itself (ie "ISO Plus"). In this

way, enterprises that wished to go beyond compliance with existing laws could be offered a

more flexible, cost effective systems-based alternative, of which an "off the peg" management

system (including, but not limited to, ISO 14001) could form a part, but not the whole.

In this context it is important to note that in the chemical industry sector, considerable thought

has already gone into means by which the management system and verification components of

Responsible Care might be integrated with the requirements of ISO 14001, thereby avoiding

duplication. For example, a number of companies have carried out "gap" analyses to see what

they would have to do under their existing, (Responsible Care driven) management systems to

qualify for ISO 14001. There appears to be an emerging consensus that ISO 14001 can be seen

as complementary to, and integrated with, Responsible Care (see box 2 below) and that ISO

may be used to implement Responsible Care objectives.603

Box 2

Comparing ISO 14001 and Responsible Care

• ISO 14001, like ISO 9001, 2 and 3 is largely about documentation and document

control.

• ISO 14001 covers about 20% of the 152 code elements of the Canadian Chemical

Producers Association's (CCPA’s) Responsible Care, but does not address: employee

health and safety; community involvement; Product Stewardship; second party

assessments; new product development; transportation; former sites; proactivity in

public policy development.

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• CCPA’s Responsible Care guiding principles, policies, codes and programmes cover

and exceed⎯in intent⎯all of the elements of ISO 14001.

• ISO 14001 is much more prescriptive than Responsible Care in the areas of: elements

of an environmental policy; environmental training; inventories; environmental aspects

of operations; document control procedures; management roles and responsibility; the

need for setting environmental targets.

• ISO 14001 is designed so that auditors with widely varying backgrounds and

experience can consistently audit a wide range of organisations against a clearly

defined standard.

• CCPA’s Responsible Care verification process is a much more subjective evaluation of

how a company has applied the ethic in its: standard setting, or benchmarking,

processes and rationale; documentation systems; auditing processes; resourcing.

• ISO 14001 has the potential to provide added value to CCPA members above what they

might choose to do for compliance with phase one of Responsible Care. It can be used

as a benchmark for environmental management systems as well as a tool for continuous

improvement of a company’s EMS process.

Source: Canadian Chemical Manufacturers Association, Primer on Responsible Care and

ISO 14001.

The following sections explore the questions of how to design regulation appropriate for those

who choose to adopt either a systems-based approach such as ISO 14001 or sign onto

Responsible Care (or both). How can regulators maximise the advantages of ISO 14001 (or

similar management systems approaches) or Responsible Care, while compensating for their

weaknesses? How best, can regulators move from adversarialism to partnership and from

prescriptive to flexible and responsive regulation?

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Towards a broader policy mix

So far we have argued that traditional approaches to chemical industry regulation have serious

shortcomings, both for the industry itself and for the environment. Two major initiatives have

evolved: Responsible Care, which is essentially a form of industry association driven self-

regulation, and ISO 14001 (and similar standards) which is a management systems approach,

functioning at the level of the individual enterprise. If integrated into a regulatory scheme, ISO

14001 would best be categorised as a form of process-based regulation, as an alternative means

of achieving compliance implying considerable "regulatory privatisation". Both Responsible

Care and ISO 14001 have a claimed capacity to transcend the limitations of traditional

approaches yet, as we have seen, they are also beset with problems so serious that in their

present form, and functioning in isolation, neither is likely to deliver substantial environmental

benefits.

However, this is far from being the end of the story. In this section we argue that both of these

mechanisms have the potential to make a substantial contribution to environmental policy, and

to take the chemical industry "beyond compliance" with existing legislation and towards

sustainability, provided they are integrated into a broader policy mix. Our next task is to

identify the appropriate ingredients of that mix and how they may best be combined to achieve

optimal economic and environmental outcomes. In doing so, we hope to demonstrate that

despite the different origins and different (but overlapping) purposes of Responsible Care and

ISO 14001, the means of overcoming their weaknesses and of building on their strengths, have

much in common.

In redesigning regulation, it is important to recognise that chemical companies are not alike,

and that different strategies, and mixes, will be appropriate for different types of enterprise, and

circumstances. As indicated earlier, chemical companies fall into one of three broad categories.

First, there are the enterprises, many of them transnational corporations, which manufacture

and supply chemicals on a large scale. These enterprises are sophisticated and profitable. They
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have substantial plants, are readily identifiable, and have a high public profile. They have both

the capacity and the inclination to think proactively and to recognise the close link between

their own future and that of the industry. They recognise, in Joe Rees' (1994) terms, that they

are "hostages to each other."604 Second, there are the small suppliers and buyers who both lack

sophistication and size and are closely integrated with and highly dependent upon the first

category of companies for their survival. Third, are the specialty chemical manufacturers,

independent operators usually using batch rather than continuous processes, and who fill

market niches and develop new products, responding quickly to customer specifications. 605

These companies undertake some, but by no means all, of their work, as subcontractors for the

larger companies.

We examine strategies for dealing with each group in turn, beginning with the most important,

the large corporations which make up the large majority of signatories to Responsible Care and

the group which, by reason of size, is the most likely to consider utilising a management

systems approach under ISO 14001.

Strategies for regulating large chemical companies

Large chemical corporations have long complained that traditional regulation is seriously

flawed and in particular, that it does not facilitate their achieving improved environmental

performance at least cost. Viewed as regulatory instruments, both Responsible Care and ISO

14001 are seen by their proponents as mechanisms which can effectively mitigate this problem.

While it is unlikely that either mechanism could completely substitute for government

regulation, each might nevertheless form the justification for a considerable easing of the

regulatory burden (hereafter referred to as "regulatory flexibility"). Thus in each case, it is

contemplated that business which commits itself to adopting Responsible Care or to

implementing ISO 14001 would be given considerable autonomy as regards how it achieves

improved environmental performance. The central vehicle intended to ensure that such
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improvement does indeed result, is the implementation of an EMS - this is the essence of ISO

14001 and an important means of discharging key components of Responsible Care (though

Responsible Care, also emphasises community involvement, product stewardship and an

environmental ethic promoted by the industry association).

If commitment to implement a management system were to substantially replace the

requirements of conventional regulation, then participating enterprises would be given the

flexibility of approach which large business in particular, has long called for as necessary to

achieve cost-effective environmental performance.606 Moreover, as we have indicated above,

EMSs, whether under Responsible care or ISO 14001 have the potential to achieve continuous

improvement in environmental performance, to entrench environmental considerations within

the decision-making structure, and to take enterprises "beyond compliance" with existing

regulation. Finally, by transferring considerable responsibility from the regulator to the

enterprise itself, this approach has considerable benefits to regulators in terms of freeing up

scarce resources. The result would be "regulating at a distance" without the heavy hand of

highly directive regulation that has characterised past regulator-regulatee interactions.

All this should be attractive on all sides: to enterprises (in terms of autonomy and achieving

cost effectiveness) and to regulators, policymakers and environmentalists in terms of better

environmental outcomes (with fewer regulatory resources). Yet there are considerable pitfalls

in this approach which we have indicated above. Perhaps the greatest danger is that some firms

may be tempted to adopt Responsible Care or ISO 14001 to get the regulators off their backs, to

gain the benefits of incentives offered for adopting such systems, to obtain public relations

benefits or all of the above.607 The result may be tokenism and a proliferation of perfunctory

"paper systems" that have little benefit in terms of improved environmental performance. Even

worse, it may be very difficult for regulators to distinguish between paper systems and the real

thing. Even some enterprises which genuinely embrace a management system approach may do
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so ineffectively, again failing to deliver the promised environmental outcomes. There are also

specific problems with ISO 14001, described in the previous section, to which we will return.

Thus proposals for regulatory flexibility implying a considerable degree of autonomy and self-

regulation (or "privatisation of regulation") inevitably raise concerns from environmentalists,

public interest groups and regulators themselves as to whether such trust placed in business to

regulate its own affairs will be betrayed - either deliberately or through incompetence.

Recognising the serious risks as well as the benefits implicit in proposals for regulatory

flexibility, the central challenge is to design a strategy whereby one may gain the maximum

benefits of Responsible Care or a management systems approach while minimising the

shortcomings of such approaches. Crucial questions will be: what outcomes should government

insist on; how can these be measured; who will do the measuring; to what extent and in what

ways will environmental, community and public interest groups be involved in the process; how

can the burden on government resources be reduced; what incentives need be provided for

industry to embrace regulatory flexibility; and what will happen if enterprises don't live up to

their commitments? In the following sections we address these questions.

We will argue that a number of measures should be seen as prerequisites for government to

successfully regulate large companies at a distance, giving them the flexibility they demand,

while achieving both improved environmental and economic outcomes and community

acceptance. These are:

• measuring environmental outcomes by independent and transparent performance indicators;

• independent third party oversight underpinned by access to information;

• community empowerment, including the transparency and institutionalised dialogue

necessary to bring this about;

• government oversight and an underpinning of effective sanctions; and

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• credible incentives for industry participation.

Each of these elements will be examined below.

As a preliminary point, it is important to restate that in seeking to design an optimal approach,

there is no need to be constrained by the limitations of either ISO 14001 or Responsible Care in

their present forms. That is, as we shall see, the best way of benefiting from the strengths of

these instruments while avoiding their shortcomings includes (but is certainly not limited to)

making modifications to, or going beyond them in ways consistent with the public interest. In

short, the quid pro quo for regulatory flexibility on the part of government will be co-regulation

which builds on, but is not limited to, the basic elements of ISO and Responsible Care (what we

and others have referred to as ISO or Responsible Care "Plus").

1. Measuring environmental outcomes under Environmental Management Systems

(EMSs)

We begin by examining the potential role of EMSs - the essence of ISO 14001 and an important

element of Responsible Care. How can one ensure that EMSs are indeed self-monitoring, self-

correcting and self-improving, as their proponents claim? How can one ensure that these systems

do not, intentionally or otherwise, produce the trappings of self-regulation without delivering the

promised outcomes in terms of a shift in culture, a commitment to continuous improvement, and

as a result, improved environmental performance?

As indicated above, a serious danger of relying on ISO 14001 alone, is that it emphasises

processes but not outcomes. Similarly, Responsible Care, rather than evaluating actual

performance, also focuses on progress in implementation of the system itself. 608 That is, it

would be possible under both regimes, for enterprises to satisfy the base requirement of system

implementation without improving upon the levels of environmental performance specified by

existing regulatory regimes.

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If regulators are to allow a more flexible regulatory approach for those adopting an EMS, (and, in

the case of Responsible Care, for adopting a range of other commitments too) then they must

insist that a fundamental term of the permit, agreement or other instrument under which the

enterprise operates is a commitment to performance outcomes609 demonstrably better than those

required by existing legislation as well as to process. Specifically, to ensure that EMSs (and the

Responsible Care codes) do indeed deliver the results of which they are capable, it is essential that

governments require participating firms to commit themselves to a number of performance related

"bottom lines".

This is easier to state in the abstract than to implement in concrete terms, for two reasons. First,

there are difficulties in measuring environmental performance (ie in specifying appropriate

performance indicators), second, there are dangers that indicators specified may encourage

pollution control and end of pipe solutions rather than pollution prevention and continuous

improvement.

Benchmarking and performance indicators

To evaluate actual performance, rather than just progress in implementation of the system or

codes of practice, requires the generation and collection of objective data that validates a

company’s activities against milestones that enable all companies to be compared against each

other (often known as benchmarking). This in itself will create important incentives for

improvement, at least if these figures are made public. It will be equally important that the

relevant data is capable of demonstrating that each participating enterprise is going beyond

compliance with outcome-based regulatory requirements. Ideally, the data should also be

presented in such a way as to enable a company's performance to be understood by local

communities.

So far, only limited progress has been made towards developing and implementing such

performance indicators or broader metrics necessary to identify opportunities and assess actual
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achievements against reduction goals (although the situation is changing rapidly). As the

European Chemical Industry Council (CEFIC) acknowledged at its General Assembly in 1996,

the lack of comparable data is seriously hampering the industry's search for credibility, but so

far, its search for solutions is only in its early stages.610 In the case of Responsible Care, Union

Carbide Chief Executive Officer, Robert Kennedy, summarised the position as follows:

...our voluntary reports are a random walk. Companies use different reporting formats, data

bases, time frames and definitions. As a result, the work we are doing has not received the

recognition it deserves. Ultimately, we need to develop a system of uniform reporting

standards around the world, a common vocabulary, accepted definitions and practices, a

systems that can be independently verified - plant by plant, country by country - much as

financial auditing does for our balance sheets today. It won't be easy, especially when

proprietary information is involved. But the value of an independent, certifiable reporting

system will far exceed the cost and trouble of developing one.

Performance indicators capable of meeting the criteria identified above have not yet been

developed, though considerable effort is being addressed to this goal at the time of writing, 611

including efforts to develop Environmental Performance Evaluation under the ISO 14000

series612. Whether it is possible to go further, and to develop a general measure of

environmental performance applicable to different firms with different processes and products,

remains to be seen.613 However, in their 614 1997 Report, Measuring Up, Ditz and Ranganathan

advance this issue significantly, arguing for the adoption of four standards of environmental

performance: materials use, energy consumption, non-product output, and pollutant releases

that emphasise resource efficiency, pollution prevention and product stewardship which could

be used "both inside and outside company walls". In particular, they suggest that: "Just as a

company's financial statement can be relied upon to provide information that is comparable,

transparent, and complete, the EIPs [Environmental Performance Indicators] could be used to

rate its environmental performance. In this way, EIPs could provide the information necessary

to measure and motivate progress towards environment goals".615

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Five interim measures are proposed, capable at least of reassuring regulators and others that

regulatory flexibility does not result in backsliding. First, one might borrow from proposals in

the United States (to develop a regulatory "cap")616 and provide that compliance with all

"existing and reasonably foreseeable" regulatory requirements would be the baseline

requirement for regulatory flexibility and autonomy617or, in the case of new facilities, the lesser

of allowable levels of releases or best practices in that industry. 618 Second, one might develop

indicators based on data required to be reported and measured under existing government

programs. For example, in the United States, the CMA now claims to have external

performance measures for five of its six Codes of Practice. 619 These include the toxics release

inventory (used as a measure of pollution prevention), Occupational Health and Safety

Administration (OSHA) figures (used as a measure of safety performance), and the Department

of Transportation's hazardous materials transportation incident database (as the Distribution

Code Performance Measure). Third, agreements may be negotiated at the level of each

individual plant or company (if offsetting is allowed) 620 through its licence, permit or an

environmental covenant. Under such agreements, an enterprise, in return for regulatory

flexibility, would commit itself (as under some United States state permitting laws)621 to an

implementation schedule for identified and specified source reductions. Fourth, given that

regulatory flexibility could have adverse implications for environmental justice, it should be a

requirement that any new proposal demonstrate that it does not pose a significant increase or

shift in the risk of adverse effects, or result in a significant relocation of pollution. 622 Finally,

the ISO 14000 series contemplates the development of methods of Environmental Performance

Evaluation (EPE) which will enable organisations to "establish processes for measuring

progress against objectives and criteria relevant to their performance goals. These methods may

be used for benchmarking and other comparative purposes".623

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Pollution prevention or pollution control

One of the greatest attractions of management systems approaches is their promise to deliver

continuous improvement and environmental performance "beyond compliance" with existing

regulations. Yet there is a danger that performance indicators used to measure achievement will

measure outcomes crudely (eg levels of discharge to a particular medium). If they do so, then

the familiar problems of encouraging and facilitating enterprises to simply adopt "end of pipe"

solutions (scrubbers rather than cleaner technologies) and to transfer toxins from one media to

another, will be further entrenched.

As Atcheson (1996) rightly argues, the challenge is to move: "from single-medium, single-

stress, point-source, end of pipe technologies toward whole facility and systemic strategies

based on continuous improvement and efficient use of energy and materials, as well as

pollution prevention".624 Accordingly, relevant indicators must be geared to pollution

prevention rather than pollution control, taking account of the raw materials and fuels

manufacturers use, and the material and energy intensity of the processes, practices and

procedures they adopt. Having said that, it must be acknowledged that: "pollution prevention

and efficiency approaches ...are most difficult to verify in any conventional sense". 625 This

indeed, is one reason why regulators are much more comfortable focusing on technologies that

can be easily verified - the very end of pipe technology-based approaches we most need to get

away from.626

There are very few real world examples of how a more flexible regulatory approach utilising

management systems can be made to work in practice or more particularly of what indicators may

prove appropriate to measure pollution prevention. However, in the United States, Project XL and

the Common Sense Initiative are experimenting with "alternative ways of accomplishing

environmental objectives that emphasise performance, allow flexibility, encourage prevention and

efficiency at facility level while assuring accountability",627 and facility planning laws (linking

permit requirements to a pollution prevention plan and establishing milestones for performance)
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are also developing in similar directions.628 Within the related field of occupational health and

safety, the Voluntary Protection Program, initiated by the United States OSHA in the 1980s, also

provides some guidance as to how this task should be approached.629 The Measuring Up report,

considered earlier, makes a substantial advance in identifying indicators which are designed

specifically to prevent pollution and resource efficiency.630

2. Third party oversight

Independent audits

Having identified what to measure, the next crucial question is: who should do the measuring?

Certainly the adoption of a management system implies that the enterprise will undertake its

own continuing monitoring of its performance under that system. However, over and beyond

this, such independent and appropriate performance indicators as are developed, must also be

independently monitored, for without this, there can be no assurance that the information

industry provides is genuine. Moreover, if the monitoring process is to gain community

credibility, and be seen as legitimate, it must also be transparent. Both factors are increasingly

recognised by the industry itself, as the necessary price for greater autonomy. 631

Chemical industry associations across a number of countries are now taking active steps to

move beyond self-policing of their health, safety and environmental management procedures.

Of course, one options, for larger organisations at least, is to create their own quasi-

independent audit team from within the organisation. For example, some transnationals conduct

detailed audits on subsidiaries throughout the world, with no prior warning. An advantage of

this approach is that the auditors have no commercial vulnerability and are a far more likely to

be intimately familiar with the firms operations. Further, the firm itself will find it far more

difficult to ignore directions from corporate headquarters than external auditors. However, the

disadvantage is the lack of credibility of this approach, for however "arms length" the audit
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team may be, its independence may be doubted by the community, whose views will be crucial

in this respect.

The favoured form of monitoring and oversight is an audit conducted by an independent

professional.632 As indicated above, such audits can provide systematic, documented, periodic

and objective reviews of whether environmental requirements are being met or whether systems

are being adhered to.633 In particular, they involve: "the structured process of collecting

independent information on the efficiency, effectiveness and reliability of the total ... management

system".634

Here the model is the "compliance verification system" which the Canadian Chemical

Producers' Association, has adopted, under which a team of four conduct a verification of a

member company's operations.635 In each case, two of these verifiers are people with extensive

industry experience, and two are outsiders, one of these being preferably from the company's

local community advisory panel. This team seeks evidence as to whether and to what extent the

company is in compliance with the guiding principles and codes of Responsible Care. It looks

for evidence of a management structure, a bench-marking process, an internal auditing process,

and a mechanism for follow-up and continuous improvement.636 A report is given to company

management describing areas where more effective systems may be needed, as well as areas

where the company has gone beyond the "state-of-the-art" of Responsible Care. It is expected

that the company will report the results of the verification to its local communities. 637 Three

years after its inception, with the first round of verification nearing completion, both companies

and verifiers regard the verification process as a qualified success, which in addition to its role

in reviewing the performance of individual enterprises, has also served to identify some

considerable achievements and limitations of Responsible Care as a whole.638

However, what remains strikingly absent even from "best practices" initiatives such as the

Canadian approach, is an independent third party auditing system not merely of whether

specified management systems are in place, but also of a company’s environmental

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performance as a whole, and as to whether it is achieving continuous improvement. Thus

Responsible Care and ISO 14001 verification, even under recent reforms, share a common and

fundamental limitation: the failure to independently measure and report upon, environmental

performance. Nothing short of this will, in the longer term, satisfy demands for full

accountability and reassure governments and communities that firms that gain the benefits of

regulatory flexibility are in return, indeed delivering environmental results better than those

required by traditional regulation.639 Thus, in envisioning an optimal regulatory system, we

contemplate third party audits by independent experts, involving community and environmental

groups, that audit not merely systems but also environmental outcomes in terms of performance

indicators as described in the previous section above.

Of course, audits could instead be conducted by government inspectors (also with community

participation) rather than by independent professionals. However, there are considerable

attractions in using independent third parties rather than government. Auditing whether an

enterprise has genuinely and successfully adopted and implemented a systems-based approach

not only requires greater and different skills on the part of government inspectors, but is also

extremely demanding of inspectors' time. Most inspectorates currently lack both the time and

the technical skills necessary to conduct these tasks. Certainly those skills could be acquired but

this will often involve hiring more (and more expensive) employees and devoting substantial

amounts of additional time to such audits. In an era of fiscal constraint, these options may be

impractical or unattractive.

If the audit function were contracted to independent third parties with the specialist skills

required (environmental auditors), then these problems could largely be overcome. 640 It is

normally a condition of participation in regulatory innovation that it is the enterprise concerned,

not government, that bears the cost of third party audit. This approach has the further attractions

both of substantially conserving regulatory resources (which can be redeployed so as to focus

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very largely on those who are still regulated by traditional means), and of satisfying the

"polluter pays" principle.641

However, there is a serious difficulty in the strategy of relying upon third party auditors as

surrogate regulators, namely ensuring their professional integrity and independence. For there

remains the possibility of cooption of the auditors by the firm seeking accreditation - a hazard

illustrated by the failure of financial auditors in the financial scandals of the 1980s. 642 This

problem is exacerbated by the fact that there are no universally agreed standards for carrying

out safety audits. Neither is there agreement as regards the professional requirements for

auditors although such a development seems imminent. There are a number of possible ways of

dealing with this issue, none of them totally satisfactory. They include nomination of the

auditor by the regulator from a pool of accredited auditors, rather than by the regulated

enterprise, state regulation of auditors, an auditor accreditation scheme, peer review, civil

liability and the establishment of a set of national standards relating to the quality and scope of

audits.643

A further problem concerns the circumstances under which audit results should be disclosed,

and the issue of transparency, given the tension between the regulator's interests and those of

the regulated enterprise. From the regulator's point of view, third party audits work best if the

auditor's report is made accessible to the regulatory agency and does not remain confidential as

between auditor and enterprise. However, such a requirement is likely to be unattractive to the

enterprise itself (which after all, is footing the bill!), which may understandably fear that it is

providing the regulatory agency with considerable information (and ammunition, in the event of

a prosecution) which would otherwise not be available. There is thus a tension between the

regulator's need to be reassured that it will be alerted to unsatisfactory audit results (enabling it

to take corrective action) and an enterprise's reticence to adopt a systems-based approach if

required to make full disclosure of the audit report.

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The community too, is unlikely to trust the outcomes of third party audit unless the results are

transparent. If the regulator insists on full disclosure in every case, then an audit approach may

become insufficiently attractive for many enterprises to agree to participate. 644 Such an outcome

would be counterproductive, and a solution must be found which is acceptable to both sides.

The most satisfactory compromise might be one whereby only a overview or summary of the

audit is ordinarily supplied to the regulator (and the community) by the auditor, indicating the

conclusions, but not the details, of the audit. Thus the latter, including any specific identified

breaches of the legislation, would remain confidential to the regulated enterprise. The fact that

an audit itself is to be treated as a privileged document should be clearly indicated, either in

enforcement guidelines or in the legislation itself.645 However, as indicated below, where the

audit summary indicates a generally unfavourable report, or major failings in individual

aspects, this should be one circumstance triggering an inspection.

While this solution may serve to alleviate the fears of regulated enterprises, it does far less to

assure the regulator that the audit system is working satisfactorily, that the auditors are

operating in the public interest, and that they have not been captured by the client enterprise. To

overcome these problems, and to ensure the integrity of the audit process, the regulator should

have a right to spot check (and verify) a random sample of full audits. Even in this latter

circumstance, the information gained from the audit report could not sensibly be used as a basis

for enforcement action, for if it were, it would provide a substantial and unnecessary disincentive

to adopting an EMS approach. Few companies would agree to participate in the scheme.646 More

appropriately, the agency might undertake to give participating firms qualified privilege647 and a

"period of grace" to rectify problems revealed by the audit.648

Community Right-to-Know (CRTK)

Another third party oversight mechanism involves engaging and empowering the community to

act as a restraint on the behaviour of business. In the case of the chemical industry the

community is a potentially potent force because chemical plant emissions can have the direct
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effects on human health and this is widely recognised by communities themselves. Trade

unions, local community groups, national environmental groups and other NGOs can all have a

major impact on large corporations, which must increasingly protect their environmental

credentials and credibility.

However, an essential prerequisite for effective community involvement is access to

information about the chemical industry's emissions and activities. Communities that are

empowered through information and participation can act as a countervailing force,

compensating in part for the inadequacy of regulatory resources, by scrutinising both industry

and agency performance and bringing pressure to bear and "shaming industry" where

performance is inadequate. Yet without information, they have great difficulty fulfilling this

role. Moreover, as Kleindorfer and Orts put it, information, can serve "to lesson irrational fears

and ideologically driven mistrust among various groups. Improved information about specific

issues may increase the chances of a negotiated solution to a problem".649

The chemical industry acknowledged the importance of transparency and information

disclosure by its initial adoption (in the United States) of the slogan "don't trust us, track us", 650

which encapsulates the basic tenet of Responsible Care - namely that the scheme will only gain

credibility if the public is enabled through access to information to judge the industry by its

actions rather than by its rhetoric. For its part, the industry would prefer that disclosure were

provided voluntarily rather than as a result of legislation.651 However, evidence concerning

voluntary approaches suggests that they are of doubtful effectiveness,652 and in many respects a

very poor substitute for mandatory disclosure, which conventionally takes the form of CRTK

legislation.

The potential benefits of this type of legislation are well known.653 Right-to-Know gives

community groups insights into the severity of the chemical hazards they face, and through this,

encourages greater public participation. In turn, information about the hazards gives workers

and community groups increased potential leverage, enabling them to more effectively pressure
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polluters to reduce emissions.654 It can also provide with company managers with leverage over

internal procedures. With respect specifically to Responsible Care, CRTK in principle, provides

the community groups with a capacity to identify the extent to which individual companies are

honouring their responsibilities under the other Codes of Practice.655

If Responsible Care is unsatisfactory in terms of information disclosure, ISO 14001 is far

worse. American fears about the legal implications of disclosure, and their feelings of

discomfort about forms of dialogue which in Europe are becoming increasingly common, and

the more antagonistic culture between industry and other stakeholder groups in the United

States, has resulted (with American success in the negotiating process) in much information

under ISO 14001 being treated as confidential, and in almost no effort to encourage dialogue

under the standard.656 As Nash and Ehrenfeld (1996) put it:

ISO...registration requires very little action that would strengthen a firm's relationships with

those outside its fence lines. ISO 14001 companies need only concern themselves with

impacts within their immediate 'control'. They may be passive in their relationships with

concerned citizens, simply responding to inquiries instead of actively seeking input from

outside.657

Unfortunately, American industry resistance to disclosure under ISO 14001 is in no way

balanced by a willingness to engage in voluntary disclosure. On the contrary, there is very little

evidence that most United States companies will voluntarily disclose information to the public,

or even to shareholders concerning their environmental performance, 658 although a handful of

firms have opted for much greater transparency, usually through the vehicle of an annual

environmental report. In general, however, the public has considerable difficulty obtaining

information under voluntary approaches. Significantly, as one community representative

argued: "if it was a law we could compel disclosure. But because its only a voluntary code we

have constant problems getting the information we want."

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There is indeed a strong case for government intervention to directly empower to community by

requiring statutory disclosure of information concerning emissions. The TRI in the United

States, described in chapter two, is a strikingly successful model of how such legislation might

be designed. By using the TRI, environmental and public interest groups are enabled to make

some independent assessment of progress under Responsible Care and to gain information

about the industry’s activities and their environmental impact. Companies seeking regulatory

flexibility, in return for implementing ISO 14001, should equally be required by law to commit

to a similar degree of information disclosure as a term for such flexibility.

3. Broader Stakeholder Involvement: Community participation and dialogue

The chemical industry cannot regain public trust, nor will regulatory flexibility itself be a

credible option, unless all stakeholders are directly involved in the process. Means must be

found whereby all the relevant communities,659 including workers/trade unions, local

community groups and national environmental groups, can participate in, oversee, and

scrutinise regulatory flexibility. In addition to the role of information and CRTK, such

participation could involve an on-going dialogue with those communities "to identify, address

and assess how well the facility is responding to community concerns", 660 community outreach

activities and other means of institutionalising public participation and means of assessing their

success.

In the case of Responsible Care, (though not ISO 14001) community input and oversight is

currently channelled through the vehicles of national and local advisory councils. For example,

in Australia, the National Community Advisory Panel, made up of a variety of community

activists and independent technical specialists, has made a major contribution in ensuring that

draft proposals are consistent with the public interest goals espoused by Responsible Care. Its

most significant role has been in the often substantial modifications it has made to draft Codes

of Practice above. More broadly, such panels may provide a "multilateral forum within which

problem definition and policy formation could benefit from a direct engagement with
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alternative perspectives".661 Although its views are not binding on the administrators of

Responsible Care, the chemical industry has yet to reject them, for to do so would seriously

prejudice the credibility of the entire scheme.

Similarly at local level, there are now a range of local or site liaison committees or committees,

which might "provide the basis for a complementary forum that would foster simultaneously an

improved learning capacity at the level of the individual organisation, greater accountability to

local publics, and a consequently enhanced legitimacy for the industry's activities". 662 These

groups, whose contribution varies greatly with local circumstances, can, when functioning well,

also serve to scrutinising the performance of companies at local level.

How effective either national or local groups are, and how much credibility they have, depends

substantially on the resources available to them, how their members are chosen and how

genuinely representative they are. While the industry has made recent efforts to attract some of

its sternest critics onto the panels, the major environmental groups (in contrast to many local

groups) have refused to participate,663 with the result that individuals on the panel commonly do

not represent any broader constituency.

Because ISO 14001 involves individual self-regulation in the absence of any relevant trade

association, these mechanisms are not available to underpin community oversight of companies

adopting it, and as indicated earlier, ISO 14001, is seriously deficient in terms of community

dialogue and disclosure. However, there is no reason in principle why regulators should not

insist on dialogue with the local community, and disclosure of information as part of the quid

pro quo for waiving regulatory requirements for ISO 14001 certified companies. Some

regulators in the United States are currently contemplating versions of "ISO Plus" which would

do precisely this.664 Central components of such a strategy are perceived to be: encouraging

community participation; institutionalising public participation; recognising public knowledge;

and utilising cross-cultural formats and exchanges.665

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The Australian State of Victoria, is already achieving much the same result through the

mechanism of Environmental Improvement Plans (EIPs), which form part of the Accredited

Licence Scheme described in chapter two. In return for regulatory flexibility, an accredited

company agrees to implement an EMS, to conduct an environmental audit and implement an

EIP. The latter must include a written plan with "a set of performance measures, monitoring

requirements, and improvement proposals which take into account the economics of the

company as well as environmental concerns".666 Crucially, for present purposes, it must also

directly must involve their local communities in the development and monitoring of the plan. In

so doing, it arguably satisfies "the multiple objectives of community right-to-know, clearly

established milestones, corporate commitment to management system, improved measurement

and an increase in trust between all parties".667 In the spirit of "don't trust us - track us" it is

arguable that a central component of such a strategy should be the provision by the enterprise to

the community (and the regulator) of an annual non-compliance report, disclosing all major

breaches during that period. Since workers (also members of local communities) will

commonly be aware of such breaches, the enterprise risks exposure if it under-reports.

However, one fundamental problem with community outreach programs remains, namely

whether community outreach programs will ever serve to break down the layers of distrust

between industrial facilities and those who live near them. The essential problem here is one of

fundamental miscommunication between the two groups. Specifically, as Simmons and Wynne

(1993) point out, the industry remains locked firmly into a paradigm of scientific knowledge as

a basis for judgments and decision making (the Missionary stage above) and fails to take

account of the "culturally embedded basis of public distrust, rooted in a pervasive

consciousness of risk that has become characteristic of contemporary industrial cultures". 668

Indeed, "as long as the Responsible Care program is founded on the premise that furnishing the

public with evidence of its improvement will rebuild trust in the chemical industry, it is

unlikely to achieve the recuperation of public confidence that the CIA is hoping for".669
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4. Regulating at a Distance: Government as backstop

As we have indicated, there are serious risks that regulatory flexibility schemes implying greater

autonomy for enterprises may be abused. For some who are granted such autonomy, the

temptation to pursue short term economic self-interest, to cut corners and minimise costs at the

expense of environmental considerations, is simply too great (particularly where commercial

incentives to be "green" are very limited). If these defectors are not appropriately dealt with,

then the entire scheme may be undermined.

In the case of Responsible Care, we noted that there are serious free-rider/mutual assurance

problems (here referred to as collective action problems), and that the credibility of the program

may be threatened unless firms can be assured that their competitors will implement their

obligations. Certainly third party verification of independent performance indicators could

enable companies to compare each others’ performance, but moral suasion such as this, while

important, has manifestly proved insufficient to overcome collective action problems of this

magnitude.670 So also community pressure (which relies heavily upon the commitment and

cohesiveness and indeed existence of local communities) has had a very uneven impact and

cannot be relied upon in isolation.

The conventional solution to the collective action problem involves coercing those who are

unwilling to comply voluntarily.671 That is, the voluntary compliance of the majority of firms

may ultimately depend upon: "the coercive imposition of the code of conduct on the minority of

free-riders".672 State intervention is not the only conceivable way to ensure such coercion. It

would be possible (as has occurred in the case of the United States nuclear power industry) 673

for the relevant industry association in each jurisdiction to take on a regulatory role - in effect,

policing the activities of its members in complying with Responsible Care. However, the

chemical industry associations have chosen not to do so, a decision that is most unlikely to be

reversed given the hostility of most of their members to such a proposal.

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Thus government intervention will be necessary to ensure that the industry association performs

its self-regulatory tasks honestly and effectively, to provide extra leverage where the industry

association's efforts and powers are insufficient to change the behaviour of recalcitrants, to

regulate the behaviour of those who refuse to participate in the self-regulatory scheme, and to

intervene directly where the gap between industry self-interest and the public interest is too

large for self-regulation alone to be a credible strategy.

That is, co-regulation, rather than self-regulation, may be the most viable way of preserving the

considerable strengths of Responsible Care, while overcoming its collective action problems

and restoring public trust. Co-regulation in this context means the existence of a degree of

government regulation in combination with the self-initiated safeguards introduced by the

industry itself under Responsible Care. Minimum (outcome-based) standards would continue to

be set by government applying either generally or negotiated individually (eg pollution

prevention measures agreed as a term of a licence, permit or covenant). 674 Government would

reserve the right to impose legal sanctions for breach where enterprises fail to live up to their

promises. However, the day to day administration of these standards would be the responsibility

of industry subject to third party audit, and community scrutiny as described above.

Under this approach, government leaves to the industry and its association many of the details

of how to improve its environmental performance (eg the Responsible Care codes of practice),

but retains the full powers of the state (including those of enforcement and punishment),

invoking them when necessary to deter free-riding or other abuses. Those who genuinely wish

to improve their environmental performance beyond the legal norm are encouraged and

facilitated to do so with a minimum of government intervention (including a waiver of the

inspections and paperwork that firms normally confront and the provision of incentives as

described in the next section below), but backsliders will continue to face the wrath of the state.

Co-regulation also implies that government must be willing to intervene directly in the affairs

of those companies which have not agreed to participate in or defect from the self-regulatory
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scheme (which in the case of Responsible Care includes substantial numbers of smaller

operators). It must ensure that non-participating companies are subjected to standards at least as

tough as those adopted by participating companies, so that the former do not gain a short term

competitive advantage by refusing to join the self-regulatory program.675

The appropriate approach to the regulatory flexibility bestowed upon those who agree to adopt

EMSs such as ISO 14001 would in many respects be similar. Here there is no relevant industry

association, no credible form of collective self-regulation, and no collective action problems of

the type described above. One is dealing with individual enterprises who in effect agree to self-

regulate in accordance with a management system approach in return for regulatory flexibility.

But just as with Responsible Care, so with ISO 14001, there will be risks of abuse such as the

adoption of cosmetic "paper systems" to gain regulatory concessions, public relations or other

perceived advantages.

Here, the central policy questions are: how can enterprises be prevented or deterred from

abusing regulatory flexibility schemes in this way, and how will regulators or courts be able to

distinguish between paper systems and the genuine article? As regards this latter problem, many

prosecutors in the United States have doubted "both the utility of compliance plans and their

own ability to distinguish serious efforts at compliance from merely cosmetic plans", 676 at least

in the context of a sentence hearing. The problems are readily apparent. For example, in the

United States, agreement to introduce corporate compliance plans (including a commitment to a

systems-based approach) can lead to a sentence reduction in respect of environmental crime.

Here, the experience is that these plans are easily manipulated, with: "a virtual cottage industry

of law firms cranking out compliance plans for their corporate clients (often with the

mechanical uniformity of a cookie cutter)"677 leading one to doubt that adoption of such plans

would have much beneficial impact on corporate behaviour, at least until clear minimum

criteria are prescribed.

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At this stage, we do not have the experience to know how seriously or how extensively firms may

abuse privileges given in return for regulatory flexibility under either "Responsible Care Plus" or

"ISO Plus". But given the obvious temptations and the experience of related areas, it seems likely

that agency strategies to counter this problem will be essential to the successful operation of either

approach. This is particularly the case since third party oversight, while important, has its own

limitations identified above. For example, auditors may be less than vigilant, or vulnerable to

capture by the very industries they audit, communities may be apathetic, or lacking in any genuine

sense, trading partners may settle for formal certification of a management system without

insisting on genuine improvements in environmental performance. That is, the additional layers of

oversight, scrutiny and informal social control which we have argued for, will be important, and

capable of taking much of the weight off government, but are likely to be uneven in their impact

and less than fully effective. As such, it would be a serious mistake to rely upon them in isolation.

Indeed, as we will argue, an underpinning of government control will be absolutely essential to

overcome the temptation to cheat.

When should the regulator intervene to ensure that regulatory flexibility under Responsible

Care is working effectively, or that management systems are being complied with, and that an

enterprise, through intent, inefficiency or incapacity, is not failing to discharge its obligations

as measured by agreed performance indicators? And how can such intervention as is needed be

designed so as to avoid unnecessary intrusion into the details of how an enterprise conducts

itself, while at the same time (given the resources problems indicated earlier), minimising the

burden on regulatory resources, and ensuring that agency intervention is within its budgetary and

administrative capability?

To achieve these goals, regulatory design should involve a tiered regulatory response. First, it

should encourage enterprises to regulate themselves (for example, one of the prerequisites will be

that the EMS is self-referential and self-correcting). Second, comes third party oversight, both at

the stage of accrediting the system when it is introduced, and through subsequent periodic audits.
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Thus the third party audit fulfils a substantial role as surrogate regulator. Communities,

empowered with information, direct channels of communication to regulated enterprises and (at

least under Responsible Care) a role in the decision-making process itself, also contribute as a

countervailing force, while pressure from trading partners, and peer group pressure, act as

informal social control. However, there is also need for a third tier, involving an underpinning of

government regulation. This would "kick in" as a backup mechanism in circumstances where

there is reason to believe that tiers one and two have not delivered the required outcomes in terms

of system-effectiveness and improvements in environmental performance. As a result, enterprises

participating in Responsible Care or an EMS, would be spared onerous, time consuming routine

inspections.

What circumstances might be appropriate to trigger an inspection? Five are suggested, though

others may evolve once a scheme is in operation:

(I) if a community representative, having exhausted internal procedures, complains that the audit

was not, in his/her view, fair and accurate;

(ii) if the third party audit report itself expresses serious reservations about the effectiveness of the

EMS;

(iii) if a regulator's verification of the third party audit (conducted randomly on a small minority of

audits) suggests that the audit itself was not fair and accurate;

(iv) if there is a serious accident or incident, or a series of complaints from workers or local

communities (although there would need to be safeguards against vexatious complaints); and

(v) if the relevant industry association requests such intervention.

The attraction of the approach we propose is that government retains a role in ensuring that

prescribed environmental outcomes are achieved, but does not resort to inflexible, costly,

prescriptive and legalistic mechanisms to do so. Rather, those parts of industry that demonstrate
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that they can be trusted to self-regulate, are left to decide for themselves precisely how they

should improve their environmental performance by devising their own internal regulatory

mechanisms best suited to achieve those ends. This has the considerable virtue of encouraging

more cost-effective and innovative industry responses than under technology-based "command

and control" regulation.

Thus, government would only regulate "at a distance", exercising an oversight role rather than

directly policing industry performance. This would involve periodic review of the results of

companies' self-monitoring,678 and summaries of the proposed third party audits. The latter

would be a crucial independent indicator of whether outcomes are indeed being achieved by

individual operators. Government would also take account of complaints against Responsible

Care members (or against individual companies who adopt EMS) and of community

consultative mechanisms in determining whether self-regulation was working satisfactorily.679

Inspections of companies subscribing to Responsible Care or committing to an EMS, would

become a low administrative priority or would be discontinued,680 leaving government free to

redeploy its scarce regulatory resources and focus on these companies (often the worst

polluters) who have refused to participate in co-regulation under one of these approaches.

Government would continue to regulate these companies directly, through regular inspections,

reinforced by administrative measures and criminal prosecution.

5. Incentives for enterprise participation in regulatory flexibility

Finally, even if government insists on all the requirements identified in previous sections as the

quid pro quo for granting regulatory flexibility under ISO 14001 or Responsible Care Plus, little

will be achieved unless enterprises are convinced that the benefits of committing themselves to

such approaches are likely to outweigh the costs. Indeed, a number of regulatory redesign

initiatives have faltered or failed because there were too few takers. 681 This raises the question:
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is it necessary or desirable for governments to provide positive incentives to enterprises to

participate in regulatory flexibility programs, and if so, what should those incentives be?

In the case of Responsible Care, there are compelling reasons of industry self-interest (the need

to rebuild community trust, maintain legitimacy, and thereby secure the long term future of the

industry) why the industry has devoted considerable resources to establishing and making the

Program effective. Moreover, for some companies, Responsible Care has also brought some

tangible rewards in terms of reduced waste management, clean up and disposal costs, reduced

liability risk and improved insurance premiums as well as enhanced community relations.

While government can do a great deal to integrate Responsible Care into a broader co-

regulatory scheme and to compensate for its weaknesses, government played no significant role

in developing the program or in encouraging companies to join it. Nor, given the circumstances

of its evolution, did it need to. However, if, as we have argued above, regulatory flexibility

should be offered to Responsible Care firms not just because they have committed themselves

to that program but also because they have met additional requirements prescribed by

government such as performance outcomes, independent verification and disclosure

("Responsible Care Plus") then even these firms may need incentives to participate.

ISO 14001 and EMSs approaches generally, present a different challenge. As we have

indicated, the decision whether to adopt an EMS is one for an individual enterprise without any

role or intervention by an industry association. Unlike Responsible Care, there is no sense in

which the industry perceives ISO 14001 as a solution to collective action problems or as a way

of address the issue of "communities of shared fate". It is not, in any sense, a proposed solution

to the problem that the industry's reputation and possible future viability "is only as strong as its

weakest link". Accordingly, the decision whether to adopt such a system is likely to be

individual, commercially-based, and driven substantially by trade considerations. And it will be

made in the context that ISO certification will cost in the order of US$10,000 to $30,000 a year

and involve the commitment of very considerable time and resources within the enterprise. That
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is, enterprises are only likely to adopt a management systems approach if they perceive it is in

their individual self-interest to do so but not otherwise: peer group and industry association

pressure are conspicuously lacking in the case of ISO 14001.

So are incentives for participating in regulatory flexibility programs necessary? According to

one school of thought, the answer is no. On this view, it has now become rational for enterprises

not only to comply with existing law but also to move "beyond compliance" with existing

legislation.682 It is asserted that the business community can combine the objectives of

environmental protection and economic growth, and in so doing, not only ease the pressures

imposed by regulators, the public and the financial community, but also to increase profits directly

and to develop the environmental technology to compete effectively in the global environmental

market. That is, according to its proponents, going "beyond compliance" is both good for business

and good for the environment - there is a happy coincidence between private profit and public

interest. Companies going down this path will increase profits, enhance their corporate image,

position themselves to realise new environment-related market opportunities, generally improve

efficiency and quality, foster a greater consumer acceptance of their company and products, and

reduce potential legal liability. The fact that ISO 14001 certification may become almost a

prerequisite for some forms of international trade should also incline enterprises to adopt the

standard voluntarily.

Moreover, if a firm may gain a competitive advantage by embracing regulatory flexibility, (eg if

devising an alternative compliance strategy enables it to compete more effectively on price or

quality and capture greater market share) then arguably it must do so for fear that otherwise its

competitors may recognise this opportunity and gain an advantage by embracing it first.

If all of this is indeed correct, then enterprises have a natural self interest in embracing regulatory

flexibility, and in adopting EMSs, whether under ISO or Responsible Care, because of their

promise to deliver continuous improvement and "best practice" environmental management and

performance.683 In particular, a systems-based approach has the capacity to shift enterprises from a
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purely reactive strategy of, at best, grudging compliance with government regulation, to a

proactive response, which involves going "beyond compliance" and internalising the

environmental challenge as an element of quality management.684 If so, they should not object to

the performance indicators, verification or other requirements government might impose as a quid

pro quo for regulatory flexibility (though it should be noted the latter impose requirements well

beyond what is required under ISO 14001 certification and require companies to do much more

than will be necessary to use ISO in international trade).

All this sounds too good to be true, and it is. Regrettably, there are limits to the "win-win"

approach and to the natural self-interest of enterprises in going "beyond compliance" voluntarily.

Specifically, there are conditions under which the economic benefits of investing in environmental

protection are tenuous or non-existent, and where the costs to business of implementing

environmental protection measures (and EMSs) will not be offset by any resulting savings from

improved economic performance.

We have already identified the emphasis of corporations, and individual managers,685 on short-

term profitability as being a serious problem.686 Because corporations are judged by markets,

investors and others principally on short-term performance, they have difficulty justifying

investment in environmentally benign technologies or management systems, which usually pay off

only in the long term, and sometimes not in ways readily demonstrated in a corporate profit and

loss account.687 Moreover, the very process of seeking Responsible Care or ISO "Plus" recognition

under regulatory flexibility will consume very considerable company resources, not least being the

time of executives involved in negotiating this, and the additional obligations implied in achieving

the "plus".

If this analysis is correct, then what role is there for incentives to participate in regulatory

flexibility? We are confronted with a situation where enterprises sometimes have a direct

incentive to go "beyond compliance" and others where they do not. Even in the former

circumstances, experience suggests that enterprises cannot be relied upon to do what is in both
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their economic and society's environmental interests.688 For example, there are a variety of reasons

(including bounded rationality,689 lack of information and appropriate accounting methods,690 rate

of technological change and pursuit of short-term profit) why they may not do so.

If government takes no steps to encourage regulatory flexibility, then experience suggests that

only a very limited group of enterprises will opt for this approach.691 Some may prefer regulatory

flexibility because they are already committed to going beyond compliance and such flexibility

will better facilitate their doing so, or because of the autonomy that this option promises, or for

reasons of improved public profile rather than because of any direct economic return. However,

for those seeking to maximise economic returns, the take up rate may be disappointing because

most benefits will only manifest themselves in the longer term. Thus many, concerned with short-

termism, will be disinclined to grasp the opportunities available, particularly given the start up

costs involved (for example in establishing a management system). And even many firms who

might gain a competitive advantage from improved environmental performance will not realise

this. Thus if regulatory flexibility programs are to not only reward the minority who will do the

right thing anyway, but also to induce a much larger, pragmatically minded group, to sign on, it

must incorporate a significant range of incentives.

All of this suggests that there remains an important role for government in providing enterprises

with financial incentives (which at the margin may be crucial), and in other ways encouraging a

reordering of corporate priorities in order to reap the benefits of improved environmental

performance. That is, where it is not necessarily apparent to enterprises whether they are in a win-

win situation, government should try and shift the goalposts to achieve this result - by removing

the obstacles to improved profitability (greater regulatory flexibility), by providing positive

incentives to embrace such flexibility692 and by enabling firms to recognise the gains they may

make (through information strategies and facilitating full cost accounting693). This last role need

not be played by government alone, and indeed in some circumstances, is more convincingly

played by the private sector.694

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In particular, we emphasise the role that government can play in designing positive incentives to

encourage those at the margin to embrace regulatory flexibility, with its accompanying

commitments to systems-based regulation likely to build in continual improvement and cultural

change. Without these incentives, many firms may find insufficient reason to "get over the hump":

the initial investment and commitment to a systems-based approach which may be very

considerable. There are a considerable range of credible options for encouraging enterprises to

adopt regulatory flexibility, with the obligations that entails, including:

• administrative benefits, such as easing off on regular inspections 695 for enterprises who

agree to participate in regulatory flexibility, or blitzing recalcitrants who choose not to;

• logo or other publicity or public relations benefits;

• reduced fees under the licensing system and fast-tracking of permit/licence applications;

• a safe haven for participating enterprises who self-identify breaches of regulation (other than

serious breaches involving imminent danger), notify the regulator and make timely

correction of deficiencies;

• single multi-media permit for participating facilities (which provides considerable flexibility

and efficiencies) and minimise paperwork, or, in the case of specialty manufacturers in

particular, less onerous permit requirements each time they begin a new batch chemical

process;696

• making participation a condition for tendering for major government contracts;

• subsidies to "kick start" a systems-based approach in firms which, by reason of their size,

economic circumstances or other factors, would otherwise be unlikely to adopt regulatory

flexibility (cf Victorian Cleaner Production Partnership Program): 697 and

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• reductions in penalties if prosecutions take place, or an option to report and correct

deficiencies in lieu of prosecution.

All the above incentives are intended as direct inducements to adopt regulatory flexibility

provisions. There are of course, other types of incentives, which have the broader effect of

expanding the category of "win-win" situations, which make it more profitable for business to

behave in environmentally beneficial ways.

We examined these mechanisms in chapter two and here refer back to those types of incentives

that are compatible with the type of regulatory flexibility regime we propose. These include a

range of positive price-based instruments, or supply side incentives, which push back the point

at which environmental improvements are no longer financially viable. Supply side incentives

refer to direct or indirect payments, including tax concession and subsidies, conditional upon

desired conduct. For example, they might include tax concessions for the purchase of

environmental preferable technology, tax deductions for the expenses of environmentally

responsible activity, and lower taxes for preferred products or materials. The OECD

Technology Environment Programme (1995) found that "natural technological evolution

occurring in industry has not forced environmentally protective technologies to be designed or

employed. Governments will need to promote cleaner production and products".698

Alternatively, government may invoke negative incentives, such as taxes and charges, which

also attach a price signal to environmentally preferable behaviour and/or technologies.

Although it is debatable as to whether imposing the potential for new costs actually creates a

win-win situation, in terms of the firm's bottom line, price signals should be as equally effective

whether they are positive or negative. They may also induce the development of innovative

solutions as firms strive to reduce costs. In a similar fashion, the removal of perverse economic

incentives can also encourage cost driven environmentally improvements by making it less

financially attractive to persist with previously sanctioned harmful behaviour. The extent to

which price-based economic instruments foster "beyond compliance" outcomes will depend on
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the size of the price signal employed in relation to the prevailing minimum regulatory

performance standards.

One way of enhancing the prospects of firms participating in regulatory flexibility arrangements

would be to make any positive financial incentives exclusive to "track two". Similarly, track

two firms could be given exemptions, for example in the form of a tax rebate, from negative

price signals.

The various forms of market creation, such as tradeable emission permits, may in principle also

provide companies with an incentive to implement innovative and lateral solutions to pollution

reduction. However, it may be difficult or impossible to successfully integrate such instruments

where there is an existing sector-specific regulatory regime in place, as is the case with the

chemicals sector with its Responsible Care program and myriad of command and control

regulations.699

Despite the potential difficulties of using tradeable permits in combination with existing policy

instruments in this instance, there are still some useful features related to market-based

instruments that could be effectively seconded to the cause of regulatory flexibility. In

particular, bubble licences and the ability to net or bank credits within firms could be further

incentives offered to track two companies. The level of pollution created by industrial processes

will fluctuate in accordance with changing market circumstances, and for larger firms, across

different industrial sites. Providing firms with the ability to accommodate such fluctuations

through bubble licenses and/or banking credits overcomes some of the rigidities associated with

conventional command and control regulation. They can further be used to balance variations

across different polluting media.

Disincentives to participate in regulatory flexibility

There is a serious, and as yet, largely unrecognised hazard in designing regulatory innovation,

namely that while regulatory flexibility is intended to remove unnecessary, time consuming and
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costly "green tape", it may in practice replace it with equally demanding alternative

requirements. That is, so many new conditions may be imposed as the price for regulatory

flexibility as to make the transition from conventional regulation to regulatory innovation,

unappealing to business. By making "the conditions of entry into more flexible regulatory

regimes too stringent, regulators risk discouraging entry". 700 Significantly, a number of

regulatory innovations have achieved only a very lukewarm reception from the very business

community which had called for them.701

There are a number of ways in which these problems can be overcome. First, the incentives for

participating in regulatory innovation must demonstrably far exceed the disincentives. This

means ensuring that the stringency of entry conditions required by innovative schemes is not

such as to make them unattractive to would be participants. As Pederson ( 1995) argues, to the

extent that pollution prevention is more effective than insisting on the letter of existing

regulations, then even relatively lenient entry conditions will lead in the end to greater overall

emission reductions.702 Second, care should be taken by government to provide positive

incentives for entry into such schemes (eg economic benefits, the award of environmental logos

and other public relations benefits, priority under government procurement schemes as

described above).703 Moreover, the greater the flexibility that government provides within such

schemes, the greater will be the opportunity for innovation and cost saving by business. For

example, where practicable, government should facilitate the use of bubbles, netting, banking

and other economic related mechanisms geared to providing flexibility. The consultation

requirements for entering such a scheme, while important, must also be kept within bounds.

Participants in a range of "reinventing government" initiatives complain of the enormous

burden and level of resources required to negotiate such programs and participation within

them. Finally, the disincentives for breach of conventional regulation, including shaming,

penalties and enforcement, must be sufficiently substantial as to encourage business to seek

more palatable alternatives. At present, in many jurisdictions, inadequate enforcement currently

plays a major part in businesses' lack of enthusiasm for embracing regulatory innovations. 704
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Can Commercial Third Parties Reinforce the Role of Regulatory Flexibility?

In chapter three we identified the potentially very significant and far reaching contributions that

commercial third parties can make to environmental protection and indicated the potential roles

of the main institutions involved. In this section we will argue that, although not a prerequisite

for "regulating at a distance", there is much to be gained from harnessing the capacities of

commercial entities to act as surrogate regulators. As we shall see, in the context of the

chemical industry, commercial actors can exert considerable pressures on each other, in terms

of insisting on certain environmental credentials and standards.

Utilising supply chain pressure

By far the greatest pressure is likely to be exerted by trading partners. For example, large

companies in particular, can insist on their upstream suppliers meeting certain environmental

standards. Large companies can thus act as surrogate regulators. They may also bring pressure

to bear on downstream purchasers or consumers to use their product in an environmentally

responsible manner, as we will see when examining Responsible Care's product stewardship

code of practice below.

Here we are concerned with mechanisms having the capacity to influence the environmental

behaviour of large firms and of reinforcing regulatory flexibility. Both Responsible Care and

ISO 14001 incorporate such mechanisms. Responsible Care uses not only peer group pressure,

mutual support and the sharing of information, but also the product stewardship code to bring

commercial pressure to bear from one company to another. We deal with product stewardship

in some detail when examining strategies for dealing with small players below. In the case of

ISO 14001, supply chain pressure is a central driver of conformance certification. Indeed, if the

experience of its quality standard predecessor, ISO 9000 is repeated, then ISO 14001

certification will become a condition of many customer/client contracts, inducing many

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enterprises close to the market to embrace ISO 14001 when they might otherwise have chosen

not to do so. This may extend to many bilateral and multilateral relations.

This development does not require any intervention from government, except to the extent that

government itself is a major customer for many manufacturers and that governments, no less

than private institutions, can choose to use their considerable purchasing power to support ISO

14001 certification by making it a requisite for their suppliers. However, directly or indirectly,

government has a close interest in how ISO 14001 and Responsible Care evolve, since these

vehicles are likely to be central in delivering effective regulatory flexibility. Given the

potentially crucial role that supply chain pressure could play in enhancing the effectiveness of

these mechanisms, and in acting as a partial surrogate for government regulation, it is arguable

that government should intervene directly, making it a regulatory requirement that major

enterprises capable of playing such a role, have responsibility to ensure that upstream suppliers

and downstream buyers comply with their regulatory responsibilities in respect of those

products.

ISO 14001 already requires the certified enterprise to comply with existing legal requirements,

and this may serve to pull some suppliers up to the minimum legal standard. It also requires

evidence of continual improvement, and, where an enterprise has already signed on to another

set of environmental commitments, requires compliance with those principles. 705 It will be

interesting to see how seriously certifiers treat these requirements in follow up audits.

However, whether ISO certification will result in a substantial improvement in the

environmental performance of those certified in uncertain. To the extent that suppliers treat the

establishment of a management system seriously, and provide the resources and the

commitment necessary for effective implementation, then environmental improvements are

likely to follow, but such a response is by no means guaranteed. Rather, many suppliers may

view certification as simply one more hoop through which they must jump to stay competitive.

If so, this may produce a more cynical response of simply doing the minimum to gain
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certification, without the ongoing commitment necessary to bring about substantial

organisational and environmental change. Here, the audit capacity of buyers may prove crucial,

for it through this vehicle that they may be capable of subjecting their suppliers to strict

scrutiny.

Insurance and financing

Rapidly escalating insurance rates was one of the motivations for introducing Responsible Care

in the first place, for the chemical industry's track record of fires and explosions resulted in its

being treated unfavourably as a risk.706 Indeed, several insurance companies had refused

coverage for this reason, and the insurance industry as a whole, has become reluctant to provide

gradual pollution coverage (ie coverage for environmental impairment liabilities arising from

anything other than an accident). However, Responsible Care companies, particularly in

Canada, are now receiving favoured treatment from the insurance industry. Rates are being

reduced from what they would otherwise have been and in one documented case, a major

insurer has indicated they will reduce premiums by 50 percent if sound management systems

are in place.707 The rationale is that such a company will be more likely to be successful and

less likely to become liable for damage caused to the environment.

Similarly, the banking industry has been extremely concerned that they might face

environmental liability for chemical contamination clean up, a fear that in the case of the
708
United States CERCLA has already been realised. The result could well be that capital for

companies manufacturing or using hazardous chemicals would become either unavailable or

extremely expensive. Again, the Canadian experience, at least, is that Responsible Care

companies now have "several points" deducted from their project financing rates. 709

However, none of these developments flow naturally from market forces, or as a result of

Responsible Care alone. Take the case of environmental insurance. For such insurance to be a

viable proposition, the insurance industry needs the capacity to identify and quantify the risk: to
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estimate the probability that individuals and/or the environment will be affected by a particular

activity, the severity of those affects and their legal implications. 710 And it needs to be able to

do this in respect of each class of customers711.

In the past, these conditions have rarely been satisfied and the fragile environmental insurance

market has not flourished. Some attention has been given to the role that government could play

in creating those conditions. For example, Freeman and Kunreuther (1997) have argued that

what is required is that government set well specified standards and give predicability to that

market.712 If the legal conditions are well established and clearly specified and not subject to

frequent change then insurers can not only better predict the legal implications (and the costs to

themselves) of environmental damage caused by their clients, they can also police those risks

more effectively. Thus the insurers’ own inspectors can scrutinise their client's compliance and

impose sanctions (eg they can cancel the insurance policy if the legally prescribed standard

have been contravened). In effect, their inspectors can inspect using the legal standard as their

yardstick, and calculate the risks in terms of it.

In the case of Responsible Care, the industry associations were unsuccessful in persuading the

insurance industry to give discounted premiums to Responsible Care companies on the basis

that those companies were likely to be at substantially lower risk than non-member companies.

Understandably, the industry was more than reluctant to rely on the only evidence available that

that was indeed the case: the self-reporting of Responsible Care companies of their compliance

with the program codes. However, the introduction of independent audits in Canada, as

described above, has brought about a significant change in their attitude. The insurance industry

(or at least significant parts of it) has now apparently been persuaded that there is sufficient

independent evidence of improved performance on the part of those companies as to either

offer insurance where it would not have done so before or to offer substantially discounted

premiums to Responsible Care companies.

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While there remains the danger that some Responsible Care companies may still not achieve to

the performance level the Program anticipates, the introduction of independent audits (even in

the absence of demonstrable performance outcomes) reduces this risk substantially. It is not

necessary for the insurance industry to be sure that all Responsible Care companies meet the

higher standard, merely that on average they do, so that as a class, lower premiums can

rationally and profitably be offered to them. However, were better performance indicators to be

developed and companies audited against them, as suggested above, then even greater

opportunities for reduced premiums for best practice companies would be available.

While ISO 14001 in its current form may well have too many shortcomings for it to be similarly

relied upon,713 it is quite conceivable that "ISO Plus" (the ISO standard together with sufficient

add-ons as to make it a credible alternative regulatory path) could be used in this manner.

Banks and insurance companies, may in the future require ISO certification (with additions) as

a requisite to lending and provision of environmental insurance (or discount of premiums)

respectively. To the extent that governments can encourage and facilitate such developments by

the sorts of means indicated above, then there are strong reasons for their doing so, for as a

result, there will be both increased incentives for improved environmental performance by

individual enterprises, and a reduced burden on government resources.

Strategies for regulating smaller players

The second and third groups identified earlier, (suppliers, and specialty chemical manufacturers

upstream: purchasers and distributors downstream) present particular regulatory problems.

Some participants in the chemical products supply chain are small in size, lacking in

environmental specialisation, skills or even awareness of many of the environmental problems

that their handing of hazardous products can cause. Commonly, such firms present the biggest

headaches to government regulators. They are so numerous as to be hard to keep track of, and

are inspected only very infrequently, yet because of their lack of environmental awareness,
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skills and specialised resources (coupled in some cases by economic marginality) they are

amongst the least likely candidates for effective self-regulation.714

Some specialty chemical manufacturers present particular problems. Some of these companies

too, have very narrow profit margins. Most are of modest size and some lack economic or

technological sophistication. These problems are compounded by the fact that chemical

manufacturing is capital intensive. For small firms, there may be insufficient capital available

for environmental or other improvements.715 They are also beset by particular environmental

challenges intrinsic in the production of specialty chemicals. To remain competitive, these

firms must respond rapidly to requests to customer demand, and the sorts of orders they must

fill varies greatly. The result is that they must produce a large number of batch chemicals,

adjusting continually in response to their market. Their pattern of raw material usage,

equipment configurations and waste streams is very different from that of the large companies

described earlier.716 And because of their modest size, they have far fewer human and economic

resources to deal with the environmental problems this type of production spawns, or to devote

to regulatory compliance.717

For all these reasons, most these firms are unlikely candidates for regulatory flexibility

programs (though a minority might be capable of meeting the requirements of such programs,

and may be attracted to them if appropriate incentives are provided.718 A substantial number of

them may currently fall below the regulatory standard, let alone industry "best practice". Their

interest in and capacity to go "beyond compliance" by developing new and innovative solutions

to their environmental problems is, in most cases, very doubtful.719 They are also less amenable

to a number of "pressure points" which can be utilised successfully against large enterprises.

For instance, smaller enterprises will tend to have a much lower public profile than larger firms

and will therefore be far less susceptible to measures which attempt to harness community

pressure.
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So how should such groups be regulated and what instrument and policy mix is likely to be

most appropriate to their circumstances? It must be acknowledged that government regulation is

becoming much more sophisticated in dealing with such groups. In contrast to the older

approach which was characterised by chronic under-enforcement coupled with sporadic and

unsophisticated education campaigns, some recent innovations show considerably more

promise. These include:

• compliance assistance programs under which small businesses have regulatory requirements

explained in plain English, cost-effective environmental protection and waste reduction

opportunities identified, technical assistance provided and paperwork reduced; 720

• compliance incentives which recognise that many smaller businesses want to be good

citizens but fear asking for information for fear of possible enforcement action. Incentive

programs provide small businesses which are minor sources of pollution with a grace period

of up to six months to correct violations identified by compliance assistance programs. 721

Environmental audit policies in particular can provide incentives for self-policing,

encouraging enterprises to identify their environmental problems and opportunities, and to

take corrective action;722

• compliance plans designed to take account of the fact that: "improving environmental

performance takes time, and not all existing industries will be in a position to implement

improvements immediately".723 An enterprise may face practical difficulties in complying

with a particular provision introduced by new legislation. A compliance plan is intended as a

means of ensuring incremental improvements to bring the enterprise up to the legal standard

within a given time;724

• provision of expert consultancy services, training programs and financial incentives and

assistance. In this context, the European Commission is developing a uniform methodology

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for SMEs seeking to establish EMSs725 which would enable them to comply with the EMAS

at an acceptable cost;726

• use of non-mandatory codes of practice in conjunction with performance standards as a

means of giving small and medium sized enterprises the concrete guidance they demand,

while retaining flexibility727 (those who do not want to devise their own solutions can simply

follow the relevant code while those who wish to be more innovative can devise other means

of achieving the performance standard stipulated in the regulation);

• enabling SMEs to participate in an effluent trading scheme as a means to meet local limits

on the levels of discharge into publicly owned treatment works, thereby enabling industrial

users to achieve the required overall reduction in pollutant levels more quickly and

economically;728 and

• facilitating hazardous waste exchanges so that materials which cannot be used by the facility

that produces them but could be safely and productively used by another facility can be

exchanged, thereby providing both environmental benefits and economic benefits to both

parties. Here the role of government includes setting up or facilitating a clearing house of

information and educating enterprises concerning the benefits involved.729

However, these are all strategies for dealing with firms who are ready and willing to comply,

but do not necessarily know how to do so. There will also be a need to also to address those

businesses which are not so willing, or will only comply in the face of credible sanctions.

Specifically, given the economic problems facing many smaller enterprises and the lack of

resources and incentives which such enterprises face in coming into compliance, there will

inevitably remain a role for enforcement of regulations as an underpinning and backstop to

more creative and positive strategies. Without such an underpinning there is commonly

insufficient incentive for firms to take up more positive and creative strategies.
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Here regulators face particular problems in devising an appropriate enforcement strategy. These

include the large relational distance between small companies and regulators, the fact that

inspections are necessarily very infrequent, and that as a result there is little possibility of

negotiating compliance though ongoing visits and dialogue. Because there are so few options,

regulators often rely more heavily on deterrence.

So what are the best of the very limited range of options available? Experience in the related

area of occupational health and safety suggest that "a visit [by an inspector] is likely to be

relatively effective since small employers are more impressed than are many larger employers

by the authority wielded by government inspectors" 730 and that the very fact of an inspector's

visit, coupled with some form of enforcement action (eg an "on the spot" fine) may have a

significant impact on behaviour, even in circumstances where compliance costs will likely

exceed the economic benefits to the employer of compliance. Essentially, this is because such

action may serve to refocus employer attention on environmental problems they may previously

have ignored or overlooked.731 From this, one may reasonably conclude that a regulatory agency

can achieve a considerable impact by even a limited program of inspections, provided it is

reinforced by some degree of formal enforcement action sufficient to bring the problem forcibly

to the employer's attention even if the latter is not substantial,732 and even in the absence of full

or "wall to wall" inspections.

However, formal enforcement should be seen as a last resort, since positive encouragement and

voluntary compliance, to the extent that firms respond to them, is likely to achieve far better

results than negative sanctions. Firms should first be provided with assistance and incentives to

improve the environmental performance and redeem themselves. Specifically, inspectors could

link the provision of other government programs to encourage environmental protection (as

described above) with the execution of the spot fines, using the latter to underpin and to provide

an incentive for firms to take advantage of the former. That is, the best strategy is likely to

incorporate both carrots and sticks, and to use both instruments that push enterprises to comply
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as well as those that pull them to do so: and to do so in a manner that integrates these two

different types of mechanisms.

Perhaps one of the best illustrations of how this might be done is the agreement signed by the

State of Minnesota and the Printing Industry of Minnesota (PIM), a state wide trade association,

designed to significantly increase the use of environmental audits by printing firms, many of

whom are relatively small operations. It is based on the premise that a clear distinction should

be made between firms that have adopted detailed firm environmental compliance and pollution

prevention policies and those that take little or no positive initiatives in respect of

environmental protection. It seeks: "to better differentiate the good from the bad actors by

increasing the incentives to voluntarily comply with environmental laws and to pursue pollution

prevention initiatives".733 By encouraging voluntary compliance, the scheme will enable

regulatory resources to be redeployed and refocussed on those who are not responsive to

voluntary initiatives.

Under the scheme, the PIM Inc established a separate corporation, PIM Environmental Services

Corporation, to provide auditing services to PM members. However, it was also necessary to

provide some incentive to firms to engage in such audits. Government regulators were reluctant

to provide a total amnesty from prosecution for breach of regulations, simply because a firm

had engaged in such an audit, for fear of damaging the integrity of their enforcement program.

However, an agreement was reached whereby an auditing firm, which discovers environmental

violations and corrects them promptly, will have this fact taken into account when regulators

decide whether to initiate any enforcement action, whether an enforcement action should be

civil or criminal in nature, and what penalties to impose. Thus "a company which conducts an

auditing program in good faith and makes appropriate efforts to achieve environmental

compliance is likely to mitigate the consequences of any violations it discovers". 734

The PIM audit agreement demonstrates how the use of audit programs might be expanded to the

smaller players in the chemical industry that similarly do not have the resources or sometimes
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the motivation to conduct environmental audits, but who might be given incentives and

encouragement to do so. Such a policy might result not only in voluntary initiatives that

substantially improved environmental performance, but also in a far more flexible and cost-

effective response on the part of participants than is likely to be achieved through traditional

"command and control" government regulation.

The Role of Private Orderings: Responsible Care and product stewardship

While regulators are in the process of developing increasingly sophisticated strategies for

dealing with smaller firms, nevertheless, given the sheer numbers of such firms, there remain

serious limits on the capacity of conventional regulation even to reach them, let alone to

influence their environmental behaviour. Given the inherent limitations of government

regulation, are there other strategies capable of substantially improving the environmental

performance of buyers, suppliers, and specialty chemical manufacturers, of complementing

government regulation and compensating for its inadequacies?

In the case of the chemical industry, it would appear at first sight that the prospects for private

orderings to control the behaviour of smaller players are dim. Suppliers and most specialty

chemical manufacturers themselves often have no public reputation to protect, and are far less

vulnerable to shaming or to threats to their reputation than the large firms with whom they may

deal (so the role of environmental and public interest groups is therefore very limited).

Moreover, they have less capacity than large firms to take a long term view of the industry's

best interests.

However, that is to see only one side of the coin. First, in some jurisdictions at least, the

relevant specialty chemicals industry association has adopted Responsible Care. For example,

in contrast to their Australian counterparts, member companies of the United States Synthetic

Organic Chemical Manufacturers Association (SOGMA), are now signatories to Responsible

Care. Similarly, chemical distributor associations in Canada, the United States and United
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Kingdom are all exploring means of enhancing chemical distribution safety through the vehicle

of some form of partnership with Responsible Care. Driven in part by the need to counter

attempts to ratchet up regulation, these initiatives may yet prove valuable. The establishment of

mutual assistance networks, for example, enables companies effectively to turn to their peers

for information and expertise on how to implement environmental improvements code

principles. Such networks can be organised and administered through the relevant industry

associations, with the support of government and may stimulate awareness, technology transfer

and encourage innovation and a commitment to environmental protection and waste

management.

In the case of distributors, self-regulation has advanced substantially further. In the United

States, the Responsible Distribution Process includes a number of codes of practice, including

product stewardship,735 and also a third party verification process. Moreover, the relevant

industry association has already taken steps to eject some members who have manifestly failed

to move towards implementation of the codes.

However, with the exception of distribution, these initiatives are in their very early stages and it

remains an open question whether associations whose members are much less vulnerable to the

pressures that generated Responsible Care in the first place (the breakdown of public trust,

adverse publicity, and community outrage) and who have far less resources with which to

address the problems, will make anything like the same degree of progress.736 To date, progress

has been slow. For example, SOGMA members are only gradually adopting the Responsible

Care codes and at the time of writing it is too soon to say to what extent their behaviour has

been influenced by them. They have not, for example, committed to external verification, so

self-audit will be the only (and dubious) means of measuring their performance. These

companies are also considerably more reluctant to disclose information than their larger

counterparts, because their livelihood largely depends on producing a small numbers of

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chemical mixtures the ingredients of which are known only to themselves. And while some

engage in dialogue with local communities, many others make only token efforts to do so.

However, if participation in, or partnership with, Responsible Care, offers only uncertain

opportunities for specialty chemicals manufacturers and suppliers, there remains a second

prospect with far more potential for delivering environmental improvements through informal

social control, namely supply chain pressure generally,737 and product stewardship in particular,

which Responsible Care companies increasingly see the most appropriate and effective means

of substantially improving the environmental performance of suppliers, buyers, distributors and

specialty chemicals manufacturers.

Product stewardship involves taking responsibility for the health, safety and environmental

implications of a product from inception through to final disposition.738 It necessitates co-

operation with customers, distributors and contract manufacturers to ensure the product's safe

handling after it leaves the plant and embraces not only the activities of manufacturers but also

those of customers, distributors and suppliers. Its overriding philosophy is that "everyone in

your company, and everyone in your downstream chain is a product steward". 739 The aim may

also extend, where applicable, to upstream suppliers:

...to ensure that any relevant health, safety and environment issues that arise in the

development, manufacture, storage, transport, marketing, use, recycling or ultimate disposal

of a company's products, packaging and related waste, are dealt with in socially and

environmentally acceptable ways which meet with general community expectations, legal

requirements and company policy.740

To these ends, product stewardship implies a continuous process of risk reduction in

development, manufacturing, distribution, handling, use and disposal, together with

improvements in design, monitoring, education, and communication.741

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While the commitment of large companies to the success of Responsible Care (and their

awareness that the industry's prospects and reputation are only as strong as its weakest link)

might arguably be sufficient to ensure they become effective product stewards, there are

additional reasons of self-interest why they may choose to do so, including the threat of legal

liability. As one industry insider put it:

...we cannot overlook the liability aspects of the chemical industry. We have learned that not

only can we be sued whenever we misuse products, we also face liability lawsuits when our

customers misuse them. By making our customers better stewards, we have reduced our

liability as well.742

But legal concerns are not the only driver of effective product stewardship. Dow Chemical

Company, the leaders in this field, have found that their product stewardship program is an

important sales tool,743 and also reduces insurance premiums and improves the company's

public profile. Finally, there may be opportunities for large firms to provide commercial

consulting services and to profit by marketing their services to downstream customers. Thus for

large firms capable of taking a long term view, and with the sophistication and skills to

implement an effective product stewardship program, enlightened self-interest may be

sufficient to prompt effective product stewardship.

But even if the large companies have the self-interest to make product stewardship work, do

they have the power, given that upstream suppliers or downstream customers of large chemical

companies may be reluctant to embrace these principles voluntarily? The answer is undoubtedly

that they do, at least when they are contracting with smaller trading partners, because of the

imbalance of power between large companies and their smaller suppliers and customers. The

latter are often heavily dependent upon a small number of large trading partners for the large

majority of their trade. Some specialty chemicals manufacturers, for example, rely heavily on

the work that is contracted to them by major companies. This gives the large companies the

leverage to ensure that small companies actually do all that a large chemical manufacturer
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requires.744 in other cases of course, (as when chemical companies are supplying to large

distributors) the imbalance of size and dependency is far less, and fear of losing a sizeable slice

of business may militate against a large chemical manufacturer threatening to withdraw its

business in this manner.

Nevertheless, where such imbalance of size exists, then, this leverage which large companies

can commonly exert over their small trading partners is crucial, particularly in the absence of

any body capable of compelling compliance with self-regulatory standards. This makes product

stewardship fundamentally important to the success of Responsible Care - it is the only Code

capable of inducing non-participants or reluctant participants to comply with its goals. For this

reason, many industry figures argue that the Code is likely to be substantially more effective

than any legislation could be in ensuring that companies dedicate time and resources to health,

safety and environmental concerns.

Specifically, under product stewardship, the environmental practices of small companies can be

controlled through a combination of information, customer training, and audit. First, large

chemical manufacturers can provide the information which many of their suppliers and

customers lack. Second, they can educate and train suppliers, customers and their employees on

the safe handling, use and disposal of products,745 share advanced technology on how to

minimise the hazards, and provide facilities for recycling or reclaiming hazardous products. 746

To ensure that suppliers and buyers actually implement environmental safeguards, large

companies can request information on storage, handling, use and disposal practices, insist on

the introduction of appropriate EMSs, and oversight the effectiveness of these practices and

systems through periodic audit of the supplier's safety and environmental practices. For

example, Dow insists on conducting an audit before it agrees to supply a new customer with

hazardous material, and routinely audits its distributors. The audit involves a team visiting the

distributor's operations to examine handling, transportation, storage and terminating techniques

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and prescribing improvements aimed at achieving environmental standards far in advance of

current regulatory requirements.747

Many large chemical manufacturers go further and impose specified levels of environmental

performance as a condition of contract. They also scrutinise a tenderer's EMSs and past

environmental record and those factors weigh heavily in deciding to whom to award the

contract. In effect, many large chemical companies now choose only to deal with firms that can

demonstrate satisfactory environmental performance. As one major chemical producer

succinctly put it: "We do not hire the lowest bidder; we hire the carrier least likely to put our

products into the Houston Ship Channel".748

Yet despite its central role, Product Stewardship is far harder to test, measure or pin down, than

any of the other Codes of Practice. As the CMA acknowledges:

As far as management practice goes, we know we can't define it ahead of time. Since

companies are all different they'll have to pick their own unit [of measurement] whether it's

a product line or a business unit, but we don't see how it could be facility-based like the

other [codes] are .749

In time, self-evaluations may shed further light on how effectively Product Stewardship is being

implemented - though current efforts focus on perceptions rather than outcomes. For reasons

discussed above, it will also be necessary for these self-evaluations to be both accessible to the

public and subject to third party audit if they are to have credibility, 750 and for this process to be

reinforced by the development of independent performance indicators.

Even if this occurs, product stewardship will continue to face substantial challenges.751 First,

extending it backwards towards upstream suppliers752 and maintaining control once the product

has passed beyond the first point of sale753 are proving to be extremely difficult and sometimes

intractable problems. These problems and others are exacerbated by the competing demands on

corporate resources necessary to implement such an all encompassing code. 754 Sometimes,
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where competition is fierce, a large firm will be most reluctant to sever relations with a small

supplier who provides a product at a very good price, but is unwilling to comply with product

stewardship, unless it is confident that its competitors are applying the same policy (the

problem of "mutual assurance" again). Second, the code's emphasis on disclosing knowledge of

how a company's products are actually used, is meeting resistance from those who fear it may

intrude on a customer's proprietary information. Third, unlike the other codes of practice, there

is no obvious location within a company which to entrench product stewardship, and the sales

and marketing units which have direct customer contact have a strong disincentive to promote

it, insofar a this will threaten their sales and commissions. Fourth, the product stewardship

code, at least in its present form, only addresses the systems adopted by suppliers and

customers, it does not address the environmental outcomes they achieve.

In summary, while product stewardship is still evolving and may have an uneven impact on the

behaviour of upstream and downstream links in the supply chain, it holds out the promise of

influencing the behaviour of those groups in ways which go far beyond what is available to

government regulators. However, given its limitations and uneven impact it cannot replace

regulation, but needs to be utilised in conjunction with it.

This brings us to the final question: what is the most appropriate relationship between product

stewardship and government regulation? In our view, government’s role should be to facilitate,

encourage and complement product stewardship. Such a strategy involves a number of

components. First, it might involve various means of encouraging and rewarding product

stewardship practices. For example, companies committing themselves to transparent and

accountable forms of product stewardship could be rewarded with various forms of public

recognition and public relations benefits. Second, as Dillon and Baram (1993) argue,

governments might identify limits of current initiatives and areas where additional efforts are

needed, encouraging voluntary efforts by "providing industry with the opportunity to apply its

expert knowledge of its products and markets to the issues and to the formulation of response
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strategies."755 Third, regulators might create market-based incentives on firms to achieve some

product stewardship requirements, such as stimulating technology transfer. Fourth, small firms

themselves, might be subject to differential enforcement policies dependent upon whether they

had signed up for a transparent and accountable form of product stewardship in respect of

relevant products. For example, those who had not, might be made a higher enforcement

priority. Finally, the effectiveness and breadth of product stewardship could be considerably

increased by a regulatory requirement for major companies to take on the product stewardship

requirements which are currently merely voluntary and unenforceable. 756 Significantly, some

regulations in Europe and the United States already require companies to engage in some forms

of technology transfer.757

Broader lessons

Thus far, we have sought to analyse the limitations both of traditional regulation and of more

innovative alternatives, such as Responsible Care and ISO 14001, as they relate to the chemical

industry. However, recognising the very considerable merits of the latter approaches, we have

suggested a number of ways of building on their strengths while compensating for their

weaknesses. Drawing from that analysis, in this section we seek to identify some broader

lessons from the chemicals sector that can be applied to industrial regulatory design.

These themes will be further developed in chapter six. It is important to recognise at the outset,

however, that this process is intended to be evolutionary, not revolutionary: we have chosen to

build on an existing regulatory framework, in this case self-regulation in combination with

command and control, through incremental change rather than contemplate a wholesale revision

of policy direction. This approach necessarily restricts the range of instruments and strategies

that might be invoked as compared to a scenario where there is no pre-existing regulatory

framework. By way of contrast, in the following chapter on the agricultural sector, we address
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the issue of biodiversity conservation on private land, where policymaking is less constrained

by existing regulatory requirements.

1. Instrument Ordering: Towards a "two-track" regulatory strategy

As we have seen in the chemical sector, there are many different types of companies when it

comes to regulatory performance. There are both leaders and laggards, those who are willing to

go "beyond regulation" and those who are not, those who will comply voluntarily and those

who will resist regulation to the extent it is rational to do so. Add to these the irrational and the

incompetent and it becomes readily apparent that no single regulatory approach is likely to be

appropriate to all regulatees in all circumstances. How then can regulation be designed to

accommodate the very different characteristics and motivations of regulatees?

The best strategy is to provide incentives for those enterprises which would be willing to do

more than the law requires, while also supporting and assisting those, generally smaller entities,

who are willing but at present incapable, of even coming into compliance with existing

regulatory requirements. Finally, it is also necessary to have a strategy for dealing with wilful

and/or irrational polluters.

We argued earlier that a serious limitation of most existing forms of regulation (in contrast to

economic mechanisms) is that they do not encourage firms to go "beyond compliance". Yet,

some enterprises at least, (particularly in the chemicals sector, given the need for large

enterprises to establish their environmental credentials) might be willing to do far more than

current regulations require. Indeed there are some who, while less than perfect, genuinely strive

to be regarded as good corporate citizens. To be sure, what we might describe as "the lure of

virtue" is far from universal. One would be naive to suggest that it always triumphs over "the

lure of profit". But to the extent that a number of chemical manufacturers can be seen to be both

doing good and doing well, they set an example for the rest of the industry. They are the

"benchmark" companies. By inspiring imitation of their best practice, and by exerting

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competitive pressure, they have the potential to foster improved performance by other industry

players, both large and small. One important role of best practice environmental regulation

should be to facilitate such behaviour, and to nurture virtue by providing a range of incentives.

A necessary first step is to create a legislative framework which harnesses market forces, so as to

encourage rather than inhibit commercial drive and innovation. In particular, governments should

avoid overly prescriptive regulations and instead confine themselves to setting targets or

boundaries, and processes for achieving better results, leaving it to business itself to determine

how best to reach those targets. The expectation is that the drive to achieve competitive advantage

will stimulate companies to achieve those targets voluntarily, often through technological

innovations.758 Already, some of the largest chemical manufacturers have declared an ultimate

goal of zero impact;759 whilst unrealistic in the short term, it remains a target and exists as a

constant reminder of the objective of continuous improvement.

The shift from a reactive ad hoc approach to pollution control to one where environmental

improvement is integrated with an enterprise's core business activities is equally important. EMS

is the most appropriate vehicle for achieving this aim. Such systems, when successfully

implemented, have proven capacities to achieve continuous improvement, cultural change and

substantially improved environmental outcomes. Commonly too, they save money by reducing

resource use and achieving other efficiencies. However, there are two important constraints

upon the use of systems-based approaches. First, they cannot be successfully forced upon those

who have no interest in adopting them (conscripts as contrasted with volunteers). 760 Second,

they are difficult (though by no means impossible) to adapt to the needs of SMEs. Accordingly,

we do not advocate their incorporation in regulation across the board but only in particular

circumstances. From this we conclude that two distinct types of regulation will be necessary:

one for those firms which are willing and able to adopt a systems-based approach (which will

be largely, but not exclusively, large firms)761; and another for those which are not.
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This implies the creation of a two-track regulatory system under which firms (or at least firms

with certain environmental credentials762) are offered a choice between a continuation of

traditional forms of regulation on the one hand (track one), and the adoption of an EMS on the

other (track two). The latter will put primary responsibility on industry itself to find optimal

means of achieving environmental performance outcomes, and will involve "regulatory

flexibility" under a partnership between the regulatory agency, the enterprise and the local

community, from which all sides will benefit. Additional incentives to encourage firms to adopt

track two, will be provided, as described earlier. To prevent abuse, various transparency and

accountability mechanisms, and a regulatory underpinning, will also be necessary.

However, while we have emphasised the partnership nature of track two, even track one, which

implies a conventional regulatory approach, need not involve an adversarial relationship

between regulator and regulated. Rather, there is a case for developing a more cooperative

approach, even under traditional regulation, for those who are motivated to comply voluntarily.

Provision of advice and technical support holds out the greatest promise for institutionalising

responsibility763 and is likely to achieve far better results than grudging compliance in the face

of negative sanctions.764 Earlier in this chapter, we suggested a number of specific co-operative

strategies to enable smaller firms in particular, to come into compliance, while also noting the

considerable potential of industry self-regulation to facilitate mutual assistance - sharing best

industry practices, helping companies that lack the technical and organisational capability to

implement the codes, and so on.

But it is also the case that a commitment to dialogue, persuasion and cooperative problem

solving only makes sense under the right circumstances; namely, when the principal source of

non-compliance is not wilful disobedience, but rather a lack of organisational capacity to either

understand or implement those norms.765 In those cases of non-compliance that stem from

wilful disobedience a different approach is necessary? Here the cooperative approach can all

too easily turn into weakness and undue permissiveness. As Ayres and Braithwaite (1992) have
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pointed out: "The problem with the persuasion model ...based as it is on a typification of people

as basically good - reasonable, of good faith ... is that it fails to recognise that there are some

who are not good, and who will take advantage of being presumed to be so". 766 For this last

group, as we indicated earlier in this chapter, the bottom line must be a deterrence-orientated

approach that makes it no longer economically rational for a business to ignore its environmental

responsibilities. The appropriate maxim is to "talk softly, but carry a big stick".

Thus, good regulation means invoking different strategies, depending upon whether or not

business is willing to genuinely to embrace regulatory flexibility and beyond compliance

strategies, and even when it is not, dependent upon whether or not the enterprise is a wilful

polluter. This implies an ordering of regulatory responses by the state. The first preference is for

enterprises to voluntarily go beyond compliance with the state encouraging them by providing

considerable autonomy and flexibility and other incentives but subject to certain safeguards

including third party audit and community participation ("track two"). The second preference is

for a co-operative and supportive role for the state, facilitating compliance from those who lack

the resources or capacity to achieve results in the absence of such positive intervention. The third

preference is for a more directive, interventionist, and where necessary, deterrence oriented

approach in order that wilful polluters do not benefit from non-compliance or gain an unfair

advantage over those who comply voluntarily.767

Having introduced such a "tiered response", the dilemma for regulators is that it is often not

possible to be confident in advance of which classification a regulated firm falls into, and still less

so to distinguish rational economic actors from the irrational or incompetent. For example, if a

regulator assumes that all firms who embrace regulatory flexibility through Responsible Care of

ISO 14001, will devise strategies that will take them beyond compliance with traditional

regulatory standards, then it may devise a regulatory strategy that stimulates voluntary action by

enlightened enterprises but which is incapable of effectively deterring those who have no intention

of implementing tangible improvements (as opposed to "paper improvements"). On the other

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hand, if regulators assumed that all firms fall into the second category, and require threatening

with a big stick in order to bring them into compliance, then they will unnecessarily alienate (and

impose unnecessary costs on) those who would willingly comply voluntarily.

A solution to this dilemma, suggested by our colleague John Braithwaite, is the regulatory

enforcement pyramid.768 Regulators start at the bottom of the pyramid assuming that business is

willing to comply voluntarily, without any threat from government. However, they also make

provision for circumstances where this assumption will be disappointed, by being prepared to

escalate up the enforcement pyramid to increasingly deterrence orientated strategies. Thus to the

extent that departures from compliance come to the attention of regulators they are met with state

response which has the capacity to escalate or de-escalate depending on the subsequent behaviour

of the regulatee. This element of credible enforcement and increasing deterrence as regulators

escalate their response against those unwilling to comply voluntarily, is essential to the success of

the enforcement pyramid. Yet, as Braithwaite (1993) points out:

A paradox of the pyramid is that the signalled capacity to escalate regulatory response to the

most drastic of measures channels most of the regulatory action to the cooperative base of

the pyramid. The bigger the sticks at the disposal of the regulator, the more it is able to

achieve results by speaking softly.769

In summary, we propose both an ordering of regulatory strategies (with different approaches for

those willing to go beyond compliance, those who are willing but not able to comply, and wilful

polluters) and also an ordering of regulatory enforcement responses incorporating escalating

responses to non-compliance.

2. The Limits of "Stand Alone Instruments": Towards co-regulation and tripartism

We have already identified both the strengths and weaknesses of two main alternatives to

traditional forms of regulation: Responsible Care and the management systems approach of ISO

14001. For example we have demonstrated the very rich possibilities for informal social control
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through Responsible Care and its capacity to achieve many changes in industry attitudes,

morality and behaviour, that are largely beyond the reach of the State, while recognising that

the free-rider and other problems that beset the program770 make it a far from adequate "stand

alone" policy instrument. We reached similar conclusions concerning ISO 14001 as a

regulatory flexibility tool.

What then are the essential prerequisites for either self-regulation or EMS to function as

effective and efficient agents of public policy? What is the most appropriate relationship

between either of these approaches and government regulation? And how can we achieve an

appropriate integration of government, community and industry involvement? We address these

questions by recognising the need to integrate these mechanisms into a broader regulatory mix in

such a way that their weaknesses can be compensated for and their strengths built upon, and that

crucial to doing so will be designing appropriate co-regulatory and tripartite mechanisms.

Based on our analysis of the chemical sector, there are four key components necessary to

achieve the successful integration of "regulatory flexibility" and traditional government

regulation (in essence, what we described earlier as a two-track regulatory system), and the

meaningful engagement of non-commercial third parties. These are:

(i) That those enterprises engaging in regulatory flexibility ("track two") should adopt

practices and processes that lead to the pursuit of "beyond compliance" goals and include

outcome-based requirements, the achievement of which can be measured through specific

performance indicators.771

(ii) That there should be independent verification both of the functioning of their management

system and of environmental performance under it (eg by a third party environmental auditor),

with the results or a summary of the results available both to the regulator and third parties such

as community groups (transparency).772

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(iii) That there should be an ongoing dialogue with local communities concerning "beyond

compliance" goals and the means of achieving them (this ensures the credibility and legitimacy

of the process and enables third party input and oversight).

(iv) That there should be an underpinning of government intervention; acting as a safety net

which only "kicks in" when triggered by the failure of the other less intrusive mechanisms

described above. The principle objective of these requirements is to ensure that the forms of

regulatory flexibility we have proposed both deliver demonstrable (and measurable) outcomes

and gain community credibility.773 This means that not only business and government, but the

community too, must be directly involved in decision-making. In the environmental arena, where

firms are often unwilling to implement regulation voluntarily, and where regulatory agencies are

frequently under-resourced and relatively ineffective, then clearly public interest groups can play

an important role, and demonstrably already do so. Thus critical components of a policy mix will

be independent third party oversight rather than self-regulation, and tripartism rather than

bipartism, and an underpinning of government regulation (co-regulation) acting as a back stop

where other mechanisms fail.

3. Regulatory surrogates

Enforcement of environmental regulations is an essential but very time consuming and

expensive task. Given that government regulatory resources are already overstretched and in

many jurisdictions, are further contracting, there is a compelling need to use them efficiently.

An increasingly legitimate question confronting policy makers, therefore, is whether or not it is

possible to identify alternative means by which it might be possible to either replace or

complement government regulation. One important strategy for doing so is to delegate

regulatory responsibilities to other parties in circumstances where this is a viable option,

thereby freeing up resources which can be redeployed to areas where there is no alternative to

government enforcement. In addition to relieving some of the fiscal burden on the state,
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regulatory surrogates my enable the redeployment of scarce resources where no alternatives to

state intervention exist.

Before discussing opportunities for recruiting surrogates, there is an important qualification to

be made: that they should only be used where doing so will provide overall effectiveness and

efficiency gains. This is by no means always the case. For example, in terms of effectiveness,

some self-regulatory initiatives are intended more to confuse the public and keep regulators at

bay than to genuinely further the goals of environmental protection.774 Similarly, in terms of

efficiency, the added costs involved in mandatory disclosure of environmental information by

business may, in some circumstances, outweigh the efficiency gains that this promises in terms

of enhanced enforcement.775 On occasion, surrogates for government regulation may conflict

with other assessment criteria, for example in terms of their equity implications or political

acceptability. These too, would need to be mitigated or overcome.

Potential regulatory surrogates and their roles

Non-government parties which might potentially play the role of surrogate regulators, acting as

informal instruments of social control, fall into one of four categories: regulated enterprises

themselves, industry associations, commercial third parties and non-commercial third parties.

Each of these groups is discussed briefly below.

First, individual enterprises might regulate themselves. In a modest way, they are often required

by law to self-police. For example, it is common for companies to be required to monitor their

own releases and report departures from their permit requirements to the authorities. More

broadly, initiatives such as Responsible Care and ISO 14001 assume that they will do far more:

including implement and administer quite sophisticated codes of practice and environmental

management systems. However, without external oversight, there are enormous opportunities

and temptations to cheat and even if enterprises do not succumb to these, the community is
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unlikely to be convinced by their claims to environmental excellence based purely on self-

monitoring and self-reporting.

Turning to the second group, there is some scope for the regulation of member companies by

industry associations, at least in the case of a program as sophisticated as Responsible Care.

However, effective regulation requires an organised and diligent industry association, with the

support of the majority of members for it to take on an enforcement role. Such is rarely the

case. Even with Responsible Care, the industry association has not been given sufficient powers

to fulfil this role. This serves to emphasise the grave dangers involved in relying on industry

association self-regulation alone and the critical roles likely to be played by third parties and an

underpinning of government regulation.

The third group, commercial third parties, can make a very different, but often more important

contribution to environmental protection. As we have witnessed in the chemical sector, they can

do so principally through exerting supply-side pressure, where larger firms can both assist and

bring pressure upon their smaller vendors to achieve environmental goals. Such assistance

could take the form of environmental management expertise, quality control, product design,

advice on clean technologies or regulatory compliance audits. The objective would be to deliver

mutually beneficial outcomes: smaller firms gain expertise to improve their environmentally

performance in way that reduces compliance costs and improves productivity and larger firms

gain a more reliable, cleaner and efficient supplier. The influence exerted by financial

institutions such as banks and insurance companies over their clients, and the power of markets

(eg the power of financial institutions, investors and green consumers over individual

companies) in another example of commercial surrogacy. They could potentially fulfil

monitoring functions reinforced by sanctions, in a manner which can often be more effective

than government regulation. Financial markets too, can play an important role in rewarding

those firms who demonstrate a commitment to cleaner production as can independent

certification organisations.
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The fourth group, non-commercial parties, community and environmental groups in particular,

have become influential participants in the environmental arena. Extrapolating from the

chemical industry, there are at least two opportunities for the community and community

groups to encourage an improved industry performance. First, the community can be a powerful

motivator for firms to enhance their public image. Local communities, regional and national

environmental groups, or even trade unions, could play an important role in scrutinising the

behaviour of firms, and many already do so. Provided they have access to sufficient amounts of

relevant and reasonably accurate information, then they can bring pressures on firms through a

combination of adverse publicity, whistle blowing, litigation and local community politics. 776

Second, community representatives may directly engage industry in a partnership role.777 For

example, as we have seen, the chemical industry has made some moves to involve community

representatives in the administration of Responsible Care, through the creation in Australia at

least, of the NCAP.

The use of independent auditors can also be considered a form on non-commercial third party

regulatory surrogacy. Although in many instances the cost of the audit will be borne by the

enterprise, the relationship is "non-commercial" in the sense that the activity does not relate to

the enterprise's normal business activities and there is no ongoing commercial relationship. The

certification of management systems adopted under ISO 14001 and subsequent performance in

terms of that system, is a typical example.

Sometimes, a combination of these two surrogacy options may be adopted, as under

Responsible Care where firms self-monitor and self-report under the close supervision of their

industry association but are also (in some jurisdictions) subject to periodic third party audit.

One major consequence of the use of surrogates is a recasting of the role of government

regulators. With far less need for their direct involvement, regulators may take a back seat,

intervening only to the extent that surrogacy mechanisms break down in practice, or need

external support in order to make them effective. Indeed, as we describe below, a major role for
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government in these circumstances may be that of facilitator or broker (ensuring the effective

involvement of appropriate third parties) rather than that of direct participant.

The potential to harness non-government parties as surrogate regulators is, however, not

without limits. For example, although local communities may in principle exert considerable

influence over companies operating in their area, in reality there may be not be any genuine

community, or the costs (in time, energy and opportunity costs) involved in attending meetings,

negotiating or otherwise participating in dialogue with companies may prove overwhelming

with the result that any embryonic community participation soon dissipates. Again, some

financial institutions may be preoccupied with the bottom line, rather than with the means of

getting there. Despite the considerable attractions of regulatory surrogates, none is likely to be

effective as a "stand alone" instrument and in each case must be integrated with, or function

against the backdrop of some continuing form of state intervention. We further explore the

implications of integration and principles for the design of policy mixes in chapter six.

4. De-centering the State: Government as facilitator, catalyst and activator

Between the polar extremes of deference to spontaneous market orderings on the one hand, and

the "Regulatory State" on the other, there is often a middle path. Too rarely considered by

ideologies of either regulation or deregulation it entails government acting as catalyst,

facilitator and activator rather than as direct regulator. Many of the regulatory modifications

suggested from our analysis of the chemical sector, in particular the use of regulatory

surrogates, require just such a change of role. Pertinent examples where the state can adopt this

new mantle include:

(i) Where a state agency chooses to endorse a self-regulatory program such as Responsible

Care - or the activities of a particular company in compliance with it, by permitting the use of

an agency logo or other official seal of approval, thereby giving the public greater confidence in

the code's credibility.778

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(ii) Where government provides the conditions conducive to appropriate private sector

initiative. For example, government might encourage supply chain pressure through the

incorporation of product stewardship provisions into regulatory flexibility (eg as a condition of

track two regulation) or it might enact legislation making all manufacturers responsible for their

products throughout their life-cycle.

(iii) Where government directly influences manufacturers through its purchasing power, making

certain environmental requirements conditions of government procurement contracts. 779 In this

way, government adopts the role of a commercial third party, as opposed to a regulator.

Because in many markets, government is a dominant purchaser, it can provide a leadership role

in dictating market preferences for products by developing and implementing a green

purchasing policy. For example, governments could support cleaner production by requiring

their agencies to select the items with the highest percentage of recovered materials practicable

while at the same time maintaining a satisfactory standard of competition.

(iv) Where government harnesses the influence of, financial intermediaries such as banks and

insurance firms, or financial markets, such as investors and consumers. The role of these third

parties will be dependent on access to reliable and independent information (based on accurate

and shared indicators of environmental performance) to enable them to take environmental

performance into account when determining a firm's financial worth, or whether to grant it a

loan, or a differential insurance premium. A key role for government is to ensure that the

necessary information to leverage financial institutions to support the improved environmental

performance is readily accessible.780

(v) Where government enables non-commercial third parties to function as an effective

countervailing force to the power of industry. For example, "Good neighbour agreements"

between chemical firms and local residents are common and potentially effective in both

Europe and the United States.781 Here, the a role for government is to insist on community

participation as a condition for regulatory flexibility. For example, it is a requirement under the
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United States EPA's Project XL, that community organisations and other local stakeholders

have the opportunity to shape and vet a firm's environmental management strategy. It may also

mandate the provision of information and technical support as necessary prerequisites to make

such a policy effective.

(Vi) Where government acts as a clearing house for information, as in the example of "waste

exchanges" where a material that is waste to one facility can be productively used in another

and both would benefit but lack the information or opportunity to make such exchanges.

Thus in a wide variety of circumstances, government can function more effectively by "steering

rather than rowing" judiciously facilitating third parties to perform more effectively, many of

the functions it performed directly in the past.

5. Accountability, Transparency and Consultation

As we have seen, neither Responsible Care nor ISO 14001 or any other management systems-

based approach, is likely to function effectively in the public interest in the absence of adequate

mechanisms ensuring accountability and transparency. Where an enterprise self-monitors there

will be a temptation to misrepresent the results, providing an overly favourable account of its

environmental performance, particularly if there are regulatory or public relations benefits to be

gained from so doing. Irrespective of whether firms succumb to this temptation or not, the

public will not trust the results.

Moreover, in many countries, and particularly in the United States, where a tradition of

adversarial legalism inhibits disclosure, industry has been extremely reluctant to reveal more

information about its activities than it has to.782 Even under Responsible Care, it is only

gradually that this resistance to disclosure is being reversed. But substantial parts of the

industry itself (at least outside the United States) have now realised that transparency and

accountability are essential for without them it will lack the credibility and legitimacy which
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are fundamental prerequisites for the granting of regulatory flexibility and greater autonomy of

action.

To overcome these temptations and to reassure both regulators and communities that an

enterprise is indeed achieving the results that it claims (and in order to bring pressure upon

those whose performance is below standard) a number of mechanisms of accountability and

transparency might be invoked. As described by Gunningham and Rees (1998), the necessary

first step is the promulgation of the principles and practices that the industry accepts as a guide

to appropriate conduct (for example, the Responsible Care codes of practice, or the

management system requirements under ISO 14001). This is because:

...an industry's public commitment to such principles can generate new expectations of

accountability, both inside and outside the industry, including demands for more concrete

and specific norms...[and because] industry, by clarifying the normative standards it sets for

itself, including performance indicators and implementation timetables, also provides more

precisely defined measures for evaluating and criticising its performance. With increasing

transparency, in short, accountability is more readily maintained.783

However, such normative standards will only have value if they measure variables that are

important and appropriate indicators of performance We noted above the importance of

establishing independent performance indicators and other matrix. And the results themselves

will only have credibility if the data gathering process on which they are based is demonstrated

to have integrity. Here, central questions will be who does the monitoring, who pays for it, and

who, if anyone verifies that process.784

Finally, the levels of accountability and transparency will be greatly enhanced if there is public

disclosure of the results in a form that enables comparison of enterprises against each other and

against an independent outside standard (eg a regulatory performance standard). In this last

respect, both ISO 14001 and Responsible Care fall far short of the ideal in terms of their ability

to enhance the accountability of chemical company officials. 785 For example, contrast the very
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limited progress under Responsible Care described above with the achievements of one other

advanced self-regulatory body, the Institute of Nuclear Plant Operators, which has for some

years ranked nuclear plants in terms of their safety performance, and communicated this

information to the industry in such a way as to make industry Chief Executive Officers (CEOs)

acutely aware of the relative status of their plants and the implications. 786 This in itself is a

powerful accountability mechanism capable of: "institutionalising responsibility and building

moral competence into the structure of the enterprise".787 Whether Responsible Care will ever

develop to this degree of transparency and accountability, remains a moot point.788 ISO 14001

certainly will not. While some companies are now seeking commercial advantages through

voluntary disclosure and transparency (usually through an environmental annual report) they

remain the minority and the bulk of enterprises continue to resist such disclosure. 789

In this context we have already noted the crucially important role of information disclosure

mandated by government, such as CRTK, which is premised on the assumption that public interest

groups, if empowered by sufficient information, can act as an effective countervailing force.790 It

has also encouraged introspection, helping firms to identify waste reduction opportunities

independent of external pressures. Such regulation through information is made doubly effective if

the citizens and commercial actors who have access to information about corporate and

government agency pollution are granted the opportunity: (1) to sue regulatory agencies for failure

to enforce regulations; and (2) to sue corporations if the Environment Protection Authority (EPA)

is unwilling to file suit itself.

Finally, over and beyond (but closely related to) issues of transparency and accountability, is

the role of community participation and dialogue. As we have argued, the active encouragement

and indeed the institutionalisation of public participation, are also crucial not only because of

their democratic benefits, (those who have had an opportunity to participate in decisions feel

much greater ownership of them) but because without it there can be no genuine partnership in

environmental decision-making. Moreover, they can provide important benefits in terms of

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environmental performance: "In the long run, the empowerment of local interests and

institutions through stakeholder processes should help to find creative solutions and to

harmonise national goals to local needs in a sustainable society."791

Under Responsible Care, a number of mechanisms that facilitate consultation are already in

place. In addition to information-based strategies already described, they include the role of the

National Community Advisory Panel in scrutinising draft codes and other proposals and the

developing contribution of regional community groups. ISO 14001 makes no comparable

attempt to build in community consultative mechanisms. Nevertheless, as we have argued

above, ISO Plus, of other variations of regulatory flexibility, must necessarily do so.

6. Complementary instrument combinations

What are the broader lessons concerning regulatory mix to be learnt from our study of the

chemicals industry? What is perhaps most striking is the extent to which the approach we have

marked out relies on complementary combinations of instruments and actors: how the

weaknesses of both Responsible Care and ISO 14001 and other management systems can be

compensated for and overcome through a combination of performance indicators, third party

audits, community right to know and other forms of community input, and through an

underpinning of government oversight. Indeed, there is now almost a convergence of thought

amongst those seeking to design various forms of regulatory flexibility in the USA that these

are indeed the core ingredients of a successful alternative regulatory approach. 792

However, over and beyond the importance of designing complementary combinations

integrating these components, four additional elements of optimal regulatory mixes must be

emphasised: the capacity to achieve better results through activation and reinforcement of one

instrument by another; the importance of designing "push-pull" combinations; the significance

of designing complementary enforcement options; and the need to avoid counterproductive

combinations with unintended consequences.

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Activation and reinforcement

It is both possible and desirable to select combinations of instruments in which one instrument

activates and/or reinforce the effect of another. For example, in the context of Responsible

Care, the chemical industry had long sought to achieve a reduction in insurance premiums for

participants in Responsible Care, both as a means of making the scheme more attractive

(perhaps leading to recruitment of new members) and of rewarding better environmental

performers. The obstacle was that the insurance industry lacked any independent indicator of

the of the performance of Responsible Care members and was not willing to rely on self-

assessment by individual companies. However, the introduction of independent third party

audits in Canada has served not only to increase the credibility of the program with the public

and local communities, but it has also given the insurance industry the independent verification

it required in order to provide discounted premiums. Thus independent verification has served

to activate differential insurance premiums which in turn increases the economic benefits of

Responsible Care and serves as an attraction to participation. And of course the promise of

differential premiums could serve as an inducement to develop independent audits in the first

place. In this respect the two mechanisms are also mutually reinforcing. In similar fashion,

financial market response to environmental performance can be activated by information. 793

Rather than fulfilling an activating role, some instruments enhance or reinforce others. For

example, in the abstract, the codes of practice under Responsible Care are only voluntary

measures which are of guidance to Responsible Care members and of no consequence

whatsoever to non-members. However, they are important in indirectly shaping the regulatory

environment, and in influencing the firm's perceptions of it. In the regulatory context, in many

jurisdictions companies have a general legal obligation of "due diligence", or reasonable care,

in the conduct of their operations. The definition of due diligence is often imprecise. However,

in part, courts go about deciding what it means by asking if a defendant, has met the accepted

standards of the relevant industry. For the chemical industry, it is highly probable that the
 278

courts will look to Responsible Care as a standard not only for Responsible Care members but

also for other chemical companies.794 Non-participants in Responsible Care are at greater risk

of legal liabilities than members. Thus Responsible Care and due diligence are mutually

reinforcing: due diligence becomes more precisely defined as a result of the Responsible Care

codes, and the Responsible Care codes become enforceable through due diligence.

There are also a number of other means through which self-regulatory mechanisms such as

Responsible Care can be reinforced. For example, we have already observed that compliance with

their terms can be made a term and condition of contracts in the supply chain. Government

procurement contracts can make participation a prerequisite for tendering, and codes may be

cross-referenced with other voluntary and legal regimes (for example under ISO 14001 a

participant who has signed on to a voluntary program such as the CERES principles or

Responsible Care, is required to comply with the terms of that program in order to obtain ISO

14001 certification). Similar combinations may be equally important at the level of enforcement.

For example, both government inspectors and insurers may play important, overlapping, but in

important respects, different, enforcement roles, which as a result are more commonly

reinforcing than redundant.

Using combinations which both "push and pull"

Organisations are commonly complex entities with multiple objectives, and indeed, multiple

selves. As Ayres and Braithwaite (1992) put it:

[M]ost business actors are bundles of contradictory commitments to values of economic

rationality, law abidingness, and business responsibility. Business executives have profit

maximising selves and law-abiding selves; at different moments, in different context, the

different selves prevail.795

As a result, strategies which appeal to different parts of the organisation, and to its different

motivations, which combine both carrots and sticks and which both pull and push enterprises
 279

towards better environmental performance, are likely to be more effective than those which

invoke only one of these approaches.

Take the free-rider problem which we identified above as central to the effective functioning of

Responsible Care. As Purchase (1996) has argued, there are essentially two ways to overcome

this problem796 On the one hand it can be pursued by employing strategies designed to enhance

voluntary compliance (environmental leadership groups, the sharing of technology peer groups

and other forms of mutual support). On the other hand, it can be addressed by having effective

monitoring and enforcement mechanisms to deal with non-compliance. Yet neither of these

elements alone is likely to be sufficient. The achievement of widespread consensus will be

necessary for the successful operation of a voluntary scheme-something which can only be

nurtured and attained through the first category of mechanisms. Yet there will inevitably be

those who will defect or otherwise abuse a voluntary scheme, making the second category

equally essential. Put differently, trust (nurturing virtue) is an essential component of

Responsible Care, but it is only when both trust and verification are used together that the

scheme becomes a viable one.

A similar point applies in the context of ISO 14001. While we have emphasised the importance

of providing a series of incentives for enterprises to participate in regulatory flexibility

programs incorporating ISO 14001 (or "ISO Plus") those incentives will function much better if

the alternatives to participation are also made far less palatable. For example, if non-

participants are sooner considered for intensified enforcement activities relative to participants,

then there is both the push of negative sanctions as well as the pull of positive rewards, to

induce enterprises to join. In the broader context of targeted enforcement strategies generally,

the widely acclaimed Maine 200 program is another example of effectively harnessing

combinations of push and pull strategies: offering a partnership role to those willing to improve

voluntarily while in effect "blitzing" recalcitrants through a program of intensified inspections

and enforcement action.

 280

Enforcement though complementary combinations

We have previously emphasised the importance of effective enforcement and means whereby

this might be achieved. We has stressed the virtues of looking first to the regulatory capacities

of business itself and of third parties, with governments role being principally that of backstop,

underpinning other cheaper, and often more effective private forms of intervention. We will not

rehearse these issues further. For present purposes, our point is that even in circumstances

where it is indeed possible to invoke private parties as surrogate enforcers of regulation, they

are unlikely to be wholly successful in this role unless it is possible for them to take convincing

action at every level of the enforcement pyramid, including, crucially, the tip. In the large

majority of circumstances they lack this capacity and, with enforcement as with instrument

mixes generally, the best option may well be the design of complementary combinations of

institutions and instruments.

To take the case of Responsible Care. Since the industry association lacks ultimate capacity to

invoke "big stick" sanctions at the tip of an enforcement pyramid, 797 the credibility of sanctions

at lower levels of the pyramid is also weakened.798 As a result, it cannot be successfully

enforced in isolation. Indeed, this is a common failing of self-regulation and a major reason

why there is a compelling need, even with many of the best self-regulatory programs, to

complement self-regulation with some form of government and third party involvement. In a

real sense, it is the presence of state and third party institutions which provide the basis for

industry self-regulation.

Precisely what form of state (or third party) intervention will provide the most appropriate

underpinning is likely to vary with the particular circumstances of the case. However, it is at

least possible to identify some of the most commonly important variables, and to illustrate by

example, how co-regulation and tripartism might operate to optimal effect in particular

circumstances.
 281

The role of the general law: It is often crucial that self-regulation operates in the shadow of

rules and sanctions provided by the general law, for it is these which are the most obvious and

visible (but not the only) means of giving regulatees the incentive to comply with the self-

regulatory program. The relationship between Responsible Care and the laws relating to due

diligence described above is a good example. Certainly, there is considerable evidence from a

variety of jurisdictions, that it is largely fear of government regulation and its enforcement that

drives the large majority of self-regulatory initiatives,799 and it seems unlikely that they will

perform well, in the absence of the threat of government intervention, including sanctions at the

top of the enforcement pyramid which, in many circumstances, only government has the

authority to invoke.

The role of third parties: Third parties acting as surrogate regulators, will often be a useful

complement to the role of general law. Indeed, it is arguable that self-regulation is very unlikely

to be effective without such involvement.800 As we have seen, the most obvious third parties

with an interest in playing this role are community groups, environmental groups or NGOs

generally. This contribution may be through their use of adverse publicity or in their capacity as

potential victims of code malpractice, in taking direct action against firms that breach the self-

regulatory program. There may well be a growing role for private inspection and certification

services as alternatives to "policing" by government agencies or interest groups, with

withdrawal of certification as the ultimate sanction.801 We have similarly seen how commercial

third parties, such as insurance companies or lenders, may also serve as surrogate regulators,

enforcing their interests through such sanctions as the withdrawal or denial of insurance or

access the capital. However, once again, since the sanctions available to third parties are very

rarely adequate to deal with all circumstances or to escalate to the top of the pyramid, they are

usually better viewed as a complement to, rather than as alternative to, enforcement by

government.
 282

Counterproductive mixes and unintended consequences

In part one of this book we warned against the dangers of "smorgasbordism": an approach

which uncritically assumes that the more instruments the better and is the regulatory equivalent

of throwing in everything bar the kitchen sink. As we will see, ill considered mixes can easily

cause unintended consequences and be counterproductive.

For example, liability rules are often advocated by neo-liberal economists as the preferred

option in circumstances where the free market alone will not produce optimal results, on the

basis that they are less interventionist and more efficient than direct regulation. 802 Yet not only

do liability rules have a number of serious limitations identified in chapter two, they can also be

highly counterproductive because of the impact which they have on other policy instruments.

For example, we have argued below that transparency and accountability are essential aspect of

many policy mixes. Yet liability rules (particularly under the adversarial and litigious United

States system) provide a considerable disincentive to companies making information about their

environmental performance public for fear of liability entanglements.803 In the case of the

United States chemical industry there is evidence that companies are deterred from using

accident event analysis to gather information aimed at improving safety and environmental

performance for fear that the same information will be used against them as a basis for civil

liability.804

Similarly, we referred earlier to the considerable potential in the chemical industry to facilitate

"waste exchanges" whereby material which is "waste" to one facility can be productively used

by another. Or to take a simple example, if one small chemical company is discharging an alkali

waste and another an acid one, a simple exchange may serve to neutralise many of the problems

those chemicals may cause when discharged to sewer. Yet the rigid and onerous requirements

of United States legislation regarding hazardous wastes may serve, unnecessarily, to inhibit or

prevent, many such transfers. Again, the mandatory disclosure of environmental audits and
 283

their use in criminal proceedings can lead to a reluctance to engage in such audits in the first

place, yet another clearly counterproductive result.

Finally, while we have advocated the virtues of tripartism and empowering community groups

and environmental NGOs, it must be acknowledged that an untrammelled right to bring citizen

suits can be counterproductive. For example, as we noted in chapter three, some incentives for

litigation (eg bounty hunting provisions) can encourage groups to sue the easiest targets rather

than the worst polluters, and even when they do not, such actions threaten to damage long term

negotiated strategies between regulators and industry.

7. Political Acceptability: Achieving win-win solutions

One of the evaluation criteria for regulatory design identified in chapter one was political

acceptability. There may well be a tension between achieving this result and what is optimal in

terms of efficiency or effectiveness. In the real world, many solutions which fall well short of

optimality will nevertheless be extremely valuable. Pragmatists reasonably ask: can we find a

solution under which none of the main stakeholders are appreciably worse off, and some are

better off? Given the many serious defects in most existing systems of regulation, such

outcomes should not be too difficult to identify, and in some circumstances it may indeed be

possible to go one better and find solutions under which all of the stakeholders are better off.

The main proposals we have made for regulatory flexibility and in particular for "track two"

regulation building on Responsible Care or ISO 14001 may indeed provide such solutions. 805

For regulators, they promise: enhanced environmental performance (including in areas not

covered by regulation), objectively demonstrated; reduced transaction costs (enabling them to

redirect scarce resources elsewhere); more timely and better information flow from companies

(via the annual audit under ISO); and transfer of monitoring costs to the firm and increased

community involvement. For public interest groups, they promise not just better environmental

performance but also meaningful public consultation and dialogue including better access to
 284

information and better quality information concerning business environmental performance. For

business, they offer enhanced credibility (not just with the community but also with trading

partners and with government), greater flexibility and autonomy, positive environmental and

(arguably) economic outcomes806 and reduced transaction costs.807

Conclusion

The more sceptical reader may be tempted to conclude that the above discussion has been

somewhat idealistic, and that political realities preclude significant redesign of industry

regulation, particularly in relation to a sector such as chemicals with a relatively mature

regulatory environment. We think not, although we concede that some regulatory systems are

more amenable to reform than are others. For example, the adversarial culture which

characterises regulation in the United States, with its associated legislative and political

gridlock, makes regulatory reform much more difficult than in the more consensus-based

cultures of Northern Europe.808 But changes have begun to take place in both settings.

Indeed, what is striking is the speed and extent to which the regulatory environment is changing,

even during the period of this research. Ideas that four years ago were barely on the agenda, are

today part of the political mainstream, and while substantial redesign of the regulatory

environment (in the chemicals sector or elsewhere) still seems some way away in all but a very

few countries, much else has happened. The proliferation of pilot projects, of experiments at

federal, state and local level, and the whole thrust of "reinventing environmental regulation" in the

United States, or to a lesser extent initiatives sparked by the Fifth Action Program in the European

Union, have advanced the regulatory reform debate substantially, and in ways which are largely

consistent with (albeit differently conceptualised to) the themes and arguments of this chapter.

Out of this experimentation and re-examination of environmental regulation the building blocks

for successful environmental policy design may gradually be emerging: a managerial and less

directive role for government; a broader range of instruments; and the capacity to harness the
 285

potential of a wider range of institutions and the use of combinations of instruments and

institutions rather than single instruments or institutions acting alone. However, this is

happening ad hoc, without coherence, and in the absence of any broader framework or theory of

regulatory design within which these developments might be located and better understood,

mistakes minimised and opportunities maximised. The project of the final section of this book

is to provide such a framework and to develop a broader vision of regulatory design which

provides principles and processes for the integration of instruments and parties in a synergistic

and complementary fashion in such a way as to optimise (or at least substantially improve) the

policy mix.

434
For an excellent policy analysis of the latter, see J Potter, "Chemical Accident Prevention Regulation in
California and New Jersey" (1993) 20 Ecology Law Quarterly pp 755-815.

435
No classification satisfactorily defines the absolute limits of "the chemical industry" and national and
international industrial classification schemes differ. See for example R Gottlieb, (Ed) Reducing Toxics: A
new approach to policy and industrial decision making (1995), Island Press, Washington DC, p 221.
Chemical and Engineering News, a leading trade journal published by the American Chemical Society,
uses the following categories: organic chemicals; inorganic chemicals; minerals; synthetic fibres; synthetic
rubbers; plastics; fertilisers; pesticides; coatings; and aerosols (by end category such as personal products,
and insect sprays) to encompass the industry. This classification does not include "products of oil
companies" and minerals which have little or no chemical industry application (Gottlieb 1995:225)

A useful working definition is that of industrial activity embracing any industrial process in which a basic
chemical change/reaction takes place, or in which chemistry is used and chemicals are produced. The
industry can be divided into two sub-sectors: "heavy" (basic chemical sectors engaged in manufacturing
the basic inorganic and organic commodity chemicals) and "light" (clustered according to end products
such as soaps and detergents, dyes, pharmaceuticals, explosives, rubber, plastics and resins, manmade
fibres, paints and varnishes, and the paper industry. This classification includes organic industrial minerals
production (mining) and processing (primarily associated with fertiliser production) within the chemical
process industries (Gottlieb 1995:222).

436
International Labour Organisation, Chemical Industries Committee, Recent Developments in the
Chemical Industries, (1995), Geneva, p 10.

437
Quoted in J Rees, "The Development of Communication Regulation in the Chemical Industry" (1998)
Law and Policy (forthcoming).
 286

438
Since the recession of the early 1980s, chemical industry production has expanded by 52%. The
industry produces over 70,000 different products and in 1994 employed 1.06 million people, 5.9% of the
manufacturing total. The US chemical industry is the worlds largest, accounting for about 26% of the
world total (Chemical Manufacturers Association (CMA), US Chemical Industry Statistical Handbook
1995 (1995) Chemical Manufacturers Association, Washington DC). In 1993, 18 out of 30 world
chemical majors had their headquarters in Western Europe. The centre of gravity of the chemical industry
in Europe remains in Germany, but most European countries, in Western and Eastern Europe, have
internationally significant chemical industries. In financial terms the leading countries include Germany,
UK, France, Italy, Netherlands, Switzerland and the Czech Republic. The European Union boasts
approximately 33,000 enterprises involved in chemical production. Approximately 98% of these have
fewer than 500 employees and, classified as small or medium enterprises, take 44% of the turnover of the
industry and employ 39% of the total workforce (European Chemical Industry Council (CEFIC), Internet
site (November 1996) at [Link]

439
R Gottlieb, (Ed) Reducing Toxics: A new approach to policy and industrial decision making (1995),
Island Press, Washington DC, p 210. According to the EPA Toxic Release Inventory (TRI), the US emits
about 20 billion pounds of toxic chemicals annually into the environment (B Commoner, Making Peace
With The Planet (1990), Pantheon Books, New York, p 31) However, according to Congress’s Office of
Technology Assessment, because of under reporting and the omission of data from small establishments,
this figure is more likely to be about 400 billion pounds.

440
US EPA, Toxic Release Inventory (1993), Washington DC, p 60.

441
In 1991, of the top 50 facilities, more than two-thirds were related to the chemical industry and
accounted for almost 40% of the total releases and transfers (R Gottlieb, (Ed) Reducing Toxics: A new
approach to policy and industrial decision making (1995), Island Press, Washington DC, p 212).

442
The Commission of the European Union estimates that environment-related expenditure in 1992
amounted to 3.5% of the turnover of the chemical industry in the EU (International Labour Organisation,
Chemical Industries Committee, Recent Developments in the Chemical Industries (1995), Geneva, p 34)

443
For example, in Australia, the chemical industry is also the largest single domestic producer of
hazardous wastes (Plastics and Chemicals Industries Association - Chemicals Sector (PACIA), Reducing
Waste: Report on 1994 Waste Survey (1995), PACIA, Melbourne, p 12.

444
Since the toxic chemicals emitted into the environment occur in air, drinking water and food, they
readily enter the human body, threatening human health.

445
R Gottlieb, (Ed) Reducing Toxics: A new approach to policy and industrial decision making (1995),
Island Press, Washington DC, p 211. Across the globe, there have been numerous industrial catastrophes
involving chemical industry installations (N A Gunningham, "Environment, Self-Regulation, and the
 287

Chemical Industry: Assessing Responsible Care (1995) 17(1) Law and Policy 57. See details of accidents
internationally on pp 59-60. Also S Tombs, "The Chemical Industry and Environmental Issues" in D
Smith, (Ed) Business and the Environment: Implications of the new environmentalism (1993), Paul
Chapman Publishing, UK, ch 10 at p 132).

446
P Shrivastava, Bhopal: Anatomy of a crisis (2nd Ed) (1992), Chapman, London.

447
Amongst these, are incidents in Seveso, Italy, in 1976, Pasadena, Texas, in 1989 and at Sterlington,
Louisiana, in 1991. Similar accidents occurred in Klong Toey, Thailand, in 1991; Hesse, Germany, in
1993; and Shenzhen, China, in 1993 (see J Withers, Major Industrial Hazards: Their Appraisal and
Control (1988), Halsted Press; and International Labour Organisation, Chemical Industries Committee
(1995) Recent Developments in the Chemical Industries, Geneva, p 27.

448
Chemical Manufacturers Association (CMA), Fact Sheet: Chemical Industry Halves Toxic Releases
(1996), CMA, Washington DC.

449
Based on 1993 figures (Chemical Manufacturers Association (CMA) Fact Sheet: Chemical Industry
Halves Toxic Releases (1996), Washington DC. See also Chemical Manufacturers Association (CMA),
"The year in review, 1995-96" Responsible Care Progress Report, Washington DC, pp 5-7).

450
Chemical Manufacturers Association (CMA), US Chemical Industry Statistical Handbook 1995
(1995), CMA, Washington DC, p 107.

451
L Ember, "Overhaul of Environmental Law Needed for Sustainable Development" (1993) Chemical
and Engineering News, March 15, p 17, interviewing E D Elliott and E M Thomas, authors of the
"Chemicals" in C Campbell-Mohn; B Breen; and J W Futrell (Eds) Sustainable Environmental Law
(1993), Environmental Law Institute, St Paul, Minnesota, ch 17.

452
International Labour Organisation, Chemical Industries Committee, Recent Developments in the
Chemical Industries (1995), Geneva, p 34.

453
European Chemical Industry Council (CEFIC), Internet site (November 1996) at
[Link] The financial investment which the West European chemical industry
makes to support research and technological development is considerable: over 19 billion ECU in 1994 (D
J Bricknell, Response by the Chemical Industry in Europe to the "Green Paper on Innovation" (April
1996), SUSTECH Position Paper, CEFIC, Brussels.

454
For 1995 the chemicals sector quoted an expenditure of approximately US$77 million for the purposes
on pollution control and general environment improvements. This figure included a capital spending of
approximately US$40 million and in total represented a 10% increase on spending in this area in 1994
(Rust PPK, International Best Practice in Health, Safety and Environmental Regulation in the Chemicals
 288

and Petroleum Industries (1995), Rust PPK Melbourne, Department of Business and Employment,
Victoria, Australia.

455
As we shall see, the buyer-supplier relationship provides substantial opportunities for the large
companies to impose pressures on their smaller trading partners to improve their environmental standards.

456
See further p 00 below.

457
And the public is paying attention. See Frances Irwin et al, A Benchmark for Reporting on Chemicals
at Industrial Facilities (World Wildlife Fund, 1995).

458
See further pp 00 below.

459
President's Council on Sustainable Development, Eco-Efficiency Task Force, Chemical Operations
Demonstration Project (February 1995), Washington DC, p 22.

460
See for example J F Franke & F Watzold, "Voluntary initiatives and public intervention - he regulation
of eco-auditing" in F Leveque, (Ed) Environmental Policy in Europe (1996), Edward Elgar, UK, pp 179-
181.

461
See Jonathon Harris’ study of the litigation involving W R Grace in A Civil Action, (1996).

462
See for example R Brinkman; S Jasanoff; & T Ilgen, Controlling Chemicals: The politics of regulation
in Europe and the United States (1986), Cornell University Press, Ithaca, New York, p 221.

463
M Gambel, US Environment Protection Agency, The Dutch Model: Lessons for the US (1995), US
EPA, Washington, DC, p 2. As a result, in the Netherlands, agreements are reached with individual
companies but against a backdrop of larger environmental goals set for the entire chemical sector.

464
For example, in the UK, attempts to apply the new regime of Integrated Pollution Control to the fine
and contract chemicals sector (which is characterised by complex, multi-purpose batch plant with a need
to make products at short notice) has led to problems concerning the requirement that each chemical
process obtain a separate authorisation. See K Allott, Integrated Pollution Control: the First Three Years,
Environmental Data Services (1994), London, UK, p xiv.

465
For example, in the United States, there is still some residual reliance on common law doctrines to
prevent unreasonable air pollution emissions, enforced through civil suits based on personal injury or
property damage. For all the reasons identified in chapter two, such liability rules remain a singularly
unsatisfactory way of addressing pollution problems. See A W Reitze Jnr, "A Century of Air Pollution
Control Law: What's worked ; What's failed; What might work" (1991) 21 Environmental Law 1550-1639
at 1554-69.

466
See reference in ch 1 p00.
 289

467
H Opschoor & K Turner, (Eds) Economic Incentives and Environmental Policies: Principles and
practice (1994), Kluwer Academic Publishers, Dordrecht, p17.

468
Eco-efficiency Task Force, Chemical Operations Team of the President's Council on Sustainable
Development, Proposed Policy Recommendations For the Chemical Industry (1995), Washington DC.
See also D J Fiorino, "Towards a New System of Environmental Regulation: the case for an industry
sector approach" (1996) 26(2) Environmental Law 457-489 at 469.

469
See generally D J Fiorino, "Towards a New System of Environmental Regulation: The case for an
industry sector approach" (1996) 26(2) Environmental Law 457-489 and at 461, who notes that "air, water
and waste issues are managed nationally, and in most states as separate programs", under statutes which
do not distinguish chemical sector emissions from those of other industries.

470
E Bardach & R Kagan, Going by the Book: the problem of regulatory unreasonableness (1982),
Temple University Press, UK, p 20.

471
See ch 2 pp 00.

472
See generally ch 2 pp 00 and T Davies & J Mazureck, Industry Incentives for Environmental
Improvement: An evaluation of US Federal initiatives (September 1996), a report to the Global
Environmental Management Initiative Resources for the Future, Washington DC.

473
Eco-efficiency Task Force, Chemical Operations Team of the President's Council on Sustainable
Development, Proposed Policy Recommendations For the Chemical Industry (1995), Washington DC.

474
Codified as 42 U.S.C. 765lb (1994). For an overview see W I Rogers, Environmental Law: Air and
Water Pollution (supp 1994) at 64-74.

475
A W Reitze, "A Century of Pollution Control Law: what worked; what's failed; what might work"
(1991) 21 Environmental Law 1549-1646 at 1630.

476
See for example B Gray, "Public versus Private Environmental Regulation" (1994) 21 Ecology Law
Quarterly 434-438

477
See in particular the experience of the South Coast Air Quality Management District, Southern
California RECLAIM program evaluated in P P Leyden, Trading in Southern California (1997), a paper
delivered to American Bar Association 26th Annual Conference on Environmental Law, Keystone,
Colorado, March.

478
D J Fiorino, "Towards a New System of Environmental Regulation: The case for an industry sector
approach" (1996) 26(2) Environmental Law 457-489 at 480. For a useful general survey of the literature
 290

and empirical evidence see W E Orts, "Reflexive Environmental Law" (1995) 89(40) Northwestern
University Law Review 1227.

479
See for example E Rehbinder & R Stewart, "Environmental Protection Policy" in M Cappelletti; M
Seccombe; and J Weiler, (Eds) Methods, Tools and Institutions (1986), W de Gruyer, Berlin.

480
See for example D Vogel, National Styles of Regulation: Environmental Policy in Great Britain and
the United States (1986), Cornell University Press, Ithaca, New York; K Hawkins, Environment and
Enforcement: regulation and the social definition of pollution (1984), OUP, Oxford; and R Brinkman; S
Jasanoff; & T Ilgen, Controlling Chemicals: The politics of regulation in Europe and the United States
(1986), Cornell University Press, Ithaca, New York.

481
See for example the European Union Directive on Integrated Pollution Prevention and Control,
Council Directive 96/61 EC (1996).

482
German industrialists have been "more comfortable with detailed and precisely worded legislation that
spelled out industry's obligations clearly and limited the discretion of German bureaucrats" (R Brinkman;
S Jasanoff; & T Ilgen, Controlling Chemicals: the politics of regulation in Europe and the United States
(1986), Cornell University Press, Ithaca, New York, p,232). This is in sharp contrast to the British
preference for broad and flexible regulation allowing for considerable discretion in interpretation by
regulatory officials. As Brinkman et al put it: "concepts like 'reasonable' and 'practicable' sum up British
regulatory philosophy, a philosophy generally shared by industry" (p229).

483
Rust PPK, International Best Practice in Health, Safety and Environmental Regulation in the
Chemicals and Petroleum Industries (1995), Rust PPK Melbourne, Department of Business and
Employment, Victoria, Australia.

484
J F Franke & F Watzold, "Voluntary initiatives and public intervention-the regulation of eco-auditing"
in F Leveque, (Ed) Environmental Policy in Europe (1996), Edward Elgar, UK, p 178.

485
F Leveque, (Ed) Environmental Policy in Europe (1996), Edward Elgar, UK, p 177.

486
Rust PPK, International Best Practice in Health, Safety and Environmental Regulation in the
Chemicals and Petroleum Industries (1995), Rust PPK Melbourne, Department of Business and
Employment, Victoria, Australia, p 26.

487
Ends Report, "Chemical Release Inventory at the Crossroads" (June 1997) Ends Report No 269 19-25.
See also pledges given by the European Commission to simplify existing legislation on chemicals by
focussing on: risk assessment; cost-benefit analysis; and comparison against rules outside the EC (ENDS
Report (May 1996) No256 40).
 291

488
See for example E Rehbinder, "Environmental Regulation Through Fiscal and Economic Incentives in
a Federalist System" (1993) 20 Ecology Law Quarterly 57-83.

489
See generally F Leveque, "The European Fabric of Environmental Regulations" in F Leveque, (Ed)
Environmental Policy in Europe (1996), Edward Elgar, UK.

490
The distinctive Dutch approach is a sector-specific approach to chemicals devised as part of the
National Environmental Plan. The vehicle for delivering the goals set in that plan is the environmental
covenant: an agreement negotiated between each individual company and the government and
underpinned by the force of civil law. It is the covenant that ensures that each company contributes its
share towards achieving the sector-specific goal set in the national plan. See generally J M Van Dunne,
(Ed) Environmental Contracts and Covenants: New instruments for a realistic environmental policy?
(1993), Koninklijke Vermande, Netherlands.

491
Rust PPK, International Best Practice in Health, Safety and Environmental Regulation in the
Chemicals and Petroleum Industries (1995), Rust PPK Melbourne, Department of Business and
Employment, Victoria, Australia.

492
For example, countries such as Australia are only taking only their first hesitant steps towards use of
economic instruments. The New South Wales Government proposing to allow tradeable permits among
mining companies in the Hunter Valley. See Environmental Business, September 1994, 29.

493
See ch 2 above. See also California's Proposition 65 (California's Health and Safety Code 25, 249.5-
13); and Massachusetts' toxic use reduction legislation (K Geiser, Beyond Auditing: Toxic Use Reduction
in the United States (1990), University of Massachusetts, US.

494
Major-Accident Hazards Directive Involving Dangerous Substances (OJ 14.1.97 L 10/13), on
December 9, 1996. The new Directive, which entered into force in February 1997, builds on the existing
scheme under Directive 82/501/EEC on Major-Accident Hazards of Certain Industrial Activities (OJ
5.8.92 L 230/1).

495
See discussion on CTRK earlier in this chapter.

496
However, in other respects, this development is occurring largely irrespective of the legislative
provisions. For example, in the United States, Fiorino notes that "effective citizen (as opposed to interest
group) participation in environmental decisions at the local level is not a strength of the current system.
Participation often takes the form of public hearings on national standards or decisions made at local or
state levels, D J Fiorino, "Towards a New System of Environmental Regulation: The case for an industry
sector approach" (1996) 26(2) Environmental Law 457-489 at 482.

497
Directive on the Control of Major Accident Hazards Involving Dangerous Substances (96/82/EC).
 292

498
Accidental Release Prevention Requirements: Risk Management Programs under the Clean Air Act
section 112(r) (7).

499
W L Thomas, "Using ISO 140001 to comply with the Management System Requirements of US EPA's
RMP Rule and the EU's Seveso II Directive" European Environmental Law Review, December 1998, 335.

500
L Ember, "Overhaul of Environmental Law Needed for Sustainable Development" (1993) Chemical
and Engineering News, March 15, p 17.

501
The main limitations of command and control have been usefully summarised by the OECD in
Alternatives to Traditional Regulation: A Preliminary List (1994), OECD, Paris, May.

502
L Ember, "Overhaul of Environmental Law Needed for Sustainable Development" (1993) Chemical
and Engineering News, March 15, p 16. interviewing E D Elliott and E M Thomas, authors of the
"Chemicals" in C Campbell-Mohn; B Breen; and J W Futrell, (Eds) Sustainable Environmental Law
(1993), Environmental Law Institute, St Paul, Minnesota, US, ch 17.

503
Esty for example, distinguishes between "flow" pollution (caused by particles in the air, organic wastes
in water and most solid wastes disposed on land, which degrade rapidly and for which the environment
has some absorptive or assimilative capacity) and "stock" pollutants such as radioactive materials, heavy
metals and some toxic chemicals, which degrade much more slowly. See D Esty, "Environmental
Federalism" (1996) 95 Michigan Law Review 579.

While this assimilative capacity may be substantially less than earlier generations have acknowledged, the
fact remains that this capacity enables the use of instruments which, while less dependable than others in
delivering environmental outcomes, will do so at less cost. For example, environmental taxes may initially
be set at levels too low to achieve the desired environmental outcome. It may accordingly take some time
to adjust the tax level to one which influences behaviour in the preferred direction and to the preferred
degree. In the interim, the environment will continue to be polluted at undesirable levels. However,
provided it is sufficiently resilient to tolerate short term abuse, this approach may be preferred (on the
grounds of cost effectiveness) to one which, while more dependable in delivering environmental
outcomes, imposes higher costs on the parties involved.

504
On pollution prevention in the context of industrial ecology, see René van Berker et al, "The
Relationship Between Cleaner Production and Industrial Ecology" (1997) 1(1) Journal of Industrial
Ecology, at 51.

505

506
N A Gunningham, Beyond Compliance: Management of environmental risk in B Boer, R Fowler & N
Gunningham (Eds) Environmental Outlook: Law and policy (1994), ACEL, Federation Press, Sydney,
and references cited therein.
 293

507
On the objectives of "the Framers", see Christopher L Bell, "Bench Test" (10 November 1997) The
Environmental Forum at 24 (expounding a restrictive approach toward regulation through ISO 14000).

508
As we shall see, ISO 14001 has many other purposes too, but that of acting as a surrogate for more
conventional forms of regulation is certainly one important agenda item.

509
This figure is based on production volumes. See "ICCA readies itself for Ottawa Forum" (October
1996) 5 Careline 1.

510
The empirical work involved semi-structured interviews with 49 industry participants, self regulators,
government regulators and community representatives in Australia, 30 in the United States and 13 in
Canada. Public documents, industry journals and reports were also relied upon to supplement data
gathered elsewhere.

511
Although David Vogel (D Vogel, National Styles of Regulation: Environmental Policy in Great
Britain and the United States (1986), Cornell University Press, Ithaca, New York) rightly alerts us to
possible cultural differences between regulatory agencies in different countries, it may nevertheless be that
"certain policy areas are more conducive to private interest government solutions than others" (A Jacek,
"The Functions of Associations as Agents of Public Policy" in A Martinelli (Ed), International Markets
and Global Firms (1991), Sage, London, p 148). Indeed, there is considerable evidence that countries can
learn from one another in this regard (see K Dyson & S Wilks, (Eds) Industrial Crisis: A comparative
study of the state and industry (1983), Robertson, Oxford, p 261). Having conducted interviews not only
in Australia but the United States and Canada, I am unable to identify cultural distinctions relating to
chemical industry regulations of sufficient significance to make my conclusions less relevant to the United
States or Canada than they are to Australia. Indeed, the many similar structural characteristics which that
the analysis is relevant to both countries.

512
J R Hirl, "Don't Trust Us, Track Us" (1992), UN 242 No 21 (17 December) Chemical Marketing
Reporter.

513
International Council of Chemical Associations Global Status Report on Responsible Care reported in
"ICCA Readies itself for Ottawa Meeting" (October 1996) 5 Careline 1.

514
P Sandman, Addressing Scepticism About Responsible Care (1991), Environmental Communications
Research Program, Rutgers University, New Jersey.

515
See, for example, the assessment of a leading member of the United Nations Environment Agency:
"Care gives industry a leadership role in sustainable development" (July 7/14 1993) Chemical Week 20.

516
See for example D Hunter & R Mullin, "Responsible Care: The challenge of communication" (9
December 1992) Chemical Week 22. Significantly, a number of industry programs are already modelling
themselves on Responsible Care, including the paint industry's Coatings Care Program and other groups,
 294

such as vinyl chloride and chlorinated solvents producers, and in the process of developing such
programs.

517
In the United States the codes cover: (i) community awareness and emergency response; (ii) pollution
prevention; (iii) distribution; (iv) process safety; (v) employee health and safety; and (vi) product
stewardship.

518
Australian Chemical Industry Council (ACIC), Annual Report (1993), ACIC, Melbourne, p 2.

519
However, note that far from all Responsible Care companies have adopted this approach. For example,
in the UK, 7 years after the introduction of Responsible Care, only 40% of CIA members have formal
environmental management systems (ENDS Report (1996), No 257, pp 3-4).

520
Australian Chemical Industry Council (ACIC), Annual Report (1993), ACIC, Melbourne, p 3.

521
However, it should be noted that in 1997, these three countries were the only ones of the 41 nations
which have adopted Responsible Care, to have well established, open, public advisory input. See (7 April
1997) Careline 2.

522
Australian Chemical Industry Council (ACIC), Annual Report (1993), ACIC, Melbourne, p 3.

523
European Chemical Industry Council (CEFIC), Proceedings of the First International Workshop on
Responsible Care in the Chemical Industry, CEFIC, Brussels.

524
For example in Australia a relatively small number of firms import twenty thousand toxic and
hazardous chemicals annually (only 3.4% being manufactured domestically) and thereby control the
feedstocks or imports to those processors which produce hazardous wastes (see Plastics and Chemicals
Industries Association (PACIA), Facts and Figures (1991), PACIA, Melbourne.). Twelve companies, out
of the 90 or so members of ACIC have a volume of over about $0.3 billion per year. Of these, 10 are
transnationals, and two are Australian owned (J Smith, Measuring Health, Safety and Environmental
Performance: Why, what, and whose? (1994), summary of a paper presented to the ACIC Convention, 21
February, Leura, NSW.

525
See B Thomas, Costs of Accidents at Work ?????

526
Industry polls over the last decade have consistently revealed a high level of public anxiety and distrust
of chemical manufacturers, with companies commonly being regarded as greedy, rapacious and
irresponsible. In the United States, an opinion poll conducted in 1990 found that the chemical industry's
rating of public acceptability had dropped to 20% - only the tobacco industry has a lower rating. Over
60% of the public rated the industry as "very harmful to the environment" (S J Lewis, The Role and Limits
of Volunteerism (1991), a paper the International Conference on Corporate Environmental Responsibility,
Tutzing, Germany, p 2). Similarly, in Australia, a 1992 survey of community attitudes concluded that the
 295

"chemical industry is associated with pollution, danger, explosives and possible ill-effects from the use of
chemicals and chemical based products. It is also associated with secrecy, lack of public disclosure,
possible dishonesty and lack of ethics" (Motive Market Research Pty Ltd, "Summary and Conclusions"
(1992) in ACIC - Monitoring Community Attitudes (December), pp 11 and 12). In 1996, the CEFIC
presented findings which once again suggested that the public has a very poor opinion of the industry's
environmental credentials and trustworthiness (see ENDS Report (1996), No 259, p 20.

527
This is consistent with the very high level of spending by major chemical companies on occupational
health and safety, and the low accident rate of such companies. (see further H Genn, Great Expectations:
The role of legacy and employer self-regulation (1985), unpublished, Oxford Centre for Legal Studies,
Oxford). For a more recent statement of one leading chemical company's view see J Magretta, "Growth
Through Global Sustainability" (Jan/Feb 1997) Harvard Business Review 79-88.

528
C Greenert, Interview, quoted in "Responsible Care" (1991) Harvard Business School Documents 9-
391-135.

529
See for example, examples cited in Chemical Manufacturers Association (CMA), Annual Reports for
1996 and 1997 (1997), CMA, Washington DC.

530
N A Gunningham, Beyond Compliance: Management of environmental risk in B Boer, R Fowler & N
Gunningham (Eds) Environmental Outlook: Law and policy (1994), ACEL, Federation Press.

531
C E Holmes, Address to Hazardous Waste Conference (1992), ACIC, Melbourne, p 3.

532
This was acknowledged by ACIC former Chief Executive, Frank Phillips, who said that the plan was
developed in response to the industry's poor public image (see R Smithers, "Chemical Firms Adopt Code
to Clean Up the Industry" (1989) The Age 27 September, p 5).

533
As Canadian Chemical Producers Association President Jean Belanger put it: "if we could figure out a
way of becoming proactive, then we could lessen demands for that degree of regulation" (see R Mullin,
"Canadian Deadline Approaches: Contemplating continuous improvement" (17 June 1992) Chemical
Week 128).

534
Putnam, "The Prosperous Community" (October 1993) Current, p 4.

535
J Rees, "The Development of Communication Regulation in the Chemical Industry" (1998) Law and
Policy (forthcoming).

536
These groups usually meet quarterly with peers to review progress and to provide and receive
assistance. They are reputedly a highly effective way of creating peer pressure, and of enlisting corporate
leaders to the cause of Responsible Care.
 296

537
J Rees, "The Development of Communication Regulation in the Chemical Industry" (1998) Law and
Policy (forthcoming).

538
See further N Gunningham & J Rees, (1997) Law and Policy (forthcoming).

539
See Posner (T Posner, The Engineer (1992), 5 March, p.20), citing how such a process takes place
during meetings of company chief executives. The letters written by ACIC to companies which are not in
compliance, which escalate in their formality and moral tone, might also be seen as an attempt at corporate
shaming.

540
There is a recent criminological literature that argues persuasively the importance of a moral dimension
to corporate (and individual) behaviour, and documents the considerable extent to which corporations can
be "shamed" into doing the right thing (see J Braithwaite, Crime, Shame and Reintegration (1989),
Cambridge University Press, New York).

541
J Braithwaite, Crime, Shame and Reintegration (1989), Cambridge University Press, New York, pp 9-
11.

542
Because corporations are judged by markets, investors and others principally on short term
performance, they have difficulty justifying investment in environmentally benign technologies which may
make good economic sense in the long term, but rarely have an immediate or medium term pay-off. Most
areas of reform, including stopping harmful emissions to land, water and air, replacing harmful chemicals
with more expensive ones, and cleaning up contaminated land, are vulnerable to these short-term market
pressures.

543
Jackall (R Jackall, Moral mazes: The world of corporate managers (1988), OUP, New York) found
that short term issues overwhelm long term considerations. In Jackall's view "Managers think in the short
term because they are evaluated both by their supervisors and peers on their short term results". As one
manager put it: "Our horizon is today's lunch" (Jackall 1988:84). Jackall also found that staff mobility,
both within and between corporations (often the result of CEO-inspired reorganisations), meant that those
who currently occupy a managerial post might feel no urgency about the environmental consequences of
their decisions. This was because the threat of immediate governmental retribution, via the EPA, was most
unlikely, and the delays in processing environmental actions through the courts meant that by the time a
case was heard, the present incumbents would have moved on, leaving others to deal with the legacy of
those decisions. (J E Rogers Jr, "Adopting and Implementing a Corporate Environmental Charter" (1992)
35(2) Business Horizons 29-33 at 31.

544
The dichotomy is not invariably appropriate. For example, some small enterprises, particularly those
operating in niche markets, have considerable sophistication, technological expertise, and capacity for
long term planning. Nevertheless, the distinction is largely accurate and is a useful one in highlighting
divergence of interests within the industry.
 297

545
See President's Council on Sustainable Development, Eco-Efficiency Task Force, Chemical
Operations Demonstration Project, (1995) February, p 22.

546
As one industry observer put it: "Voluntary actions are likely to be viewed as dispensable
extravagances by companies suffering financial difficulties. They may be abandoned over time as
management changes or pressure for such efforts fades (R Abrams & D H Ward, "Prospects for Safer
Communities: Emergency response, community right to know, and prevention of chemical accidents" 14
Harvard Environmental Law Review 135-88.

547
Moreover, such firms also have the technological capacity and the economies of scale to make
environmental improvements both technically feasible and economically realistic (see further B P
Pashigan, "How Large and Small Plants Fare Under Environmental Regulation" (September/October
1983) 7 Regulation 19-23).

548
Consistent with this analysis, a 1991 McKinsey survey found that the most constructive responses can
be found consistently in multinational companies in highly competitive industries that are close to the
consumer and headquartered in cutting-edge regions. Even in the more advanced nations, a much more
reactive, or at best receptive, response can still be found in a majority of small and medium-sized
companies and in industry sectors that are characterised by a high degree of oligopoly or a tradition of
government involvement. It would appear that a "protection" from public scrutiny results in less attention
to environmental concerns (J E Rogers Jr, "Adopting and Implementing a Corporate Environmental
Charter" (1992) 35(2) Business Horizons 29-33 at 30).

549
The basic free-rider problem is that an enterprise may take advantage of the willingness of other firms
to spend on cleaning up the environment, while refraining from doing so itself as a matter of rational,
economic self-interest, thereby "free-riding" on the efforts of others (see M Olson, The Logic of Collective
Action (1965), Harvard University Press, Cambridge).

550
It may be that the assumption that business is invariably rational and self-interested, and accordingly
will free-ride, is too strict, especially given that Responsible Care represents the recognition by many of
the leading players in the industry that "each must be his brother’s keeper". This suggests that the basic
obstacle to effective self-regulation in the circumstances described above is an "assurance problem" (see C
F Runge, "Institutions and the Free-Rider: The assurance problem in collective action" 46 Journal of
Politics 154-81; and I Maitland, "The Limits of Business Self-Regulation" (1985) 27(3) California
Management Review 132-47 at 134).

551
Briefly, (using the Australian version of the scheme by way of illustration) the responsibility for the
oversight of Responsible Care lies with an industry association (ACIC) Committee, and with the
Responsible Care coordinators responsible for the scheme's administration. The industry association's
oversight role however, is a modest one which mainly involves issuing self-evaluation forms to
 298

participating companies, and following up those companies who do not respond within a stated period.
Significantly, the ACIC does not attempt to validate the accuracy of the self-assessments it receives.

In effect it is the individual member companies which must implement and enforce Responsible Care. The
CEO of each participating company pledges the company's commitment by signing the Abiding Principles
of the Responsible Care Program. Each company then makes its own arrangements to communicate this
commitment to management and all employees (Australian Chemical Industry Council (ACIC),
Responsible Care Program Guide (1989), ACIC, Melbourne, p 10), and takes responsibility for all
relevant monitoring and assessment measures. The primary means of encouraging compliance is moral
pressure, which it is hoped will be increased by providing opportunities for senior executives with
responsibility for Responsible Care to meet and compare their experiences (ACIC 1989:10).

552
Australian Chemical Industry Council (ACIC), Responsible Care Program Guide (1990), ACIC,
Melbourne, p 20.

553
For example, in North America, where Responsible Care has been operational for a number of years,
there is no documented case of a company’s membership being so terminated. This probably reflects the
philosophy of the relevant industry associations. As a senior member of the UK Chemical Industry
Association (CIA) has put it: "You can't get acceptance just by jamming things down people's throats",
and arm twisting is likely to remain a very rare feature of Responsible Care (T Posner, The Engineer
(1992), 5 March, p 20). In 1996, Denmark became the first Responsible Care participant to expel a
member for poor environmental performance. The former member is now in the process of suing the
Industry Association for doing so.

554
D Rotman, "Pushing Pollution Prevention" (17 July 1991) Chemical Week 30 at 33.

555
See I Maitland, "The Limits of Business Self-Regulation" (1985) 27(3) California Management
Review 132-47 at 139.

556
P Sandman, Addressing Scepticism About Responsible Care (1991), Environmental Communications
Research Program, Rutgers University, New Jersey.

557
J Ehrenfeld, quoted in ENDS Report (August 1996) No 259 21.

558
See further N Gunningham, "Environment, Self-Regulation, and the Chemical Industry: Assessing
Responsible Care" (1995) 17(1) Law and Policy 58-109 at 75.

559
See generally, N Gunningham, "Environment, Self-Regulation, and the Chemical Industry: Assessing
Responsible Care" (1995) 17(1) Law and Policy 58-109.

560
Another has argued publicly that: "One of the problems the Responsible Care program suffers from is
its connection with CMA, because CMA plays many roles for the industry. And one of the things CMA
 299

does on behalf of the industry is attack regulations. It is viewed as the front line defender of the chemical
industry's interests in those regulatory debates. It is difficult for that same organisation to come back and
say, in the next breath, "Oh, but we have this Responsible Care program, which is really wonderful, and
we want to work with everybody." It's often the case that there are mixed messages. It appears sometimes
that the positions CMA is taking in public policy debates are not consistent with Responsible Care. And I
think that's a very difficult role for CMA to play - to be the principal advocate of Responsible Care and
also serve the other interests of the chemical industry in terms of public policy issues in Washington"
(Mark Greenwood, Office of Pollution Prevention and Toxics, EPA, quoted in R Begley, "Will the Real
Chemical Industry Please Stand Up?" (7-14 July 1993) Chemical Week 18).

561
See Chemical Manufacturers Association (CMA), Responsible Care: Progress Report 1994-95 (1995),
CMA, Washington DC, p 23, reporting that, based on 1993 TRI figures, CMA companies have reduced
toxic releases by 49% since 1987, while increasing industry production in the same period by 18%.

562
This inventory was only introduced in 1993, and at the time of writing only three years results are
available. Nevertheless, they do support the industry's own claims and projections in terms of significant
and continuing emission reductions. See Canadian Chemical Producers' Association, Reducing Emissions:
1994 Emissions Inventory and Five Year Projections (1994), Canadian Chemical Producers' Association,
Ottawa.

563
See Chemical Manufacturers Association (CMA), Responsible Care: Progress Report 1994-95 (1995),
CMA, Washington DC, p 12

564
For example process based regulations such as OSHA's Process Safety Regulation require changes in
behaviour consistent with those of the Responsible Care codes, and broader commitments by companies to
TQM programs might also have lead firms to many of the same results.

565
J Nash & J Howard, "Responsible Care's Mixed Record" (1996) 5(VI) Tomorrow: Global
Environment Business 12.

566
The most important of these are the British Standard BS7750, the European Union's Eco-Management
and Audit Scheme (EMAS) and the International Standard Organisation's ISO 14001, all discussed below.

567
For example, the striking evidence produced by organisational theorist Charles Perrow’s seminal work
on major technological disasters suggests that 80-90 % of the failures relate to the management or
organisational system and only 10-20 % are based on operator error or equipment failure (C Perrow,
Normal Accidents: Living with high risk technologies (1984), Basic Books, New York. See also J
Braithwaite, To Punish or Persuade: Enforcement of coal mine safety (1985), State University of New
York Press, Albany; D Vaughan, "The Challenger Disaster" (1995); and P N Grabosky, Wayward
Governance: Illegality and its Control in the Public Sector (1989) Australian Institute of Criminology,
 300

Canberra. See also Toft and Reynolds, Learning from Disasters (1994), Butterworths; Richard Cahill,
Disasters at Sea, Titanic to Exxon Valdez (1990), Century Press.

568
The powerful potential of EMSs to achieve dramatic results in improved environmental performance is
amply demonstrated by the impressive achievements of a number of companies who took part in
demonstration projects (President's Council on Environmental Quality (PCEQ), (Quality Environmental
Sub-Committee), Total Quality Management: A framework for pollution prevention (1993), Washington
DC; and see E D Elliott, "Environmental TQM: Anatomy of a pollution control program that works!"
(1994) 92 Michigan Law Review 1840 at 1843).

569
Traditionally, TQM aspires to provide management with a framework "on which to build ‘quality’ into
every conceivable aspect of organisational work".569 It is a business discipline and philosophy of
management which institutionalises planned and continuous business improvement (A Wilkinson & H
Willmott, (Eds) Making Quality Critical: New perspectives on organizational change (1995), Routledge,
London; and S Hill, "From Quality Circles to Total Quality Management" in A Wilkinson & H Willmott,
(Eds) Making Quality Critical: New perspectives on organizational change (1995), Routledge, London, p
33-53).

570
President's Council on Environmental Quality (PCEQ), (Quality Environmental Sub-Committee), Total
Quality Management: A framework for pollution prevention (1993), Washington DC.

571
See Global Environmental Management Initiative (GEMI), Total Quality Environmental Management
(1992), Washington DC, p ix.

572
Global Environmental Management Initiative (GEMI), Total Quality Environmental Management
(1992), Washington DC, p x.

573
The perceived advantage of an EMS approach, particularly one that is based on the principles of TQM,
is threefold. First, it enables companies themselves to devise ways of reducing or preventing pollution.
Rather than being constrained by highly prescriptive government regulations, an EMS-based approach
encourages management itself to take the initiative and responsibility for deciding how to satisfy
regulatory requirements. Second, EMS serve to embed an environmental ethic in the organisation "so that
systematic environmental management becomes a habit and an inherent part of company culture". Third,
there is the commitment to continuous improvement which TQM implies.

574
A Knight "International Standards for Environmental Management" (1994) Industry and Environment,
UNEP, July, p 45.

575
U Guntram & P Winsemius, "Responding to the Environmental Challenge" (March/April 1992)
Business Horizons 12.
 301

576
For example, in the United States, at least three possible models for integrating ISO 14001 with
government regulation are being contemplated: customised (industry specific) environmental regulations
for all environmental media relying (in part) on ISO 14001 certification to confirm that a company is
meeting these new multi-media regulations; reduced compliance, reporting and monitoring requirements
by government in return for demonstrated commitment to improved environmental performance (one
element being ISO certification); and greater EPA flexibility in regulating a specific source "in exchange
for a commitment on the part of the regulated entity to achieve better environmental results than would
have been obtained through full compliance with all applicable environmental regulations".

In the UK, note the resistance of the Environment Agency to industry and government pressure for sites
certified to environmental management standards to be given automatic relaxation in regulatory oversight.
Rather the agency insists that such relaxation be based on a more sophisticated assessment of a site's
pollution potential. See "Agency resists "light touch" for sites with ISO 14001, EMAS" ENDS Report,
(March 1997) No 266 3.

577
For example, it might be used as a mechanism for avoiding liability or to justify the mitigation of
penalties. In the USA, particular emphasis has been placed on "compliance assurance" programs in
determining whether penalties should be mitigated. (See W L Thomas, "Using ISO 140001 to comply
with the Management System Requirements of US EPA's RMP Rule and the EU's Seveso II Directive"
European Environmental Law Review, December 1998, 335.) The rationale is that most environmental
offences are committed by corporations which, as artificial legal entities, have "no body to kick and no
soul to damn" (J C Coffee, "No Soul to Damn: No Body to Kick: An unscandalized inquiry into the
problem of corporate punishment" (1981) 79 Michigan Law Review 386). Under what circumstances then,
should the misdeeds of individual employees be attributed to the corporation? One answer is to say that
the implementation of an adequate compliance assurance program (of which an environmental
management system is an essential component) is a reasonable way for the corporation to stay within the
law. If an individual employee breaches the law in contravention of such a program, liability should
arguably stay with the individual, and should not be attributed to the corporation. A "half- way house"
would be to make the corporation liable for the misdeeds of the individual but to allow the compliance
assurance program to be pleaded in mitigation at sentencing.

578
Arguably, the best existing example of a broad, flexible licensing requirement on this model is that
being developed by the state government of Western Australia (see WA Department of Environment
Protection, Achieving Best Practice Environmental Management (1996), Discussion Paper, WA
Department of Environment Protection, Perth). Also, the Dutch integrated system (see M Aalders,
"Regulation and In-Company Environmental Management in the Netherlands" (1993) 15(2) Law and
Policy pp 75-94).

579
See the Dutch integrated system (see M Aalders, "Regulation and In-Company Environmental
Management in the Netherlands" (1993) 15(2) Law and Policy 75-94).
 302

580
S Newstead, Environmental Coordinator, Exxon, UK, quoted in "Chemical firms use EMAS, ISO
14001 in push for deregulation" (March 1996) ENDS Report No 254 6.

581
See L D De Simone and F Popoff with World Business Council on Sustainable Development, Eco-
Efficiency: The Business Link to Sustainable Development (1997), MIT Press. In Germany, regulators
have suggested that rigorous implementation of EMAS - the EU's predecessor to ISO 14001 - could lead it
to relax its regulation of industry, providing greater freedom of action with respect to the approval and
inspection of production plants (M Roberts, "Fitting in ISO 14000" (November 8 1995) 157(17) Chemical
Week 46). If the German government defines how verification and accreditation will operate then EMAS
will come close to becoming law de facto. In The Netherlands, system-based regulation is already being
implemented, with built in benefits for industry, while in Japan, the intention is to make ISO certification
mandatory for companies operating in that country. The chemical industry has been at the forefront of this
push towards regulatory flexibility (see also "From Command and Control to Self-Regulation: The Role of
Environmental Management Systems" International Environmental Review, March 5, 1997, p227 (Bureau
of National Affairs, Washington DC).

582
See for example "Chemical firms use EMAS, ISO 14001 in push for deregulation" (March 1996) Ends
Report No 254 5-6.

583
John Master, consultant to the CMA, quoted in "Chemical firms use EMAS, ISO 14001 in push for
deregulation"(March 1996) Ends Report No 254 6.

584
See further I Ayres & J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate
(1992), Oxford University Press, New York. ch 4.

585
The ISO 14000 series evolved as a consequence of two events: the Rio Earth Summit in 1992, which
brought increasing pressure for new mechanisms to address environmental degradation, and the Uruguay
round of GATT negotiations, from 1986 on, which focussed attention on the need to reduce or eliminate
non-tariff barriers to trade. Self evidently, these two goals are not necessarily complementary. A central
question has become: is it possible to create uniform environmental standards that do not erect trade
barriers but instead facilitate trade and remove such barriers? ISO 14000 purports to provide an answer to
this question, offering a standard that both facilitates trade growth and environmental protection.
However, the outcome involves a number of compromises which seriously prejudice ISO 14001's standing
as a tool for environmental protection. See further N Roht-Arriaza, Shifting the Point of Regulation (1995)
22 Ecology Law Quarterly 506-507.

586
G House, "Raising the Green Standard" (July 17 1995) 244(14) Industry Week 73. This was largely the
experience with ISO 14001's predecessor, the ISO 9000 series. As one industry analyst has pointed out:
"the experience in the US has been that ISO 9000 has not done anything good in terms of the quality of
products. It has become a documentation process, a paper-based process. It serves the purpose of putting
in place a management system to achieve a specified level of quality, but does not say anything about what
 303

that level of quality is" (J Master, consultant to the CMA, quoted in "Chemical firms use EMAS, ISO
14001 in push for deregulation"(March 1996) Ends Report No 254 6.

587
The term "prevention of pollution" is used in a context whereby it might be possible to satisfy it by end
of pipe approaches See N Roht-Arriaza, Shifting the Point of Regulation (1995) 22 Ecology Law
Quarterly 505-507.

588
Although ISO 14001 has been written for third party conformance certification (with an option of self-
certification), many enterprises which adopt it may choose not to seek certification unless there is a strong
commercial reason for doing so (eg marketing advantages, meeting requirements of trading partners, or
conceivably, discharging the legal requirement of due diligence). In the absence of such reasons,
enterprises are unlikely to seek certification, given the often very considerable expense involved. There is
the further possibility, to which we return, of governments requiring or providing incentives for
certification in certain circumstances.

589
See N A Gunningham, "Environmental Auditing: Who audits the auditors?" (1993) 10(4)
Environmental and Planning Law Journal, 229, and note that, in Australia, the Commonwealth
Environment Protection Agency (CEPA) and the New South Wales Environment Protection Authority are
investigating the feasibility of establishing an environmental auditor certification and registration scheme
and a Register of Certified Auditors.

In particular, there is a likelihood of a "QA takeover" of EMS and audits, resulting in an emphasis on
procedures and documentation rather than on environmental performance and technical issues.

590
For example, in Australia, of the first twelve companies involved in a certification pilot program,
eleven are quality assurance specialists, with only one environmental consultancy. Moreover, the Quality
Assurance Society of Australia has the responsibility for registration of environmental auditors. A related
concern is that there will be an undue focus on detail, again driven by a quality assurance approach. This
has indeed been the experience with the ISO 9000 series of quality assurance standards. It is also
noteworthy that at present, it is only organisations that will be accredited, and not the individuals within
those organisations who do the certifying.

Already, tensions are being generated as a result of perceived differences in standards being applied by
different types of auditors, or auditors operating in different counties. For example, under EMAS, a
disagreement about the stringency of German verifiers as contrasted with those elsewhere in the European
Union, is threatening to call into question the credibility of the whole scheme ((April 1996) ENDS Report
No 255 7-9). Comparability can only be achieved from uniform international interpretation of the
requirements of ISO 14001 and 14024, consistent instruction of course providers, uniform qualification of
auditors and consistent application of guides.
 304

591
It will generally include specific performance data, for example, emissions and improvement targets.
This statement is intended to inform both the authorities and the public of the firm's activities. It must be
verified by a third party. As at November 1995 there were still open issues under EMAS as to exactly
what has to be included in the environmental statement.

592
Under ISO 14001, firms are required to conduct periodic audits, depending on their environmental
related activities and the results of previous audits. It is important to note, however, that the audit only
addresses the EMS itself, not environmental performance per se, and that, further, the results of the audit
remain confidential.

593
ISO 14001 requires a procedure for dealing with the public without specifying what it should be. For
example, if a company notes and files complaints from members of the public, this might notionally satisfy
the requirement.

594
J Ehrenfeld, ISO 14000 and Responsible Care: What Kind of Change Agents Are They? (1995), paper
presented to ISO 14000: Preparing for Change Conference, Houston, Texas, September, p 10.

595
Certification may be granted either by an internal auditor or externally.

596
See "Benefits and shortcomings of EMAS" (August 1995) ENDS Report 19.

597
"Benefits and shortcomings of EMAS" (August 1995) ENDS Report 21.

598
J C Coffee, "'No Soul to Damn: No Body to Kick': A unscandalized inquiry into the problem of
corporate punishment" (1981) 79 Michigan Law Review 386.

599
N Burke, Gaining Organisational Commitments to OH&S by Integrating Safety Onto Your Business
Plans (1994), paper presented at Proactive OH&S Management Conference, Sydney 9&10 March, p 3.

600
R Chang, TQM Fever (1995), an interview presented by Business Report on ABC National Radio,
July.

601
Arguably the single largest impediment to improved environmental performance is the emphasis of
corporations on short-term profitability.

602
N Roht-Arriaza, Shifting the Point of Regulation (1995) 22 Ecology Law Quarterly 506-507.

603
See for example "The Responsible Care, ISO 14001 intersection" (7 April 1997) Careline 8-10. See
also John McVaugh’s chapter in Feldman and Tibor (eds), Implementing ISO 14000 (1997).

604
J V Rees, Hostages of Each Other: The transformation of nuclear safety since Three Mile Island
(1994), University of Chicago Press, Chicago.
 305

605
Distributors are harder to categories than most other groups within the chemical industry. They range
from very large and sophisticated companies to very small operators. On the whole, the sector is a very
profitable one and the number of economically marginal operators is likely to be very low.

606
The Yorktown experiment, described at p 00 above, is the classic example of this approach. The
considerable autonomy implied by management-driven approaches also has another important benefit:
codes or systems derived by industry have much greater credibility within industry and likelihood of
acceptance by it, than those imposed from outside.

607
See above pp 00n on the limits of self-interest in adopting such systems.

608
D Rotman, "Pushing Pollution Prevention" (17 July 1991) Chemical Week 30 at 33.

609
The advantages of performance-based reporting have been summarised as being that it: requires clear
goals that relate to the issues that the organisation exists to deal with and that society expects it to deal
with; allows improved accountability, as customers can make judgments about its performance in dealing
with those issues; give clear guidance to all levels of the organisation as to what they should be trying to
achieve (although not how to achieve it); allow and encourage organisational learning and improvement;
and enable comparisons between organisations (see C Meredith, Process or Outcomes? Defining the most
useful measure of environmental performance (1996), a paper presented at the 1996 Australian Academy
of Science Fenner Conference on the Environment: Linking Environment and Economy Through
Indicators and Accounting Systems, 30 September to 3 October, The University of New South Wales,
Sydney, pp 2-3).

610
ENDS Report (August 1996) No 259 21.

611
See in particular the work of the US Multistate Working Group on Environmental Management
Systems "Draft Voluntary Guideline Matrix for Implementation and Evaluation of ISO 14001
Environmental Management Pilot Projects" May 1997. The matrix includes a framework for measuring
the results of EMSs in the following categories: environmental performance; environmental conditions;
environmental compliance; management framework; pollution prevention; costs and benefits; and
stakeholder involvement. The US EPA is considering a second set of measurements go gauge a company’s
environmental performance. These may include releases of pollution; amount of raw materials used;
effectiveness of environmental training of workers; number and frequency of environmental audits; and
cost savings accrued from a facility’s pollution prevention efforts.

612
EPE is a process intended to provide organisations with a mechanism for understanding their pt and
present environmental performance as compared to the intended environmental performance of the
organisation. See ISO 14031 Environmental Protection Evaluation, US SuB Tag 4, Annexes Testing
Committee, Draft ATC Report, Sept 1996.
 306

613
Here, key questions are: what comparisons can be made with data on incidents and impacts of chemical
operations and substances; or whom should data be gathered; and what health, safety and environment
outcomes should we measure? (see further J Smith, Measuring Health, Safety and Environmental
Performance: Why, what, and whose? (1994), summary of a paper presented to the ACIC Convention, 21
February, Leura, NSW).

614
D Ditz and J Ranganathan Measuring Up: Toward a Common Framework for Tracking Corporate
Environmental Performance World Resources Institute, Washington DC, 1997

615
D Ditz and J Ranganathan Measuring Up: Toward a Common Framework for Tracking Corporate
Environmental Performance World Resources Institute, Washington DC, 1997, p vii.

616
These approaches contemplate an immediate exit from the current regulatory system for selected major
sources replacing it with contracts tailored to the source's particular circumstances (see W F Pederson,
"Can Site Specific Pollution Control Plans Furnish an Alternative to the Current Regulatory System and a
Bridge to a New One?" (1995) 25 Environmental Law Review 10486).

617
For example, any project eligible for the XL Program (discussed in chapter 2 and below at pp 00) must
be "able to achieve environmental performance that is superior to what would be achieved through
compliance with current and reasonably anticipated future regulation" (60 Fed Reg at 27287).

618
This is the proposal made by the Aspen Institute Report: The Alternative Path: A cleaner, cheaper way
to protect and enhance the environment (1996), Program for Energy, the Environment and the Economy,
The Aspen Institute, US.

619
Chemical Manufacturers Association (CMA), Responsible Care: Progress Report 1994-95 (1995),
CMA, Washington DC, pp 23-26.

620
For example, same company be allowed its own "bubble licence": offsetting gains in one area,
inexpensively gained, against losses in another where it would be excessively expensive to achieve
change.

621
Environmental Law Institute, "New State and Local Approaches to Environmental Protection" (1993),
Environmental Law Institute Report to EPA Office of Technology Assessment, Washington DC.

622
This is the proposal made by the Aspen Institute Report: The Alternative Path: A cleaner, cheaper way
to protect and enhance the environment (1996), Program for Energy, the Environment and the Economy,
The Aspen Institute, US.

623
G Crognale at [Link]

624
J Atcheson, "Can we Trust Verification?" (July/August 1996) 13(4) Environmental Forum 19.
 307

625
J Atcheson, "Can we Trust Verification?" ((July/August 1996) 13(4) Environmental Forum 19.

626
"For regulators at least, an advantage of old style specification standards is that they are comparatively
easy to measure and verify. This is not the case with a more open ended, flexible and outcomes oriented
approach, where "a major issue ...is to establish feasible and agreed-upon ways to measure and verify
facility and sector performance" (D J Fiorino, "Towards a New System of Environmental Regulation: The
case for an industry sector approach" (1996) 26(2) Environmental Law 457-489 at 478).

627
J Atcheson, "Can we Trust Verification?" (July/August 1996) 13(4) Environmental Forum 21.

628
These are intended to focus resources on pollution reduction goals rather than on completing the
burdensome process of achieving several different permits (Environmental Law Institute, "New State and
Local Approaches to Environmental Protection" (1993), Environmental Law Institute Report to EPA
Office of Technology Assessment, Washington DC).

629
Under this program a company may implement an OHS management system and in exchange OSHA
will reduce enforcement and inspection requirements. What is striking about this scheme is the extent of
the requirements on a firm before it becomes eligible to participate. Under the self-inspection and hazard-
correction requirement, an employer must describe its hazard assessment procedures in detail, show how
hazard assessment findings are incorporated in planning decisions, training programs and operating
procedures, and agree to provide to OSHA its self-investigation and accident investigation records, its
safety committee minutes, its monitoring and sampling results, and its annual safety and health program
evaluation. It also pledges to correct in a timely manner all hazards identified through self-inspections,
employee reports or accident investigations, and to provide the results of these investigations to its
employees. That is, it is not sufficient for enterprises simply to establish a management system. Rather,
there is an insistence that a number of other clearly identified requirements must also be satisfied.

630
D Ditz and J Ranganathan Measuring Up: Toward a Common Framework for Tracking Corporate
Environmental Performance World Resources Institute, Washington DC, 1997.

631
This view has been attributed to US Chemical Manufacturers Association executive J Davenport.

632
An innovative alternative that has been trialed in Alberta, Canada, is a peer evaluation system whereby
each participating company agrees to receive the services of a certified independent auditor from a
participating company in the same industry group. Whether such a system would work at least as well as
one utilising auditors from outside the industry itself, whether it would result in collusion, or the converse
(auditors from rival firms exploiting opportunities to disadvantage their rivals) it is too soon to say. This is
indeed one area whether further empirical evidence is needed and where much may depend on the
characteristics of the individual industry.
 308

633
N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform"
(1994) 15 Sydney Law Review 492-526, and references therein.

634
Health & Safety Executive (UK), Successful Health and Safety Management HS(G)65, (1991),
HMSO, London.

635
At the time of writing , the Canadian version is stronger than most others. For example, the US CMA is
still experimenting with management systems verification to enable a critical assessment of a company's
progress, and providing for public participation, while in Australia the current proposal is that a
community representative (for example, a technical specialist with links to a local community) will only
participate where the company being audited has agreed to their inclusion (J Smith, Measuring Health,
Safety and Environmental Performance: Why, what, and whose? (1994), summary of a paper presented to
the ACIC Convention, 21 February, Leura, NSW). Clearly, this is a substantial limitation to effective and
independent third party oversight and will do little to overcome community scepticism.

636
Four verifiers, including two industrial volunteers, a professional auditor, and an environmentalist,
studied CCC and Imperial Oil's (Toronto) agricultural chemical groups for a week, which included three
to four days of speaking with people of each company. Working from the CEO down, the team verified
the management systems ensure Responsible Care requirements are met. The team was able to examine
twenty % of the 151 one items in depth, quickly checking the others (E Kirschner, "New Jersey: State
Ambassadors" (1993) 153 Chemical Week 40. See also "CMA Verification Process Kicks Off to
Successful Start" (1996) 6 Careline).

637
However, this remains a contentious issue. Under the US version, there is no such obligation or
expectation as yet. (See also B Wastle, Vice President, Canadian Chemical Producers Association, letter
to the author, November (1993)).

638
See "The Verdict on Verification From Canada" (7 April 1997) Careline 4.

639
See generally N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and
reform" (1994) 15 Sydney Law Review 492-526; and N A Gunningham, "Environmental Auditing: Who
audits the auditors?" (1993) 10(4) Environmental and Planning Law Journal, 229.

640
Note the role of auditors under the USEPA’s Risk Management Plans program. See W L Thomas
"Using ISO 14001 to comply with the Management System requirements of the USEPA’s RMP Rule and
the EU’s Seveso II Directive" forthcoming in Hydrocarbon Processing (1998).

641
Since the regulated enterprise might wish to conduct such periodic audits for its own purposes, the
additional cost to itself may be acceptable.
 309

642
However, there may be a contrary incentive in the case of at least some environmental auditors:
identifying numerous deficiencies in the client's systems in anticipation of gaining the contract to fix them
up.

643
See N A Gunningham, "Environmental Auditing: Who audits the auditors?" (1993) 10(4)
Environmental and Planning Law Journal, 229.

644
While self-insurers and those who require a SMS to tender for government contracts might remain
within track two, most others might find the remaining incentives insufficient to do so.

645
The one circumstance in which privilege should not be granted is where the duty holder seeks to invoke
the audit in defence to a prosecution, in which case the prosecution should have a right to produce other
evidence from the audit which counters this.

646
There is, after all, little incentive to conduct an audit if the information it generates serves to provide a
basis for prosecution or other enforcement action.

647
See N Gunningham & J Prest, "Environmental Audit as a Regulatory Strategy: Prospects and reform"
(1994) 15 Sydney Law Review 492-526.

648
It might be necessary to provide statutory guarantees that information gathered in such an audit cannot be
used in any subsequent prosecution action. Such a strategy would work most effectively if the relevant
inspectorate adopted a diagnostic role - at least in respect of voluntary audits. That is, it would see its primary
means of obtaining compliance as the provision of technical assistance to companies in breach of regulatory
standards, keeping advice and policing as quite separate functions.

649
P Kleindorfer and E Orts "Informational Regulation of Environmental Risks" Working Paper, The
Wharton School, University of Pennsylvania, 1996.

650
That slogan turned out to be a public relations disaster (surveys indicated that most Americans
remembered only the first part of it) and the Australian ACIC has wisely chosen not to adopt it.

651
At present, some versions of Responsible Care adopt the former approach. For example, in Australia, a
Code of Practice endorses the principle of the community having a right to knowledge concerning
hazardous substances stored within members' premises; the processes used at members' premises in
manufacture of those products; the transport arrangements for moving those hazardous substances to and
from members' premises, and resultant from these activities. The primary mechanism for communicating
the relevant information is through local community liaison panels established with the co-operation of
local government, State regulatory agencies and prominent local residents (see further N A Gunningham
& A Cornwall, "Legislating the Right to Know" (1994) 11(4) Environmental and Planning Law Journal
274-88).
 310

652
See N A Gunningham, "Environment, Self-Regulation, and the Chemical Industry: Assessing
Responsible Care (1995) 17(1) Law and Policy 57-109 at 77-80.

653
See ch 2 p00.

654
See further N A Gunningham & A Cornwall, "Legislating the Right to Know" (1994) 11(4)
Environmental and Planning Law Journal 274-88.

655
For example, the intention is that member companies will be able to measure performance
quantitatively against defined objectives (see Code, section 2.1 and implementation principles).

656
In contrast the Coalition for Environmentally Responsible Economies' (CERES) principles include a
requirement for public disclosure of environmental performance. CERES also requires companies to make
information generated through self-audits publicly available - again a sharp contrast to the position under
ISO 14001. CERES principles further include commitments from enterprises to report publicly violations
of the law, waste management, workplace hazards and to report annually their environmental releases.
None of these disclosures on corporate environmental performance is required under ISO 14001.
Similarly, EMAS also provides for public disclosure as does BS 7750 whereby a company must publicly
disclose direct as well as indirect significant environmental effects of the manufacturing process.

657
J Nash & J Ehrenfeld "Code Green" ((Jan/Feb 1996) Environment 42.

658
See note (about 10 endnotes earlier).

659
The public is not a homogeneous group - the communities located in close proximity to chemical plants
themselves often have very different views from those located at some distance from them.

660
US EPA, Environmental Leadership Program, ELP Community Outreach/Employee Involvement
(1996), US EPA, Washington DC, p 1.

661
P Simmons & B Wynne, "responsible Care: Trust, credibility and environmental management: in K
Fischer & J Schot (Eds) Environmental Strategies for Industry (1993), Island Press, US, p 221.

662
P Simmons & B Wynne, "responsible Care: Trust, credibility and environmental management: in K
Fischer & J Schot (Eds) Environmental Strategies for Industry (1993), Island Press, US, p 221.

663
These groups reportedly fear that their participation might be perceived as an endorsement of
Responsible Care or that by participating, they might be co-opted and less free to criticise the industry in
the future.

664
The Environmental Leadership Program of the USEPA, while still evolving, apparently contemplates
an environmental management system as its central component, with community outreach and employee
 311

involvement as critical elements of that system: a substantial step beyond ISO 14001 in its current form.
see also Project XL, referred to at pp 00 above.

665
See National Environmental Justice Advisory Council, Public Participation and Accountability
Subcommittee, The Model Plan for Public Participation (November 1996), National Environmental
Justice Advisory Council, Washington DC.

666
Environment Protection Authority (Victoria), A Question of Trust: Accredited licensing concept (July
1993), a discussion paper, Environment Protection Authority, Melbourne, p 10.

667
D Robinson, " Public Participation in Environmental Decision Making" (1993) 10(5) Environmental
and Planning Law Journal 320-40.

668
P Simmons & B Wynne, "responsible Care: Trust, credibility and environmental management: in K

669
J Ehrenfeld, ISO 14000 and Responsible Care: What Kind of Change Agents Are They? (1995), paper
presented to ISO 14000: Preparing for Change Conference, Houston, Texas, September, p 10.

670
For example, moral suasion also formed the basis for environmental responsibility under the Maquila
Program, introduced by United States’ President Johnson and Mexican President Dias in the 1960s (L
Burton, Environmental Equity and NAFTA Implementation (1994), a paper presented to Law and Society
Association Meeting, 16-19 June, Phoenix, Arizona).

671
G Hardin, "The Tragedy of the Commons" 162 Science 1243-48 at 1247.

672
I Maitland, "The Limits of Business Self-Regulation" (1985) 27(3) California Management Review
132-47 at 136.

673
J V Rees, Hostages of Each Other: The transformation of nuclear safety since Three Mile Island
(1994), University of Chicago Press, Chicago.

674
See section on performance indicators above

675
Consistent with this approach, the Victorian EPA has indicated that it will monitor very closely any
company that refused to join Responsible Care or was expelled for failing to come up to standard (R
Smithers, "Chemical Firms Adopt Code to Clean Up the Industry" (1989) The Age 27 September, p 5.

676
J C Coffee, "Environmental Crime and Punishment" (1994) New York Law Journal (Thursday
February 3) 10.

677
J C Coffee, "No Soul to Damn: No Body to Kick: An unscandalized inquiry into the problem of
corporate punishment" (1981) 79 Michigan Law Review 386.
 312

678
This would include how far the company meets the performance indicators currently being developed
under Responsible Care.

679
In the USA these include Community Advisory Panels, and in Australia, community and industry
consultative committees.

680
See further in next section below.

681
For example, the Victorian Accredited Licensing Scheme (which includes a 25% license fee reduction,
the offer of a bubble license, and less onerous conventional inspection) had, after 18 months in operation,
attracted only a handful of participants, and many of the Reinventing Environmental Regulation initiatives
in the USA are experiencing similar problems.

682
See generally N A Gunningham, Beyond Compliance: Management of environmental risk in B Boer, R
Fowler & N Gunningham, (Eds) Environmental Outlook: Law and policy (1994), ACEL, Federation
Press, Sydney, and references therein.

683 See further Australian Manufacturing Council (AMC), Best Practice Environmental Management,
(1992), AMC, Melbourne.

684
This analysis is based on P Winsemius and U Guntram, "The Environmental Challenge" (1992)
Business Horizons, March/April, p 12.

685
Individual managers too will be judged essentially on short-term performance, and if they cannot
demonstrate tangible economic success in the here and now, there may be no long term to look forward to.

686
Cross reference to endnote on the Tufts University study earlier in this chapter.

687
This indeed, is a major reason why full cost accounting is likely to be crucial to corporations going
beyond compliance. Of course, some commitment to environmental priorities will have short-term pay-
offs. Improvements in waste reduction, in good house-keeping, in saving energy, in eliminating excessive
packaging, even in alternative materials purchase, will feed back directly into corporate profits - but even
here, while the first 25 % improvement may be quite easily achieved, the next 25 % may prove far more
challenging.

688
See J Romm, Lean and Clean Management: How to boost profits and productivity by reducing
pollution (1994), Kodansha America, New York; and M Porter, The Competitive Advantage of Nations
(1990), Macmillan Press, London, who both provide evidence that there are huge untapped efficiencies to
be gained from improved environmental performance.

689
H Simon, Economics, Bounded Rationality and the Cognitive Revolution (1992) Edward Elgar, UK, 3.

690
Cross reference to full cost accounting.
 313

691
See endnote a few pages earlier on accredited licensing.

692
Another option would be to make adoption of ISO 1400 mandatory? Such an approach would be
highly inappropriate. ISO 14001 have many shortcomings described earlier. It was, moreover, designed as
a voluntary system, rather than as a regulatory one. Certainly it might usefully become a component of a
broader regulatory approach but to make its use mandatory (for example for certain sectors or for firms
above a certain size) in isolation could achieve little, and would be counterproductive in imposing a
straightjacket on those who might prefer to achieve environmental objectives though other means (eg
Responsible Care). Making ISO 14001 compulsory, even in conjunction with a range of other
requirements, would also be overambitious, given the demands on regulatory resources. Nevertheless,
there may be circumstances in respect of particular hazardous industries where a mandatory systems based
approach (which could include but should not be limited to ISO 14001) in conjunction with performance
measures and other requirements may be justified. The safety case regime for off shore oil is such a case.

693
See ch 2 above.

694
See further ch 5 at pp 00.

695
For example, participating enterprises might be designated as a low priority for inspections.

696
One particularly important incentive in the case of specialty manufacturers would be a waiver of the
existing requirement to obtain a new permit or permit modification every time they embark upon a new
batch process (using chemicals for which they have already been granted a permit) rather than merely
notify the agency of the new circumstances. This substantially slows their ability to get a new product to
market. Flexibility in this area would provide considerable attractions to such firms. (Cross reference
later)

697
Note that federal government has been providing financial assistance to SMEs to implement EMS,
focussing particularly on cleaner production and waste minimisation. See in particular the Environment
Protection Authority's Cleaner Production Demonstration Program and the National Environment
Industries Database.

698
OECD 1995 Technologies for Cleaner Production and Products: Towards Technological
Transformation for Sustainable Development, OECD Paris.

699
This is because tradeable permit regimes work best when there are large differences in the marginal
cost of abatement within and between industrial sectors. That way there is a stronger incentive for firms to
actually engage in trading, thus lowering the overall cost of pollution abatement. The necessary
consequence of trading is, however, that some firms, where the marginal cost of abatement is highest, will
end up increasing their emissions, relative to the industry average. Such an outcome may well be
incompatible with their obligations under Responsible Care or indeed any minimum performance
 314

standards that may exist. Finally, it would be difficult and indeed economically undesirable to distinguish
between firms participating in a permits scheme.

700
For example, Pederson gives the example of proposals for regulatory capping, which would require
'capped' sources to adopt pollution prevention programs to reduce their emissions over time. He notes that
"the tighter and more detailed the baseline specifications, the fewer caps there will be, and the less room
existing caps will allow for pollution prevention" (W F Pederson, "Can Site Specific Pollution Control
Plans Furnish an Alternative to the Current Regulatory System and a Bridge to a New One?" (1995) 25
Environmental Law Review 10486).

701
See endnote at a few pages above.

702
W F Pederson, "Can Site Specific Pollution Control Plans Furnish an Alternative to the Current
Regulatory System and a Bridge to a New One?" (1995) 25 Environmental Law Review 10486.

703
See further pp 00 below.

704
The Australian approach is found in N A Gunningham, "Negotiated Compliance - a Case of Regulatory
Failure" (1987) 9 Law and Policy 69; and D Farrier, "Policy Instruments for Conserving Biodiversity on
Private Land" in J Bradstoock, (Ed) Conserving Biodiversity: Threats and solutions (1995), Surrey Beatty
& Sons, Chipping Norton.

705
For example: CERES; Responsible Care; etc.

706
See S Schmidheiny and F Zorraquin, Financing Change: The Financial Community, Eco-Efficiency
and Sustainable Development (1996), MIT Press.

707
See Canadian Chemical Producers Association, Does Responsible Care Work? (May 1996), Canadian
Chemical Producers Association, Ottawa, p7.

708
Above pp 00.

709
See Canadian Chemical Producers Association, Does Responsible Care Work? (May 1996), Canadian
Chemical Producers Association, Ottawa, p 8.

710
See further P Freeman & R Kunreuther R, Managing Environmental Risk Through Insurance (1997),
Kluwer/American Enterprise Institute.

711
For an account of how insurers might employ environmental performance measurement in risk
reduction strategies see D A Henderson Lending Abroad: The Role of Voluntary International
Environmental Management Standards, J of Commercial Lending, July 1 1997, at 47.
 315

712
P Freeman & R Kunreuther R, Managing Environmental Risk Through Insurance (1997),
Kluwer/American Enterprise Institute.

713
P Freeman & R Kunreuther, "The Roles of Insurance and Well-Specified Standards in Dealing with
Environmental Risks" (1996) 17 Managerial and Decision Economics 517-530.

714
Distributors can be distinguished to some extent: they act rather like regional supermarkets, buying in
bulk supplying in smaller quantities within a particular area: in some cases custom blending, and in others,
repackaging, for smaller customers. Some of these companies are quite large and the sub-sector as a
whole, is profitable, with few players likely to be experiencing significant economic difficulties.

715
President's Council on Sustainable Development, Eco-Efficiency Task Force, Chemical Operations
Demonstration Project (February 1995), Washington DC, p 24.

716
President's Council on Sustainable Development, Eco-Efficiency Task Force, Chemical Operations
Demonstration Project (February 1995), Washington DC, p 23.

717
President's Council on Sustainable Development, Eco-Efficiency Task Force, Chemical Operations
Demonstration Project (February 1995), Washington DC, p 24.

718
One particularly important incentive in the case of specialty manufacturers would be a waiver of the
existing requirement to obtain a new permit or permit modification every time they embark upon a new
batch process (using chemicals for which they have already been granted a permit)rather than merely
notify the agency of the new circumstances. This substantially slows their ability to get a new product to
market. Flexibility in this area would provide considerable attractions to such firms.

719
Note their limited ability to identify and implement changes that might take them beyond compliance
(eg pollution prevention audits, assessment of innovative technologies, systematic self-evaluation) which
require both money and expertise.

720
See W J Clinton & A Gore Jr, Reinventing Environmental Regulation (1995), Washington DC, p 31.

721
See W J Clinton & A Gore Jr, Reinventing Environmental Regulation (1995), Washington DC, p 30;
and US EPA, Policy on Compliance Incentives for Small Business, (1996) May 20, US EPA, Washington
DC.

722
See for example, the US EPA's final policy on incentives for self-evaluation and self-disclosure of
violations, Federal Register, Dec 22, 1996 (60 FR 66706).

723
Northern Territory Department of Lands, Planning and Environment, information kit on Draft Waste
Management and Pollution Control Bill, December 1996.
 316

724
To achieve this purpose proposed Australian legislation (see724 Northern Territory Department of
Lands, Planning and Environment, information kit on Draft Waste Management and Pollution Control
Bill, December 1996) provides that pre-existing industries that can not comply with new legislative
requirements made under an Environmental Protection Policy, environment protection order, authorisation
or Regulation, prepare and submit a compliance plan. Such a plan should detail a program of improvement
aimed at achieving compliance within a specified period. Once approved, the compliance plan would have
the effect of removing any liability for prosecution for non-compliance with the relevant legislative
provisions. Failure to fulfil the requirements contained in the compliance plan would be an offence.

725
In the United States, many SOGMA members would claim to have the essential ingredients of a
system, but not necessarily one that would satisfy ISO 14001, though it might in simplified form, contain
some of the key components of ISO 14001. None (for reasons of cost) have any intention of formal
certification under ISO. There is a trend towards adopting EMSs, but in many cases these are at present so
rudimentary that they would not stand up to external audit and verification.

726
See President's Council on Sustainable Development, Towards Sustainability (1995), Washington DC,
p 19.

727
Such codes are more flexible than regulations in that companies are not compelled to follow them, and
non-compliance with the actions specified in a code is not in and of itself an offence. Rather, the onus is
on the responsible party to prove, if challenged, that the action was "as good as" that in the approved code
of practice. Thus companies who have the capacity to devise cost-effective and innovative means of
achieving (or going beyond) the performance standard, are encouraged to do so while less advanced
organisations have the benefit of specific indications as to how to meet the statutory standards. If the
codes of practice adopted under Responsible Care are of a sufficiently high standard (that is, if they
represent best practice environmental management) then these codes in themselves might be incorporated
by reference into the relevant legislation, becoming the recommended mechanism through which the
general duties and performance standards are discharged.

728
See in particular, New Jersey Chemical Industry Project, Update 4, US EPA, July, 1997.

729
See in particular, New Jersey Chemical Industry Project, Update 4, US EPA, July, 1997.

730
A Hopkins, Making Safety Work: Getting Management Commitment to Occupational Health and
Safety, (1995), Allen & Unwin, Sydney, p 177.

731
J T Scholz, "Cooperation, Deterrence and the Ecology of Regulatory Enforcement" (1984) 18 Law and
Society Review 1709.
 317

732
There is also some evidence that longer inspections have much greater deterrent effect than superficial
inspections which check only the plant's injury records. However, it would be dangerous to generalise from
this to conclude that shorter inspections generally, are less effective.

733
H Humphrey III, "Public/Private Environmental Auditing Agreements: Finding better ways to promote
voluntary compliance" (1994) 3 Corporate Conduct Quarterly 1 at 2.

734
H Humphrey III, "Public/Private Environmental Auditing Agreements: Finding better ways to promote
voluntary compliance" (1994) 3 Corporate Conduct Quarterly 1 at 23.

735
According to our respondents, companies do indeed refuse to deliver to others who manifestly do not
have appropriate storage facilities for hazardous chemicals. However, we were unable to ascertain how
widespread this practice was, or to obtain concrete examples of it.

736
Small companies find it more difficult Often they subscribe to Responsible Care but they do not have
the people and resources to take it to its full extent ((3 March 1996) Careline 14).

737
On the role of ISO 14001 and supply chain pressure see above pp 00.

738
See further Australian Chemical Industry Council (ACIC), Product Stewardship: Interim Code of
Practice (1994), ACIC, Melbourne, p 2; Agis D Veroutis and James A Fava, Elements of Effective DFE
Program Management and Product Stewardship, xx Environmental Quality Management 61 (Autumn
1997); CMA Measures Product Stewardship, 4/16/97 Chemical Wk. 005 (April 1997); Patricia S Dillon
and Michael S Baram, Forces Shaping the Development and Use of Product Stewardship in the Private
Sector, in Kurt Fischer and Johan Schot (Eds) Environmental Strategies for Industry: International
Perspectives on Research Needs and Policy Implications (1993).

739
D Rotman, "Pushing Pollution Prevention" (July 17 1991) 148,26 Chemical Week 30.

740
Australian Chemical Industry Council (ACIC), Product Stewardship: Interim Code of Practice (1994),
ACIC, Melbourne, p 2.

741
The key components are said to be "leadership, continuous improvement of risk management, effective
communication of hazards, and forging of partnerships in the supply chain" (L Tattum, "Product
Stewardship: Old practice, new theory" (7/14 July 1993) 153,1 Chemical Week 125-26; and E Chynoweth
& D Jackson, "Tour de Force: The Ambassadors" (7 July 1993) Chemical Week 126).

742
S Patrick, CMA News, September 1996, p 28.

743
In effect, Dow promises its customers that, through product stewardship, it will help them to identify
and remedy their environmental problems and thereby keep out of trouble (R Begley, "Implementing a
Philosophy: facing the challenges of the most sweeping code" (17 June 1992) Chemical Week 68).
 318

744
In the case of the specialty chemical manufacturers, opportunities exist in both directions. For while
larger companies can exercise scrutiny over the specialty manufacturers, and offer advice and technical
assistance, the latter in turn can, consistent with the principles of product stewardship, make detailed
enquires and require information concerning the qualities and appropriate precautions concerning the
chemicals they are dealing with on behalf of their larger clients.

745
For example, some companies provide a training kit, and focus on making sure the customer is using
the product in the intended way, keeping the customer informed about how the product should be handled,
and helping the customer dispose of any hazardous wastes and by-products.

746
For example one major company has recently developed a recovery program for industrial solvents and
cleaners, taking in cleaners no longer effective from customers, distilling them to recover the solvent, and
safely burning any residue, giving the customer credit for any solvent recovered.

747
M Coeyman, "Making Product Stewardship a Reality" (1993) Chemical Week 7 July: 37.

748
This may serve to counter the temptation which some chemical companies have succumbed in the past,
namely to sub-contract some of the dirtiest or most hazardous operations relating to chemical
manufacture. Also see G De Morris, "Whistle Stop Tour Delivers TransCAER Message" (1993) Chemical
Week 8 December: 40.

749
R Begley, "Product Stewardship: Exploring the 'How-To" (11 December 1991) Chemical Week 149,
20 17.

750
Such audits are contemplated at a later date (J Smith, Measuring Health, Safety and Environmental
Performance: Why, what, and whose? (1994), summary of a paper presented to the ACIC Convention, 21
February, Leura, NSW).

751
M Coeyman, "Making Product Stewardship a Reality" (1993) 153,1 Chemical Week (7/14 July) 125:
M Coeyman, "Responsible Care: Code implementation contracts" (7/14 July 1993) 153,1 Chemical Week
14; and M Coeyman, "Customers Get New Attention: Product stewardship from the buyer's side" (8
December 1993) 153,22 Chemical Week 34.

752
R Begley, "Implementing a Philosophy: facing the challenges of the most sweeping code" (17 June
1992) Chemical Week 74.

753
E Chynoweth & K Heller, "Wanted: A System to Audit Care: Environmentalists and industry forge
ahead" (17 June 1992) 150,23 Chemical Week 28.

754
R Begley, "Implementing a Philosophy: facing the challenges of the most sweeping code" ((17 June
1992) Chemical Week 68.
 319

755
P Dillon & M Baram, "Forces Shaping the Development and Use of Product Stewardship in the Private
Sector" in K Fischer and J Schot, (Eds) Environmental Strategies for Industry, (1993), Island Press,
Washington DC, pp 340.

756
These might include product warnings and labels, education and training programs, services, access to
company personnel and guidance documents, purchasing contract and supply specifications and
notification, screening and selection of suppliers, distributors or customers (see P Dillon & M Baram,
"Forces Shaping the Development and Use of Product Stewardship in the Private Sector" in K Fischer and
J Schot, (Eds) Environmental Strategies for Industry, (1993), Island Press, Washington DC, pp 329-341).

757
See P Dillon & M Baram, "Forces Shaping the Development and Use of Product Stewardship in the
Private Sector" in K Fischer and J Schot, (Eds) Environmental Strategies for Industry, (1993), Island
Press, Washington DC, pp 329-341.

758
M Porter, The Competitive Advantage of Nations (1990). Macmillan Press, London.

759
R B Shapiro, Chairman, Monsanto Company, Remarks To Society of Environmental Journalists
(1995), October 28 ([Link]
News/Speeches/951028Shapiro_Robert.htm).

760
As we have indicated, such an approach has the greatest potential where it would enable enterprises to
make economic gains - where, in short, there is a coincidence between what is good for safety and what is
good for private profit. Even here there may be resistance to adopting a systems-based approach, arising
either from ignorance, incompetence or irrationality, or from the gap between short term and long terms
gains.

761
Some small or medium sized firms will also be able to meet the requirements for more flexible
regulation. Quite how many will depend largely upon the extent to which EMS requirements can be
modified to meet the needs of such firms and the costs of certification against, say ISO 14001.

762
A demonstrated record of above average (or "good") environmental performance and no major
violations, is an important "gateway" requirement which serves the important purpose of denying access to
track two regulation to firms who, given their past environmental record, would be most likely to abuse it.

763
See further N Gunningham & J Rees, (1997) Law and Policy (forthcoming).

764
However, we must acknowledge that most American regulators, imbued in the tradition of adversarial
legalism, would disagree.

765
R Kagan, & J Scholz, "The Criminology of the Corporation and Regulatory Enforcement Strategies" in
K Hawkins and J Thomas (eds) Enforcing Regulation (1984), Kluwer-Nijhoff, Boston, pp 67-96.
 320

766
I Ayres & J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992),
Oxford University Press, New York, p 25.

767
To the extent that the irrational do not respond to education and encouragement, they may still respond to
penalties. Irrationality is a relative concept. There are few who will not respond to criminal sanctions and
these may ultimately face closure, a sanction that even the irrational cannot ignore.

768
I Ayres & J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992),
Oxford University Press, New York.

769 J Braithwaite, "Responsive Business Regulatory Institutions" in C A J Cody & C J E Sampford, (Eds)
Business, Ethics and Law (1993), Federation Press, Sydney, p 88.

770
These include a danger that the regulatory process becomes co-opted by business, that rules in part
written by the industry (although endorsed by government) may seek to evade the spirit of the law, and
that the Responsible Care coordinators will not be sufficiently independent.

771
Among the most important features of such systems are: incorporating pollution and waste prevention
into core business practices; accounting for the total environmental impact of choices throughout the life
cycle of products and services; improving efficiency; considering environmental costs to society in
business decisions; employing planning processes to illuminate pollution prevention and product
stewardship opportunities; and striving to improve continuously.

772
But subject to necessary protection: eg, immunity from prosecutions or a period of grace. See further N
Gunningham and J Prest, "Environmental Audit and Regulatory Strategy: Prospects and Reform" (1993)

15(4) Sydney Law Review (1993) 492-526.

773
See here the parallels with the US EPA's Environmental Leadership Program, which anticipates
explicit inclusion of compliance assurance, pollution prevention and community outreach as core
components of an environmental flexibility program built around an environmental management system.

774
See for example J Braithwaite & B Fisse, "Self Regulation and the Costs of Corporate Crime" in C D
Shearing & P C Stenning, Private Policing (1987), Sage Publications, Beverley Hills, California; P
Cerexbe, "Advertising Self Regulation: The Clayton's Codes" (1988) 38 Consuming Interests 16-20; M
Blakeney & S Barnes, "Advertising Deregulation: Public health or private profit" in R Tomasic, (Ed)
Business Regulation in Australia (1984), CCH Australia, North Ryde, NSW; and A C Page, "Self-
Regulation and Codes of Practice" (1980) Journal of Business Law 24-31.

775
We have addressed the trade offs between efficiency and effectiveness in chapter one.

776
Cross ref here Kleindorfer stuff too re markets.
 321

777
An outstanding example of such constructive engagement is the work of the Alliance for
Environmental Innovation, established by the Environmental Defence Fund and the Pew Charitable
Trusts. See the Green Business Letter (March 1996) 1; Waste Reduction Tips, March/April 1997, p. 7; F
Catherine, Advocacy Groups and Business form Enviro Alliance (March 4-17 1996) Mass High Tech.

778
There is no provision under the Australian Trade Practices Act 1974 (Cth.) which gives the ACCC the
authority to endorse a Code although the Commission has allowed this on at least one occasion (see the
Australian Scanning Code). Similarly the New Zealand Ministry of Consumer Affairs has no statutory
power to endorse or sanction any code officially, nor to give permission for the use of the Ministry’s logo
in the promotion of a code. While the Ministry of Consumer Affairs has openly acknowledged its role in
the development of codes, it signed as such in the original EFT code, it has not developed policies or
conditions for endorsement of codes (comments received from Bob Hillier at the New Zealand Ministry of
Consumer Affairs (April 1996)).

779
Provided there is no discrimination against foreign firms.

780
For example, in the United States, it was only once financial markets had access to reasonably accurate
indicators of environmental performance (in the form of the government mandated TRI and disclosure
requirements imposed by the Securities and Exchange Commission) that the environmental record of
individual firms began to be reflected in their stock price.

781
They feature means by which concerned citizens have access to information relating to regulatory
compliance, and the right to inspect facilities and to review compliance and accident plans. With
community support, the strategy becomes a legally enforceable contract. Good neighbour agreements can
provide firms with a strong incentive to engage in cleaner production activities. However, they are only
likely to be appropriate for larger firms with a reasonably high community profile.

782
Cite earlier reference in this chapter.

783
N Gunningham & J Rees, (1997) Law and Policy (forthcoming).

784
The establishment of an independent and transparent audit, certification or verification process, such as
is now evolving under the Canadian Responsible Care Program, (and is required by the International
Council of Chemical Associations as the eighth fundamental feature of Responsible Care) is one means of
answering these questions and of achieving credibility. Under ISO 14001 third party certification is
optional though not mandatory. However, it may be that firms will prefer such certification to their own
in-house audits because of the greater credibility which such "arms-length" auditing will provide.

785
In the case of ISO 14001, this limitation is inherent in the standard itself: over and beyond legal
compliance, enterprises set their own performance goals and there is no common standard against which
 322

they can be measured. In the case of Responsible Care, the indicators so far developed and the data
gathering process itself fall seriously short of this goal, which it is not however, impractical to attain.

786
J V Rees, Hostages of Each Other: The transformation of nuclear safety since Three Mile Island
(1994), University of Chicago Press, Chicago.

787
See further N Gunningham & J Rees, (1997) Law and Policy (forthcoming).

788
Significantly, under Responsible Care in most countries, even the names of companies who withdraw
from the program (for whatever reasons) is not made public, because of a policy of protecting the
confidentiality of the industry association's membership. Even the advanced Canadian program suffers
from this serious shortcoming.

789
Some companies believe transparency can lead to competitive advantage through enhanced access to
planning permission, and reduced call for regulation, as well as improved public image. The Monsanto
Annual Environmental Report was a leader in this development.

790
In the United States, CRTK legislation has enabled community groups to construct a league table of
polluters - the best, the worst and the most improved. The resulting backlash has prompted a number of major
chemical manufacturers to reassess their own operations and to modify their environmental control strategies,
even in the absence of government legislation requiring them to do so.

791
Aspen Institute Report: The Alternative Path: A cleaner, cheaper way to protect and enhance the
environment (1996), Program for Energy, the Environment and the Economy, The Aspen Institute, US.
See section on building stakeholder processes.

792
See for example, the US EPAs Environmental Leadership Program, and Project XL, and the reports of
a variety of think tanks including the Aspen Institute's The Alternative Path (1996), the National
Environmental Policy Institute's "Reinventing the Vehicle for Environmental Management" (1995); the
Yale Center for Environmental Law and Policy's Next Generation Project and the forthcoming report of
the Enterprise for the Environment. More generally, see the approach taken by members of the Risk
Management and Decision Processes Center at the Wharton School, University of Pennsylvania.

793
Financial markets can play an important role in rewarding firms with a demonstrated good
environmental record, but only if they have sufficient independent information to enable them to do so.
There is evidence that the introduction of the Toxic Release Inventory had precisely this effect. See S
Feldman; P Soyka; & P Ameer, Does Improving a Firm's EMS and Environmental Performance Result in
a Higher Stock Price? (1996), Working Paper, ICF Kaiser Consulting Group, Fairfax, Virginia, US.

794
See Canadian Chemical Producers Association, Does Responsible Care Work? (May 1996), Canadian
Chemical Producers Association, Ottawa, p 8.
 323

795
I Ayres & J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992),
Oxford University Press, New York. P 31.

796
B Purchase, Political Economy of Voluntary Codes (1996), a draft paper presented at the Voluntary
Codes Symposium, Office of Consumer Affairs, Industry Canada and Regulatory Affairs, Treasury Board,
Ottawa, September and to be included in Exploring Voluntary Codes in the Marketplace, edited by D
Cohen & K Webb, Government of Canada, Ottawa, (forthcoming).

797
For example, even a wider range of sanctions under self-regulation may not work against recalcitrants.
Shaming cannot work against firms with no reputation to protect. Expulsion cannot work where firms can
still operate effectively outside the industry association.

798
On pyramid see in particular, I Ayres & J Braithwaite, Responsive Regulation: Transcending the
Deregulation Debate (1992), Oxford University Press, New York.

799
See Dutch study in M Aalders, "Regulation and In-Company Environmental Management in the
Netherlands" (1993) 15(2) Law and Policy 75.

800
K Webb, & A Morrison, The Legal Aspects of Voluntary Codes (1996), a draft paper presented to the
Voluntary Codes Symposium, Office of Consumer Affairs, Industry Canada and Regulatory Affairs,
Treasury Board, Ottawa, September and to be included in Exploring Voluntary Codes in the Marketplace,
edited by D Cohen & K Webb, Government of Canada, Ottawa, (forthcoming), p 6.

801
A Gore, From Red Tape to Results: Creating a Government that works better and costs less (1993),US
Government Printing Office, Washington DC.

802
See ch 2 pp 00 and references therein.

803
D Hunter & E S Kiesche, "US - Implementation Time" (17 June 1992) Chemical Week 10.

804
I Rosenthal, Major Event Analysis in the US Chemical Industry: Organisational learning vs liability
(1996), Working Paper, Wharton School of Business, University of Pennsylvania, Philadelphia.

805
I am indebted to a current Wharton School project for parts of this list (see also P Kleindorfer, Market
Based Environmental Audits and Environmental Risks: Implementing ISO 14000 (1996), Working Paper,
The Wharton School, University of Pennsylvania, Philadelphia).

806
In addition to facilitating "win-win" solutions (see M Porter, The Competitive Advantage of Nations
(1990),MacMillan Press, London ) regulatory flexibility may lead to reduced insurance premiums ,
reduced risk of litigation, and the flexibility to devise least cost solutions to environmental problems.
However, the start up and indeed continuing costs of implementing an EMS may be considerable
particularly for small companies (see above pp 00).
 324

807
While those latter benefits may be significant, it will be crucial that they are coupled with incentives
(on which see p 00 above) sufficient to offset the accountability and transparency measures which would
be a condition of regulatory flexibility. In the final analysis, none of these proposals may be viable unless
industry itself is convinced that the benefits (including incentives) substantially outweigh the costs.
Significantly, the USEPA in pursuing "reinventing" initiatives and regulatory flexibility, has been unable
and unwilling to extend the benefits that would be necessary for widespread participation in such
programs. See Donald A Carr and William L Thomas, "Devising A Compliance Strategy Under the ISO
14000 International Environmental Management Standards" (1997) 15 Pace Environmental Law Review
85.

808
The impact of individual programs is similarly likely to vary substantially. For example, in general,
Responsible Care has developed much further in North America and Australia than it has in Western
Europe but even within the latter there are significant differences between countries. It has proven much
less popular in Germany (where the dominant approach is "engineer driven or "performance oriented"
than in the UK, where companies are much more "management driven").
 CHAPTER FIVE:

THE AGRICULTURE INDUSTRY*

Neil Gunningham and Peter Grabosky

Agriculture is one of the world's oldest industries. It is basic to human civilisation, fundamental

to human survival and a major contributor to the economy of many nations. Yet it is also one of

the principal causes of environmental degradation. Many contemporary agricultural practices,

which have achieved substantially higher yields and lower prices, have also exacted a high

environmental cost in terms of land degradation, loss of habitat and biodiversity, and non-point

source pollution. At the extreme, unsustainable agriculture poses the danger of irreversible

harm which can produce major environmental catastrophe or system collapse.

This chapter examines environmental regulation and policy as it relates to agriculture, focusing

on two basic agro-environmental issues: the more general problem of threats to biodiversity

(hereafter biodiversity) on private land809 and the more specific topic of agricultural chemicals.

We begin by examining some of the ways in which agricultural practices can harm the

environment and the characteristics of the agriculture industry itself. We then review the

traditional means by which agricultural practices have been regulated. Observing some of the

shortcomings which have tended to characterise agricultural regulation, we go on to explore in

some detail how particular combinations of instruments and institutions might be used to

constitute a policy regime capable of moving us much closer to the goal of sustainable

agriculture.810 In some circumstances at least, we conclude that the severity of the consequences

of policy failure and the limited dependability of any single policy instrument necessitate a

regulatory strategy which uses the full suite of instruments available, while in others a much

more selective approach is justified.

 326

Part 1: The agricultural industry and its environmental impact

Over the last 50 years, the practice of agriculture has undergone substantial transformation.811

In the industrialised world, developments in a range of technologies have facilitated a dramatic

increase in concentration and specialisation. Many small, mixed farms have given way to large

specialised enterprises able to benefit from economies of scale. Food and fibre productivity

have increased dramatically, due to mechanisation, increased chemical use, specialisation, and

government policies (including price supports and subsidies, which favoured maximising

production).812 Of particular importance has been the intensification of agriculture, facilitated

by the growing use of fertilisers and pesticides.813

These changes have allowed fewer farmers, with reduced labour, to produce the majority of the

food and fibre required by the consumer. They have led to a shrinking farm population, much

larger farms and fields, and the production of a relatively restricted number of crops, often

grown in monoculture. The food system in many developed nations has become vertically

integrated to an unprecedented extent. As a result, large retailers now have significant

influence over primary food production. In some locations, huge surpluses of agricultural

commodities have been produced and stockpiled.814

These changes in agricultural production, while contributing to the sustenance of humankind,

have also taken their toll on the environment. This is manifest in four basic ways: loss of

biological diversity; loss of natural habitats, pollution of off-farm ecosystems; and on-farm

pollution occasioning loss of productivity. Closely related are the risks to human health posed

by direct or indirect exposure to agricultural chemicals. As we will observe, these problems are

themselves interrelated and can inflict multiple harms: pollution is an obvious threat to

biodiversity; inappropriate use of agricultural chemicals can impact on biodiversity and damage

ecosystems, as well as contaminate produce. Below, we examine in more detail the specific

threats that relate most directly to biodiversity conservation on private land and to the use of

agricultural chemicals.
 327

Threats to land-based biodiversity

Biodiversity refers to the broadly diverse forms into which organisms have evolved and is

generally considered at three levels. Genetic diversity refers to the variation in genes enabling

organisms to evolve and adapt to new conditions. Species diversity refers to the number, types,

and distribution of species within an ecosystem. Ecosystem diversity refers to the variety of

habitats and communities of different species that interact in a complex web of interdependent

relationships.

Biodiversity is essential in the maintenance of human life on earth. Scientists have long

acknowledged that the preservation of biodiversity is, by definition, vital for an ecologically

sustainable society. Humanity derives all its food as well as many medicines and industrial

products from domesticated and undomesticated components of biodiversity. Biodiversity is

also important as a source of current benefits created by natural ecosystem processes that are

not yet fully understood, such as water purification, soil fertilisation and groundwater recharge.

Loss of genetic diversity could imperil agriculture.815

There are many causes of biodiversity loss, including habitat loss and fragmentation, human

exploitation, and competition from and predation by introduced species. Currently, it is

estimated more than 10,000 species become extinct globally each year. 816 While precise

calculation is difficult, it is certain that this rate has increased alarmingly in recent years.

Agriculture, and in particular the agricultural practices which have been developed in recent

decades, has been a major cause of biodiversity loss. Indeed, a central purpose of agriculture is

"to reduce biodiversity on the territory it occupies, since it seeks to maximise the yield of a

limited number of animal and plant species by weakening the competition to which those

species could be exposed from other, unwanted species".817

The filling, draining, channelisng and damming of wetlands and waterways, for example, have

had had enormous effects on species such as migratory birds818, while surface and groundwater
 328

depletion through withdrawals of water for agriculture, and irrigation practices, have also had a

serious deleterious impact819. But perhaps the most serious threat to land-based biodiversity is

habitat destruction resulting from agricultural use. The land on which crops are grown or

livestock grazed must be cleared of vegetation. Very little remains of the vegetation which

covered the land prior to the advent of modern agriculture. In Bangladesh only six percent of

the original vegetation remains; forests around the Mediterranean Sea probably covered ten

times their current area; and in the Netherlands and Britain, less than four percent of the

lowland raised bogs remain undamaged.820 In Britain, over fifty percent of ancient woodlands

have been cleared since the Second World War.821 Currently, immense stretches of the Amazon

rainforest are being cleared to make way for agriculture.

Clearing vegetation for purposes of agricultural development also serves to fragment the

underlying ecosystem.822 This may alter the microclimate within and surrounding the remaining

natural vegetation. For example, the solar radiation associated with the area may change,

causing higher daytime temperatures and lower night time temperatures, increasing the risk of

frost. In addition, clearing in the course of cultivation or grazing can cause soil degradation

through wind and water erosion823. Subsequent changes to water balance in turn can produce

widespread salinity, increased soil erosion, and sedimentation of nearby river systems. 824

Remnant vegetation in salt-affected areas, as well as adjacent lakes, wetlands and rivers, may

decay or become permanently altered.825 Ironically, clearing undertaken to enhance agricultural

productivity can also lead to a decline in yield.

Habitat disturbance may also effect wildlife population, concentrations and movements. 826

Conventional farming requires the application of fertiliser and chemicals to control weeds,

diseases and animal pests. These in turn, when inappropriately applied, can damage ecosystems

and enter the food chain, as we describe more fully in the next section below. The

intensification of agriculture in particular (relying heavily on these practices), has been

responsible for serious reductions both in in situ and ex situ biodiversity.827

 329

Agricultural chemicals: pesticides and fertilisers

Pesticides (a term which we will use broadly to include insecticides, herbicides and fungicides

for controlling weeds, animal pests, and various plant and livestock diseases) can be toxic to

humans, domestic animals, and wildlife, as well as to plants. They can cause cancer,

neurological damage, and disrupt endocrine systems.828 Pesticides may persist in soils,

groundwater, rainwater, lakes and rivers, and other media, including food and particularly in

breast milk. They may become concentrated in the food chain through processes of

bioaccumulation.

Pesticides reach soil, not only when applied directly, but also when they are washed off foliage

or drift during application. Pesticides in soil can affect animals against which they are not

directed. Many of these, such as earthworms, mites and fly larvae, are essential in the

breakdown of some kinds of leaf litter and incorporating nutrients into soil. Pesticides may also

harm those species which help to control pest populations, including birds and a variety of

predatory insects.

Ironically, the very pests which they have been developed to combat may develop resistance to

these chemicals. Even where pesticides may succeed in eliminating a pest, new pests may fill

the now vacant niche; these new pests may be capable of more harm, and yet may be less

tractable than the original target species.

Aquatic systems are frequently contaminated by pesticides. These chemicals reach water by

direct application, spray drift, washing from the atmosphere by precipitation, erosion and run-

off from agricultural land. These sources tend to be spasmodic and localised, although usually

large and with a more serious environmental impact. Contamination can also occur by

pesticides leaching to groundwater. The more soluble pesticides tend to be washed from aquatic

systems relatively quickly. Regardless of solubility, however, the contamination always has an

adverse effect on aquatic fauna.

 330

The application of fertilisers may also have serious detrimental environmental impacts.

Fertiliser application may change the structure and fertility of the soil. Some forms of fertiliser

contribute to soil acidification and may also be toxic to animals and humans. Nitrogen and

particulates may contribute to air pollution. Perhaps the most significant environmental harm

arising from inappropriate application of fertilisers is their effect on waterways where they may

produce algal growth which has the effect of choking the lake or river in question. Those

fertilisers which contribute heavy metal contaminants such as cadmium to soils can have

adverse effects not only on health and the environment, but also on trade, as contaminated

products encounter resistance by overseas regulatory authorities and consumers.

Part 2: Characteristics of the agriculture industry

The structure of contemporary agriculture has significant implications for the design of

programs to foster biodiversity conservation and to minimise the adverse impact of agricultural

chemicals. Agriculture is not monolithic: large-scale producers of beef for export exist in a

world apart from a small family engaged in market gardening. But it is important to outline the

basic industry characteristics and how they must be taken into account when selecting

combinations of instruments to improve environmental performance and to reduce the risk of

environmental harm.

Arguably most important is the system of subsidies and price supports which have characterised

agriculture in the developed nations for most of the twentieth century. Originally intended to

provide producers with some protection against the vagaries of climate and markets, these have

encouraged both exploitation of marginal land and use of high chemical inputs. 829 As we will

see, the existence of perverse incentives not only sends inappropriate signals to agricultural

producers, but also inhibits the design of positive policy instruments.

Also of great significance is the political culture of farming, which combines a degree of

independence of spirit and resistance to regulation with the above mentioned tradition of
 331

seeking and receiving subsidies and other benefits from government. Regardless of whether this

apparent paradox is understandable or justifiable, it exists, and it may be expected to influence

the response of farmers to attempts on the part of government to control their behaviour. In

light of these circumstances, if institutions of control can be forged within the agricultural

community, their potential impact on the environmental performance of farmers will be greater.

Another aspect of the environment which now to impacts significantly upon farmers is

globalisation. The unprecedented range of choices available to consumers of food and fibre in

the industrialised world means that a producer is less able to take the consumer for granted. The

increasing importance of export markets to a significant proportion of agricultural producers in

many nations means that the stricter standards set by foreign regulators or markets may be more

relevant to a producer’s livelihood than those which his or her own government might see fit to

dictate.

Related to this is the vertical integration of agriculture. The chain of supply from seed to

supermarket shelf is more tightly coupled than in the past and the enormous purchasing power

of large institutions such as a major supermarket chains or fast-food franchises makes them

important actors with considerable leverage over their suppliers. Together, these factors are

accompanied by increasing commercial pressure to measure and assess environmental

performance as a condition of access to markets.

Another important trend (which seems likely to continue unabated) is rationalisation to achieve

economies of scale. Despite the concentration which began early in the 20th century, there is in

most sectors of agriculture a large number of small producers and a small number of large

producers. Variation in size, and with it, variation in economic viability, may influence the

producer’s capacity to change his or her behaviour. As one industry representative told us,

"There’s always a problem at the bottom end."

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Beyond these general patterns, farmers and farming differ not only within and between nations

but also between agricultural sectors. In Australia, for example, cattle producers and cotton

growers tend to be closely knit and well-organised. Vegetable growers, in contrast, are less

cohesive. Such differences have profound implications for the dissemination of information

across a given sector, and for the capacity of producers within that sector to influence each

other’s environmental performance and for their capacity to resist regulation.

Regulatory space surrounding agro-environmental issues is also populated by a variety of non-

governmental institutions. There are those whose primary concern is agricultural chemicals;

others wildlife preservation; others focus on particular ecosystems. They vary in size from

giants such as Greenpeace and the World Wildlife Fund (WWF) to small groups of neighbours.

Such a rich variety of organisations is reflected in function and strategy. There are those which

are aggressively adversarial and others more low key and cooperative. Some target government

or industry directly, while others aim at long term consumer attitude change. Others still

interact directly with producers.

Special features of biodiversity and agricultural chemical use

Biodiversity, insofar as it has implications for agriculture, has a number of features which

distinguish it from more conventional environmental protection issues and which must be taken

into account in policy design. First, in many circumstances, biodiversity loss is irreversible.

Once lost, a species or an ecosystem is lost forever. Second, many species - especially the

invertebrates, microbes and viruses - have yet to be discovered. As a consequence, much

biodiversity is lost before we even know it is there, and before we know either its ecological

role or its potential contribution to humankind.

Third, ecosystem diversity exhibits threshold effects. The ability of ecosystems to withstand the

stress imposed by environmental degradation is limited. Stressed beyond these limits,

ecosystems may collapse.830 As a result, any policy which compromises the resilience of
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ecosystems may have uncontrollable effects and even small policy changes can have dramatic

but unforeseen results. The problem is exacerbated by the fact that information about the

responses of species to biodiversity loss is extremely limited. For example, there is

considerable uncertainty about the nature of ecological thresholds and about the consequences

of transgressing them.

Fourth, many biodiversity problems cannot be solved merely by proscribing certain behaviour,

but only by ensuring positive ongoing management: thereby emphasising the importance of

developing a "custodianship ethic". Fifth, much of biodiversity has no immediate economic

value, giving rise to substantial tensions between public and private interests. Finally, the

causes of genetic, species and ecosystem losses are extremely diffuse in nature, and involve

many different sectors and forms of economic activity. That is, biodiversity is pervasive to

social and economic systems, being affected by land and water-use decisions, by pollution and

by economic use generally.831

There are special features associated with the use of agricultural chemicals which also have

implications for regulatory system design. Perhaps the most significant is the potential

convergence between the producer’s personal interest and a wider public interest. To the extent

that chemical inputs can be reduced without detracting from quality and yield, the producer

profits and the public wins. However, this may not be perceived to be the case, not only because

of a lack of information and education, but also because of the common gap between short term

and transitional problems (increased pests) and longer term gains (greater ultimate profit from

sustainable practices).

By contrast, the interest of the farmer in controlling pests may conflict directly with a wider

public interest in biodiversity conservation. Doing the right thing for biodiversity may cost the

farmer directly in terms of lost productivity. It is commonly the user who gains (in terms of

short term crop yield) and the environment at large that may be damaged from intense pesticide

usage.
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The salience of commercial relationships to environmental performance is stronger in the

domain of chemical use (for example, the importance of supply-chain pressure referred to

above). In contrast, biodiversity conservation often has no immediate economic value to

producers, and land clearing issues tend generally to lie beyond the reach of market forces.

Finally, although misapplication of chemicals resulting in direct acute injury occurs on

occasion, most agricultural pollution is non-point in nature with the consequence that the origin

of the pollution may not be identifiable. This raises particular challenges for monitoring and

enforcement.

There are, in addition, a number of characteristics common to both land clearing and the use of

agricultural chemicals. In each case, adverse environmental consequences have been aggravated

by farmers’ low awareness of the impacts of farming practices. The presence of perverse

incentives in the form of price supports and subsidies has also, until relatively recently,

encouraged both excessive clearing and chemical use. Uncertainties of climate and commodity

markets have also militated against environmentally preferable production.

And finally, the political culture of farming bears upon both biodiversity and chemical use.

Producers generally tend to value autonomy and independence; while they welcome benefits

bestowed by governments, they tend to dislike being told what they should or should not do,

and they usually have an eye on the bottom line.

Implications for policy design

We have identified a number of specific characteristics of the agriculture industry, of

biodiversity (and to a more limited extent) of agricultural chemical use, which make the

achievement of sustainable agriculture a very considerable policy challenge.

In particular, these characteristics serve to emphasise the limitations of single instrument

approaches. For example, education and information, long a staple of politically inoffensive
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agricultural policy, are unlikely to work in the case of economically marginal producers, yet the

opposite extreme, command and control regulation confronts serious problems relating to both

political culture and enforceability. Threshold effects and irreversible loss in the case of

biodiversity also raise the issue of whether it is ever wise to rely on a single instrument

approach, given the low dependability of even the best policy instrument acting alone. Because

biodiversity is pervasive to social and economic systems, so also must biodiversity conservation

policies themselves be pervasive. Similarly, the effectiveness of any new policy instrument may

be seriously jeopardised unless attention is first given to the interaction between the new

instrument and existing perverse incentives-serving also to underscore the importance of

recognising and understanding interactions between policy instruments.

The characteristics identified above also suggest some considerable opportunities for innovative

regulatory design, including a greater role for both commercial and non-commercial third

parties. For example, the shift towards vertical integration gives rise to possibilities of supply

chain pressure for improved environmental performance, while globalisation may facilitate

greater competition in international markets in terms of clearer production and organic produce.

In the case of the use of agricultural chemicals, the potential convergence of interest between

the interests of producers and the environmental interest (if less chemicals can still achieve the

desired crop yield) in conjunction with increased market demand for less chemical residues,

also holds out the potential for public policy to facilitate win-win outcomes.

It will also be apparent that neither the agriculture industry nor the environmental problems it

faces are homogenous. For example, what works for large commercial conglomerates may be

entirely inappropriate for "problems at the bottom end". Similarly, the tools needed to address

the extremely diffuse causes of biodiversity loss may be unsuited to deal with issues of

agricultural chemicals. For governments, these characteristics imply not only the need to design

different policies to meet different problems, but also to do so in such a way as to accommodate

the multifaceted nature of many of the problems themselves.

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In summary, creation of sustainable agriculture demands a particularly broad array of policy

instruments, tailored to the specific sub-sector or environmental threat at issue. It also holds out

considerable opportunities for greater constructive involvement by both commercial a non-

commercial third parties. In later sections of this chapter, we argue the case not only for

particular combinations of instruments but also for the harnessing of a broader range of

institutional actors to implement those combinations. However, before embarking on this

central challenge, it is necessary to examine the existing regulatory environment in order to see

what works, what doesn’t work, and why.

Part 3: The regulatory environment and its shortcomings

Traditionally, regulation of agriculture has been informal, based upon the provision of

information and persuasion by government authorities whose fundamental role has been not to

police agricultural producers, but to assist them to do the right thing. For example, in the early

days, regulation of agriculture focussed on the promotion and development of the industry, and

even when environmental concerns were raised this did little to change the basic model of

agricultural support rather than regulatory control.832 The low public visibility of non-

compliance further reduced what small risk of detection and sanctioning might have existed.

Only relatively recently, and only in the most environmentally progressive countries, has the

sanctity of private property and the widely held view that a landowner is free to do whatever he

or she wishes with their land begun to yield to concerns for a wider public interest. The result is

a grudging recognition that even privately owned agricultural land is part of a larger ecosystem.

This in turn has been accompanied by a partial (but only partial) erosion of the traditional

model of agricultural support and the introduction of a variety of formal and informal

constraints on land use and on the use of agricultural chemicals.

Inevitably, the regulatory response has not been uniform across jurisdictions. The particular

regulatory configuration has depended upon a number of factors, primarily those relating to the
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intensity of environmental problems and to the prevailing political culture. 833 In particular, the

degree of state intervention has commonly varied with the balance of influence wielded by the

main stakeholders - environmental and consumer interest groups on the one hand, and producer

interests on the other. This reflects in part the relative salience of agriculture within a

jurisdiction’s economy; the regime for regulating pesticide use in California is, for example,

much more stringent than that prevailing in Iowa.834 And finally, societies characterised more

by consensus than by aggressive adversarialism have generally experienced fewer state imposed

solutions and more remedies emerging from voluntary co-operation and compromise at the

grass-roots. The historical importance of voluntary codes of practice for British agriculture

contrast sharply with the prevailing regime of environmental protection in the United States. 835

For the purposes of this chapter, it is not necessary to delve into the intricacies of regulatory

policy in any particular jurisdiction. Rather, we confine ourselves (immediately below) to

identifying the main features of existing regulatory regimes as they relate to biodiversity

conservation and agricultural chemicals, and (later in this section), to the main limitations of

those regimes (while acknowledging differences between them). This is a necessary precursor

to our main theme, the re-design of regulatory policy harnessing a broader mix of instruments

and institutional actors tailored to the particular circumstances of the two areas of agriculture

upon which we focus.

In the case of biodiversity conservation, the main policy options are: ex situ conservation of

species (seed banks, botanical gardens etc); preserving certain features in their entirety by

banning farming there; protecting agricultural land of high natural value; certain forms of

reduction in intensiveness of agricultural inputs with a substantial environmental impact; and

protecting endangered species and promoting farming practices that use a reduced amount of

agrochemical inputs.836

The choice of policy options actually invoked in protecting biodiversity has depended at least in

part, upon the threat being addressed and upon the political, cultural and economic variables
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identified above. To avoid the exhausting, impractical (and for present purposes) unproductive

task of addressing each the individual instruments available837 we instead classify the various

instruments in terms of a small number of categories which, while informative, are not

exclusive.838 These are: information-based instruments;839 voluntary instruments;840 self-

regulation; positive incentives;841 property right, market and price-based instruments;842 (the

latter group of which we classified generically as economic instruments in chapter two); and

regulation in various forms (eg zoning,843 restrictions on land clearing844, and protection of

threatened species845). Later in Part IV of this chapter, when examining broader instrument

combinations, we provide an elaboration and specific examples of the most important of these

instruments.

For the present, it is sufficient to note that notwithstanding the quite wide range of instruments

available, in practice, most governments, in most circumstances, have utilised only a very

limited number of them, and these have been principally (i) subsidies; and; (ii) piecemeal

regulation prohibiting particular acts846. Moreover, as we will see in the next subsection below,

the former have often proved environmentally counterproductive while the latter have

commonly suffered from serious design faults. These limitations have been exacerbated by a

failure to realise that complex problems defy simple solutions, and in particular by a failure to

use a sufficiently broad range of tools in complementary combinations or in conjunction with a

broader range of social actors.

In contrast to the range of instruments which are available (albeit not commonly used) to

address biodiversity conservation, a much more limited set of instruments have evolved to deal

with the problems caused by agricultural chemicals (though, as we will see in part IV, these too

can usefully be dealt with in terms of the instrument categories developed above). The modest

range of instruments devised to address agricultural chemicals is itself an indication of the

relative complexity of these two environmental issues.

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At the core of agricultural chemical regulation today are the restrictive regulations which

govern the manufacture, distribution and use of pesticides.847 In most developed agricultural

nations, there are stringent laws governing the marketing and use of agricultural chemicals.

Traditionally, these restrictions are based on pre-marketing clearance following item-by-item

reviews. The most dangerous substances are prohibited altogether or authorised only for

restricted use.848 Other substances are authorised for more general use. In some jurisdictions,

pesticides may only be applied under specified circumstances by licensed applicators.

Regulatory authorities can, and do, deregister or impose additional restrictions on the use of a

substance when new information comes to light which bears upon safety of the substance in

question.849

One of the toughest regimes is that of the United States. Thousands of pesticide products have

been registered under standards which have evolved in tandem with science and public policy.

To ensure that previously registered pesticides measure up to current scientific and regulatory

standards, the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) requires the review

and "reregistration" of all existing pesticides.

Many other counties have followed a broadly similar route in terms of requiring pesticide

registration.850 Within the countries comprising the European Union, there has been much effort

to harmonise and develop programmes for chemical safety, including a substantial number of

European Union Directives.851 Each Member State is obliged to prohibit the marketing or use

within its territory of substances or preparations, including imports from non-European

Commission countries, which fail to comply with the directives.

However, there is much more to the regulation of agricultural chemicals than merely pre-market

certification of substances, and penalties for flagrantly inappropriate use. In recent years, a

number of instruments have been and are being developed to complement registration systems

and legislative mandates for the reduced use of agricultural chemicals. For example, both
852
Sweden and Denmark have sought to use voluntary targets and mandated reduction to
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influence the amount of chemical use. In Sweden, an initial reduction target of fifty percent of

the 1981-85 average over five years, was imposed in 1985, together with a re-evaluation of

existing pesticides, with more stringent criteria for registration. Farmers were not consulted, but

now boast of who can achieve the highest yield with the least pesticide. Sweden is now working

towards a second reduction target of a further twenty-five percent of the 1981-85 average by

1996. The targets are legislatively mandated, and supported by a variety of other instruments

including information and industry-based initiatives.853 In Denmark, a more voluntaristic

approach has been adopted.854 Other initiatives which have also become common include: the

provision of basic information about reducing chemical use and techniques of integrated pest

management; voluntary agreements between producers and regulatory authorities for the

reduction of chemical inputs; incentives for low input production; various risk-reduction

initiatives; and various economic instruments, from taxes and levies, to marketable use rights.

Within the European Union, incentive schemes for conversion to organic farming and programs

aimed at the reduction of input use (eg integrated pest control management) are being

implemented in all Member States as part of agri-environmental schemes.855

Although by no means unique to the domain of agricultural chemicals regulation, perhaps most

noteworthy of all initiatives are those which entail commercial influences in furtherance of

chemical risk reduction. All these will be accorded more extensive treatment in Part 5 of this

chapter. But first we turn to some of the flaws which have characterised the recent history of

biodiversity conservation and agricultural chemical control, and which have commonly served

to undermine the effectiveness of the current regulatory regimes.

Limitations of current regulatory regimes and obstacles to effective policy design

To the extent that the success of existing regulatory regimes can be measured by results, current

approaches fall far short of achieving the objectives of sustainable agriculture. To be sure,

substantial achievements have been made in some areas, as reflected in the resurgence of the
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bald eagle and the peregrine falcon in North America, and vastly improved water quality in the

Great Lakes. But many agricultural practices remain unsustainable, both ecologically and

economically.

As we have noted, more than 10,000 species become extinct globally each year. 856 A significant

proportion of this loss results from land clearing for agricultural purposes. Ecosystems continue

to be disrupted by wholesale destruction of habitat, or other damaging impacts such as

microclimate change. Removal of vegetation continues to produce salinity, soil erosion, and

sedimentation of nearby waterways at an alarming rate.857

High-input agriculture produces a variety of adverse environmental impacts. 858 Agricultural

runoff is the primary source of pollution of waterways in the United States. 859 Fertilisers

contaminate the soil with heavy metals to an extent which is still manifestly unsustainable.

Intensive monocropping contributes to soil depletion. And the use of agricultural chemicals

continues itself to produce biodiversity loss, as non-target species as well as pests fall victim to

pesticides, with consequent disruption of the food chain. In addition to their direct

environmental impact, agricultural chemicals continue to damage human health. Groundwater

pollution from agricultural chemicals contaminates drinking water supplies in many developed

nations. Agricultural workers continue to suffer injury and illness from exposure to

chemicals.860 Consumers in many nations remain at risk from pesticide residues in food.861

The structural characteristics of agriculture which contribute to the persistence of these

problems, and which have either inhibited the development of, or, served to substantially

reduce the impact of the large majority of policy instruments so far introduced, are hardly a

mystery. Increased agricultural productivity over the past half century has resulted in

dramatically improved yields, but at a price. For most of this period, governments have placed a

premium on agricultural productivity, at the expense of other considerations, and these

priorities have been reflected in agricultural and regulatory policy. 862 Moreover, the farming

and agricultural chemical industry lobbies in many countries is particularly strong and well
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organised, and have often been successful in heading off regulatory initiatives perceived to

threaten their interests. As one Australian environmentalist told us "Governments are well

meaning, but have failed miserably. They are politically driven, and have probably done more

harm than good.... They seek politically sweet options, such as giving money to committees,

and letting them go.....Command and control has never been used..... Agriculture is still

essentially unregulated".

These policies, through omission or commission, have contributed to regulatory deficiency in a

variety of ways. First, rather than provide incentives for environmental stewardship, they have,

at times, provided incentives for conduct harmful to the environment, while failing to assist

producers to manage risk in an environmentally benign manner. Second, the farming

community, lacking awareness of the need for sustainable practices, has maintained its

traditional hostility to government intrusion in its affairs. Enforcement of regulation has

similarly proved difficult. These problems have been compounded by poor regulatory design

and a failure to harness the potential of third parties to act as surrogate regulators. We address

each of these problems in turn.

Inappropriate incentives

There has been a lack of incentives under existing regulatory regimes for positive

agroenvironmental stewardship that looks beyond short term profit (or survival) toward an ethic

of long-term custodianship of the land. On the contrary, there have often been substantial

disincentives to engage in environmentally benign agriculture.

For example, agricultural price supports, where governments offer the farmer a guaranteed

price per bushel of commodity, constitute an incentive to maximise production. To the extent

that higher yields were achievable through monoculture, increased chemical input, and clearing

more acreage for cultivation, farmers did just that. In addition to price supports, farmers were

the beneficiaries of subsidies and incentives for fertiliser and pesticide use, as well as for land
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clearing. Australian farmers were for many years provided with strong financial incentives for

land clearance with (as we know today) devastating effects on fragile soil and areas of marginal

productivity. Drought assistance also encourages continuing cultivation of marginally

productive land, at the risk of requiring greater chemical input and further degradation. As well,

it subsidises poor performers at the expense of those farmers who practice water conservation.

Environmentalists are critical of policies which compound the problem, rather than contribute

to a solution. As one of them told us, "Keep social welfare things in their place. Welfare is just

not good enough." The serious adverse environmental implications of such policies were

becoming obvious by the late 1980s, but the strength of agricultural lobbies in western nations

militated against significant reform. We return to the significance of perverse incentives for

sustainable agriculture when examining price-based instruments below.

In addition, the justifications which had been traditionally advanced for price supports, that of

providing security for small farmers against the vagaries of climate and world commodity

prices, were not always borne out. These instruments failed to ensure sufficient security for

small farmers, who remained tempted to reduce the risk of crop failure through increased

agricultural inputs and exploitation of marginal land.

Moreover, other policies have had the unintended consequence of discouraging the assumption

of additional risk in furtherance of sustainable agriculture. As one agricultural economist told

us, "Insurers are potentially a barrier to change management. IPM methods may entail costs in

terms of quality or yield. And this may entail higher premiums." Indeed, Canadian farmers who

refrained from using agricultural chemicals have been denied crop insurance coverage. 863 Any

voluntaristic inclinations towards low-input production have thereby been neutralised.

Finally, there are the specific problems and benefits which arise where farmers or producers,

rather than owning land in fee simple, have a grazing or forestry lease over it. The central

problem here is one of inappropriate incentives arising from the relatively short-lived

involvement of the lessee, which provides a particular and inappropriate disincentive to long
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term custodianship of the land and the temptation to "flog it to death" for short term profit. On

the positive side however, leases hold out the possibility of imposing restrictive conditions on

use (for example in terms of stock density) and in the context of native title may involve shared

rather than exclusive use.

Resistance to regulation and compliance.

Another major problem is achieving the transition from traditional expectations (that farmers

could use their land and conduct their business largely without restrictions) to a much more

interventionist approach. After decades of farming under agricultural policies which

contributed to environmental degradation, agricultural producers are now being asked to shift

direction, often without having developed a full appreciation of the harmful effects of

conventional agriculture. One could perhaps understand how a farmer who, having received

subsidies for land clearing and pesticide use over a period of decades, only to be told that such

practices were now prohibited, might be something less than totally appreciative of new

circumstances, or unhesitatingly compliant with new directives.

And agricultural interests have indeed resented and resisted the various regulatory restrictions

which governments have sought to impose upon them.864 The traditional culture of

independence which characterises the agricultural sector is often reflected in resentment of

government regulatory intervention, at least those forms of intervention which are perceived to

be restrictive or coercive. One can do no better than quote a recent statement from the internet

home page of the American Farm Bureau Federation:

Regulatory creep. No, it's not a name you might be tempted to call a broad-shouldered, one-

eyebrowed, federal bureaucrat who loves to slap harsh penalties on law-abiding citizens. In

fact, it's not a person at all. Regulatory creep, however, is somewhat related to that fictional

bureaucrat. Broadly defined, it is the tendency of regulations to grow - creep - into areas

that Congress never intended for them to address.865

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Unsurprisingly, in the light of this attitude, resistance to regulation is widespread, and

enforcement has generally been weak. Non-compliance, except in the most extreme cases (such

as pesticide poisoning on a large scale), has tended to be of low visibility, a problem

compounded by monitoring costs which, given the spatial distribution of agricultural

production, have tended to be prohibitive.866 As one farmer put it "it may take an occupying

army to regulate the 100,000 farmers in our state".867

Inappropriate applications and their sequelae might not be immediately apparent. What takes

place in a far-off field in a remote location may escape official attention. Drift from spraying

may not effect humans, plants or animals for some time, at which point the cause may be

obscure. Even more difficult is the pollution from leaching or runoff. Contamination of

groundwater and/or waterways from non-point sources makes it very difficult to assign

responsibility to a particular polluter. The common result is encapsulated in the ethos of "shoot,

shovel, and shut up": a response to endangered species legislation that is alive and well, at least

in the United States. As one industry spokesperson told us, "At the end of the day, they can

probably get away with something if they want to."

Inadequate regulatory design

As if the political and economic obstacles to achieving sustainable agriculture were not enough,

they have commonly been compounded by poor regulatory design, particularly in the case of

biodiversity conservation. Here the greatest problem lies in the fact that most legislation seeks

to protect individual species from endangerment or extinction despite strong evidence that such

an approach is far less effective than one that focuses on protecting ecosystems or ecological

communities.868 Endangered species legislation is commonly castigated as "deathbed

conservation", an approach which only protects species when they are close to extinction at a

point where the likelihood of actually saving the species is minimal.

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Moreover, most species specific legislation suffers from other serious flaws, summarised by

Meyers and Temby (1994) as follows:

Often...the flaw lies in providing too much "front end" discretion, ie, for the listing of

species. Just as often, legislation... fails to mandate habitat preservation as an integral

component of species protection efforts, or subjects that duty, or similar duties such as the

issuance of conservation orders, to potentially overriding considerations of economic and

political factors... or fails to include adverse modification of habitat as a form of prohibited

"harm" to species".869

In the case of some legislation, the problems of a species-specific approach are exacerbated by

a number of other failures of regulatory design. The most well documented example is the

United States Endangered Species Act, under which many landowners are unwilling to take

action which attracts new endangered species to their land, because the arrival of these species

would only invite further restrictions.870 Indeed, it has been suggested that some landowners

deliberately clear unoccupied land before endangered species can nest there and thereby reduce

the land’s value. The same Act has also been criticised for its inflexibility, its lack of concern

for cost, and for the fact that its burdens are borne disproportionately by local interests, in some

cases falling more heavily on indigenous minorities.871

Further, regulatory solutions to one environmental threat have at times served to compound

others. Restricting the amount of land which a farmer may place in production might serve the

interests of biodiversity conservation, but it can also contribute to agricultural pollution. In

order to maximise their yield, farmers may be inclined to use more intensive inputs on that land

which they have under cultivation.

More generally, complex problems defy simple solutions. For example, where the threat to

biodiversity flows from low awareness on the part of those producers, who are also mistrustful

of government, a solution may lie in some form of peer to peer education, perhaps reinforced by

incentive instruments. Where inappropriate chemical use arises from excessive risk aversion,
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and where there is insufficient market demand for low input produce, some combination of

positive and negative incentives such as insurance subsidies and a levy on chemical products,

may be appropriate. Yet only rarely have different types of instruments been consciously and

effectively combined into complementary combinations, geared to overcome the inadequacies

of "stand alone" policies. The problem identified in chapter two: that single instrument

approaches are rarely optimal because almost all single instruments have both strengths and

weaknesses, is particularly apposite in the case of agri-environmental policy.

Failure to facilitate third party action

Finally, as we will see later, non-governmental institutions might also play a constructive role

as surrogate regulators, but at present rarely do so. Banks are generally reluctant to impose any

terms or conditions upon lending, lest they create a situation adverse to a client's cashflow, and

thereby render themselves liable to legal action. In any event, the fundamental basis for a

lending decision is the likelihood that the borrower will be able to service, and ultimately repay,

the loan. As a result, banks are disinclined to direct clients what to do, except, perhaps, to

maximise yield by whatever means are available. Even though a borrower may be engaged in

activity which harms the land (which, when it is held as security for the loan is really the bank's

land) or engages in activity adverse to the environment for which they may be subject to

negative regulatory sanctions, banks are unlikely to intervene. Insurers, moreover, are

concerned more about outputs than inputs, and indeed, may specify chemical application in the

terms of an insurance contract.872

This raises the crucial question, whether, and, how the energies of these non-governmental

institutions can best be utilised in furtherance of sustainable agriculture (or to put it differently,

to what extent third parties can be empowered to take on a such a role). Currently, policymakers

have barely begun to ask, let alone to answer, this question.

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Overview

To summarise the obstacles to effective policy design and the shortcomings of existing

regulatory systems: in the domain of biodiversity conservation, there often remains a

divergence of interests between those of the landowner and those of the general public. There

exist, moreover, insufficient incentives to compensate for the sacrifices which the appropriate

level of environmental stewardship might require on the landowner’s part. Of course, regulators

may be tempted to resort to coercion of landholders, but in respect of the rural sector in general,

and biodiversity in particular, coercion is a particularly blunt instrument. These problems have

been compounded by the poor design of many regulatory regimes. Farmers are highly resistant

to regulation, monitoring is extremely difficult and expensive, and sanctions lack political

acceptability. Moreover, in circumstances where what is needed are positive measures to

reverse degradation, in conjunction with the development of an ethic of environmental

stewardship, then command-and-control has little to contribute. Even where command-and-

control is practicable, it is not necessarily desirable. Such measures are commonly criticised by

economists as being inefficient, unnecessarily intrusive, and unduly expensive to administer.

Some regulations may inhibit innovation and discourage people from searching for new, and

more efficient ways to use a resource.

In the domain of agricultural chemicals, a range of perverse incentives have traditionally

militated in favour of high input farming. Conditions of agricultural finance and insurance have

often required chemical input.873 The spectre of financial loss arising from crop failure or

diminished quality inhibits individual producers from abandoning a risk-averse approach based

on generous chemical use. Traditional consumer preferences for cosmetically attractive produce

have reinforced the farmer’s inclination to use chemical inputs. Hornstein (1993) notes that the

adverse effects of pesticides tend to be borne not by the farmer, but by others. 874 While the

farmer stands to gain from high input practices in the short term, the costs of these practices are

borne by neighbours, consumers and the environment generally. Finally, there is, in many
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sectors of agriculture, insufficient awareness of the relative cost-effectiveness of alternative

methods.

The nature of pollution arising from misuse of agricultural chemicals also poses significant

regulatory challenges. Inappropriate applications and their sequelae might not be immediately

apparent. Drift from spraying may not effect humans, plants or animals for some time, at which

point the cause may be obscure. Even more difficult is the pollution from leaching or runoff.

Contamination of groundwater and/or waterways from non-point sources makes it very difficult

to sheet home responsibility to a particular polluter. Monitoring costs are substantial. Moreover,

such regulatory standards as do govern agricultural practices can themselves be unwieldy and

difficult to enforce. Uniform standards, while less costly to develop and to administer, fail to

account for variations in the robustness of ecosystems. Agricultural practices which are

damaging in some contexts may be relatively harmless in others. Differentiated standards on the

other hand, entail greater administrative and enforcement costs. 875 And relevant regulatory

responsibilities may be distributed across a number of agencies, including those responsible for

air quality, water quality and food safety. Enforcement problems are exacerbated by difficulties

of monitoring and identifying the source of much agricultural chemical pollution.

In agriculture, as in banking, even the threat, or mere suggestion, of impending difficulties may

precipitate a self fulfilling prophecy. Restrictions on land clearing may make eminent

theoretical sense; the mere possibility of such restrictions, however, can bring about an

anticipatory clearing to such an extent that it defeats the purpose of the original instrument. Just

as "panic buying" can produce commodity shortages which would not otherwise occur, so too

can "panic clearing" bring about habitat destruction. As one industry representative told us, "As

soon as draft tree-clearing guidelines were released for discussion, out came the bulldozers."

Whether in the domain of biodiversity conservation or chemical use, there are limits to what

traditional regulatory institutions can deliver. Even the most repressive state is never

omnipotent, and the capacity of modern democratic government is hardly boundless. This is
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particularly the case in the current and foreseeable climate of fiscal restraint which

characterises most western democracies.

In both domains, knowledge of environmental risks and remedies is inadequate, particularly on

the part of the small, marginal farmer. Attitudes toward government might be characterised as

schizophrenic; a culture of dependence on government beneficence coexists ironically with

traditional resentment of governmental encroachment on one’s autonomy (ie they want to

capitalise the profits and socialise the losses). And farmers are being urged, if not required, to

abandon long-held practices and use new production methods at a very time when the

globalisation of economic affairs is adding to the uncertainty of rural life.

Whatever the similarities and differences of the many faces of agriculture, it is already

abundantly clear that existing systems for agro-environmental regulation have serious

shortcomings. Recognising that both environmental problems and institutional capacities will

vary within jurisdictions, as well as between them, what general conclusions might we reach

about the most appropriate configuration of regulatory institutions and instruments to minimise

the environmentally harmful consequences of agricultural production? What is the potential

contribution of non-governmental institutions to environmental policy? How, in what

circumstances, and in what combinations, can the main classes of policy instruments be utilised

to achieve optimal policy mixes in the case of biodiversity conservation and agricultural

chemical use?

Part 4: Assessing Instrument Options : toward efficient and effective agricultural

policy

Our overall objective in the remainder of this chapter is to identify instrument and institutional

configurations which will function efficiently and effectively to meet the goal of sustainable

agriculture. Part 4 examines the roles of the various categories of instruments, Part 5 considers

various institutional influences and the roles of third parties, and Part 6 draws from our analysis
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in the previous two sections to provide some specific principles which are paramount in

designing policy mixes for agro-environmental regulation.

We begin in the present section by examining, in ascending order of coerciveness, the major

categories of instruments of agro-environmental regulation: information, voluntarism, self-

regulation, economic instruments and compulsion876. We explore the strengths and limitations

of each individual instrument category of policy instruments and the circumstances in which

each might most appropriately be used in the agricultural context. More broadly, we indicate

how each category of policy instrument can best be integrated into an overall regulatory mix.

While efficiency remains our paramount criterion, we recognise that in the agro-environmental

domain, there are circumstances where effectiveness might take precedence. Threats to

biodiversity which can entail catastrophic and irreversible damage are the most obvious

example.

Overall, we argue that governments need to broaden their repertoire by embracing a much

larger range of instruments. Moreover, recognising that individual instruments all have

limitations, they should seek to build on the strengths of individual instruments while

compensating for their weaknesses by utilising a much broader and sophisticated policy mix.

However, rather than utilising as many instruments as possible, the overriding strategy should

be to mobilise instruments only when less costly and less coercive measures fail to achieve

preferred outcomes. Finally, policy makers need to tailor the precise mix of tools (and

institutions) much more closely to the particular environmental and policy context.

Information

The relative isolation of many agricultural producers, their resistance to regulation and to

change, and their conservatism, all make information particularly important in this industry

sector. Regardless of the agricultural context, or the nature of the environmental risk,

information is likely to play a fundamentally important role in achieving sustainable

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agriculture, providing a very large "bang for the regulatory buck". Not only do such instruments

impact substantially on attitudes and behaviour,877 they can also be implemented at modest

administrative cost, while frequently repaying substantial dividends in terms of improving

management practice. Generally, informational instruments are perceived as equitable, as the

information is usually widely disseminated in a non-interventionist manner. Where such

instruments provide information that harnesses self-interest, they are also financially attractive,

and provide continuing incentives for biodiversity conservation and sustainable agriculture.

Information strategies are most relevant for improving the environmental behaviour of the

small, marginal producer, whose lack of environmental awareness is often the basis for

noncompliance. Large, professional producers, by contrast, are more likely to be well aware of

their responsibilities to the environment, and of the impact of their activities. More generally,

information disseminated to the public, non-governmental organisations and third parties like

financial institutions can enable parties to participate meaningfully in the making and

enforcement of agricultural policies.

Information strategies will be particularly productive when the private interests of the farmer

and the wider public interest converge. In these circumstances, basic information is

occasionally sufficient to bring about voluntary initiatives. 878 This is especially apposite in the

case of agricultural chemicals: where the producer is aware that input costs can be reduced

without detracting from quality and yield, everyone benefits, without recourse to threat or

inducement. Here, it is sufficient for a producer to recognise that excessive chemical input is

economically inefficient, and that a reduction in chemical use can improve profit.

In the context of biodiversity conservation, the win-win scenario may occur when the

preservation of native vegetation serves to reduce erosion and salinity, although the benefits are

likely to be less immediate and tangible than in the pesticide case. Nevertheless, public interest

and private interest do at least substantially overlap, and education campaigns which seek to

harness the enlightened self-interest of agricultural producers are likely to be a good

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investment.879 The success of soil conservation education programs in the United States,

Australia, and elsewhere, are illustrative.880

Where win-win scenarios do not apply (such as in circumstances when land clearing or the

taking of endangered species would contribute to yield), and agricultural producers are called

upon to make sacrifices, information can still play an important, albeit different role. In these

circumstances, the provision of information may serve to make coercive forms of intervention

more palatable by justifying and legitimising the sacrifices which producers are called upon to

make.881 Restrictions on agricultural practices become more comprehensible, and thus more

acceptable and, more likely to be heeded, when their wider context is understood. These

principles apply equally to issues of land clearing and species preservation, as well as to issues

surrounding the use of agricultural chemicals.882 In summary, in some contexts, information

serves to activate voluntaristic initiatives, while in others it helps lower a producer’s resistance

to regulatory edicts.

However, we do not suggest that information is a dependable strategy, particularly where there

is a substantial tension between the public and private interests, or that it can be used in

isolation (although exceptionally, it will function effectively in this role). Even when producers

perceive the need for biodiversity conservation, or reduced chemical use, they will not

necessarily take appropriate action if this conflicts with other goals and interests. For example,

the South Australian experience has been that even when landusers were well informed and

were supportive of the need for biodiversity conservation, they were still willing to clear their

own land, and only regulation (coupled with compensation) prevented them from doing so. 883

Similarly, the threat of significant crop loss may militate in favour of high chemical input,

regardless of the other risks it may entail.

Informational instruments may best be used to narrow or close the gap between the public and

private interests or, where this is not possible, to make other, more coercive, strategies more

acceptable. As we argue below, it is then desirable to use a mix of voluntary instruments, price-
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based instruments and regulatory instruments to achieve the dependability that information

strategies alone generally lack. Necessarily, the particular mix of instruments at each location

and the precise combination of instruments will vary with the ecological, social, economic and

political context.884 Thus, the approach we recommend is one that makes institutional access to

each instrument as wide as possible.885

To summarise: information alone will not produce preferred environmental outcomes, whether

in relation to chemicals or biodiversity. In a few exceptional cases, it may be sufficient to bring

about best practice performance on the part of the most professional and civic-minded

producers. But more often, it is the foundation for the functioning of other instruments. Where

producer interest and public interest diverge, these other instruments may entail elements of

inducement or coercion. In those instances where they coincide, the operative instruments will

be voluntaristic. To these we now turn.

Voluntarism

As indicated in chapter two, a variety of instruments and mechanisms can be classified under

this heading. In the agricultural context, their main characteristics are that the producer has

discretion in deciding whether or not to participate. In their purest form, they reflect

spontaneous altruism, as the producer chooses to adopt best practice voluntarily. Other forms

entail more in the way of dialogue with the state or with third parties, but rely neither on

coercion nor substantially on continuing financial inducements. These mechanisms include

support for projects undertaken by non-government organisations, community groups or

landholders (where the financial support is partial and there is heavy reliance on voluntary

effort for successful completion); and management agreements with the person responsible for

managing an area of land (a form of legally binding contract, voluntarily entered into). 886 In the

domain of agricultural chemicals, perhaps the most vivid example is the United States EPA’s
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Pesticide Environmental Stewardship Program, (PESP), under which participants agree to

devise and implement pesticide reduction strategies.887

Among the greatest virtues of voluntary mechanisms are their ability to influence community

attitudes. In particular, they have the capacity to build, rather than hinder, the development of a

custodial ethic, and to make environmentally sustainable agriculture part of the ‘community

norm’.888 Such approaches are particularly important in the agricultural sector where cultural

resistance to regulation, and the problem of identifying and monitoring geographically isolated

producers make more coercive approaches problematic. Commitments won by persuasion and

based upon mutual agreement are likely to be respected, because each farmer can claim a

degree of ownership, and the risk of defiance provoked by more coercive instruments is

lacking. Not only are such commitments inherently more flexible than legislation, they may (as

the work of Eleanor Olstom admirably demonstrates889) in many instances preclude the

necessity for legislative action. Perhaps most important, they enhance motivation on the part of

the farmer.

However, voluntary instruments in the agricultural context suffer from two main problems.

First, they can be difficult to target and monitor without incurring high administrative costs,

particularly given that agricultural producers are widely dispersed. Second, many voluntary

agreements (ie those without a contractual base) are non-binding. Whatever their virtues, there

are those individuals who may fail to abide by them. And with all voluntary agreements, there

will be those who for whatever reason, do not see fit to join them in the first place.

Accordingly, they work best where there is a substantial overlap between the public interest and

that of private producers. For example, if landowners perceive themselves as having a (short-

term as well as long-term) self-interest in soil conservation voluntarism may be a cost-effective

and appropriately non-interventionist strategy.890 However, even here, voluntarism can only

work if resource users appreciate the value of conservation, and their own self-interest in

protecting it891. Informational and motivational instruments that seek to increase the number of
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people interested in conservation and that show them how to do this will be extremely

important in this respect, again illustrating the point made immediately above: that

informational mechanisms can almost invariably reinforce other policy instruments. 892

Where there is a substantial gap between the public interest and the private interests of

individual land users893 (as is very likely to be the case in the area of biodiversity

conservation894) then voluntary mechanisms cannot be relied upon in isolation but need to be

reinforced by external stimuli such as signals from the market or the spectre of more intrusive

government regulation (see further below). For example, whereas many land users may identify

with the soil conservation objectives of voluntary land protection schemes, their self-interest in

protecting biodiversity is not so readily apparent - at least in the short term. More commonly,

there is a perceived tension between maximising the use of productive land and protecting

remnant vegetation. While the preservation of such vegetation may arguably provide long-term

benefits to land users (acting as a windbreak, reducing dryland salinity, etc) these benefits are

less tangible and immediately realisable than the increase in short-term productivity which

remnant removal promises. For land users who are economically marginal, the evidence is that

short-term production pay-offs are often perceived to outweigh possible longer term benefits of

conservation.

This suggests a major limitation of voluntaristic approaches to biodiversity protection, namely

that, like information-based instruments, they lack dependability. This limitation raises two

important questions in terms of policy design. First, in circumstances where landholders do not

have a self-interest in conservation, does voluntarism have any significant role to play? If so,

what is that role. The second, (assuming that the answer to the first question is positive) is how

voluntary instruments should most appropriately be used in combination with other instruments

and institutions.

In terms of the first of these questions, voluntarism can indeed play an important role.

Notwithstanding the need to recognise and design policy to take account of self-interest, it must
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be emphasised that self-interest is not a full explanation of behaviour. On the contrary, altruism

and respect for broad conservation objectives may be evident on the part of some, and

mechanisms which seek to support and harness such behaviour can play a supporting role in the

policy mix, provided they can be justified in cost benefit terms. For example, if limited

resources were put into encouraging and supporting landholders willing, in principle, to enter

voluntary agreements, this might provide a cost-effective mechanism, even though it is only

applicable to a small minority895. If it were coupled with appropriate tax concessions (an

economic incentive), then many more landholders might be encouraged to participate.

As to the second question, the issue is what combination of instruments can best harness the

strengths of voluntarism while compensating for its weaknesses. Here, policy design must be

particularly sensitive to the sequence in which such instruments are used, given farmers’

resistance to direct government regulation, and the risks of making voluntarism redundant. In

any event, on the grounds of efficiency and effectiveness too, less intrusive and less costly

instruments should be preferred provided they achieve the desired environmental goal.

Accordingly, policy-makers might begin by introducing information-based strategies, in the

hope that individual producers will be inspired to do the right thing without further prompting.

This might be done in conjunction with some form of voluntarism or industry self-regulation

(the least interventionist next steps) where this is practicable. Where the capacity for this is

lacking, however, then these may be reinforced by the use of incentives - those who may be

resistant to persuasion or moral guidance, may not be immune to market forces. Ultimately, in

the event that less intrusive measures fail, then voluntarism must be superseded by more

coercive instruments, including direct regulation, providing the severity of the problem justifies

such measures. Indeed. here, when voluntarism fails, it is replaced by coercion. In exceptional

circumstances, such as where there is a risk of irreversible loss to biodiversity, then, as we

indicate below,896 this sequencing must give way to a different approach which places

effectiveness (in preventing environmental harm) ahead of other considerations.

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Even in the latter circumstances, there may be scope for voluntarism in conjunction with direct

regulation. For example, one of the most promising initiatives to overcome the worst flaws of

the United States Endangered Species Act, concerns the introduction of voluntary conservation

agreements. Welner (1995) has described this proposal as follows:

The underlying theory [is] that in order to avoid the prospect of endangered species listings-

which can often delay projects and result in extensive, mandatory restrictions on

development-landowners and local governments would gladly participate in a voluntary

preventative program to protect species and set aside needed habitat. Using this approach,

the government could achieve comprehensive habitat protection without needing to list any

species.897

But what is critical to the success of voluntary conservation agreements is the "hammer" of the

Endangered Species Act, which induces landowners to come to the bargaining table. That is,

such voluntarism is only effective against the backdrop of tough government regulation which

is likely to be invoked if voluntarism fails.

The precise combination of instruments will necessarily vary with the nature of the threat and

with the social, economic and political context in which it arises. In the domain of agricultural

chemicals, for example, information regarding optimal chemical use can serve as the foundation

for a voluntary campaign based on the specification of nonbinding targets to reduce inputs.

Ideally, this would be reinforced by market demand for low input produce. Where market

signals are insufficient, some form of price-based instrument such as a levy on inputs, might be

introduced. Proceeds from the levy might in turn be used to contribute to a fund to ensure

against crop loss or damage.

By contrast, in the domain of biodiversity conservation, information on the merits of

biodiversity is the basis for voluntary environmental stewardship. It does not replace

voluntarism, but rather inspires and sustains voluntaristic effort. In this sense it is

complementary. Where, as is most often the case, voluntarism entails financial sacrifice, and
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commercial influences in furtherance of biodiversity are insufficient to prevail, some degree of

incentive instruments may be necessary. Where these in turn fail to deliver preferred outcomes,

a degree of regulatory intervention may be appropriate.

The danger in applying voluntary and regulatory resources in tandem is that the latter may

overwhelm or effectively neutralise the value of the former, particularly in the agricultural

sector where farmers are sensitive to external regulation. However, in carefully designed

systems this may be avoided either by an enforcement strategy that escalates to regulatory

sanctions only where voluntary instruments fail, or in which those who are demonstrably

responsible are entrusted to regulate themselves under voluntary codes, leaving regulators free

to focus on the irresponsible). Three other approaches that may also overcome the risks of

neutralisation, while also mitigating the problems of political acceptability inherent in

regulating farmers, are sequencing (inviting industry to pursue voluntary measures because of

their virtues described above, but recognising their lack of dependability and underpinning

them with the implicit threat of mandatory action if voluntarism fails. 898); the use of hybrid

mechanisms (legislation setting targets, achieved through voluntarism899) and partnership

arrangements900.

Finally, it should be noted that voluntary agreements in the agricultural sector need not always

involve government actors. One example of constructive partnership between conservation or

consumer groups and farmers is the CORE Values project, a cooperative program between the

New York and New England MacIntosh Growers and the environmental group Mothers and

Others. As recently as the 1980’s these groups were adversaries on the Alar issue. Today, apple

growers sign a pledge card indicating their intentions to use only Integrated Pest Management

(IPM) practices which are environmentally preferable.901 Voluntaristic initiatives may also

emerge spontaneously in particular regions or from within specific industries. 902

To summarise, except in those limited circumstances where the public interest in sustainable

agriculture and the private interest of producers substantially coincide, and where
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environmental damage is reversible, voluntary mechanisms should be used to build a

stewardship ethic and to supplement other instruments. They cannot, however, be relied upon to

work effectively in isolation. In the large majority of cases they need to be supported by a

variety of mechanisms like price and property-right mechanisms and regulation, (only to be

invoked when voluntarism demonstrably fails) that ensure dependability and reduce

implementation costs.903 As indicated earlier, in almost all circumstances, voluntarism will also

need to be underpinned by appropriate information.

Self-regulation

The agriculture industry’s potential for self-regulation, industry-wide, is relatively limited. The

diversity of the industry - embracing as it does activities as disparate as woolgrowing and the

cultivation of produce from apples to tulip bulbs - defies concerted activity. The contrast on this

point with chemical manufacturing is stark. Rather, what one finds in agriculture are a number

of discrete industry sectors which exercise various degrees of scrutiny and control over their

members. Within at least some of these sectors, however, there arises the potential for credible

self-regulation904.

Self-regulatory initiatives are most likely to evolve in contexts entailing an approximation to a

community of shared fate.905 For example, the Australian cattle industry, activated by overseas

rejection of Australian export beef tainted by chemical residue, and reinforced by international

market demand for best practice product, has introduced a quality assurance program,

Cattlecare.906 Based as it is on certification after third-party audit, the program provides for

withdrawal of certification in cases of non-performance. The fact that the entire industry risks

losing major export markets if the scheme fails (a "community of shared fate"), provides a

powerful incentive for its success.907

Other industry sectors, similarly sensitive to their markets, have also begun to introduce quality

assurance or similar programs intended to protect the reputation of both the entire sector and
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individual producers. For example, the Dutch pig meat industry has developed an Integrated

Quality Assurance System.908 Similarly, various schemes of organic certification which exist

around the world entail provisions for termination in the event that conditions for certification

are breached. In the abstract, action at this level would have no consequences of significance

for an errant farmer. But when certification is a condition of access to a market, the removal of

that certification can be costly indeed. The producer is forced either to find an alternative

market, or absorb potentially catastrophic financial loss.

In contrast, biodiversity conservation would appear considerably less amenable to self-

regulation. Indeed, one farmer’s behaviour which may be injurious to biodiversity is unlikely to

impact adversely on his peers. Unlike nuclear power operators, farmers are rarely hostages of

each other. If one Montana sheep rancher is inclined to shoot wolves venturing onto his

property, this does not detract from the marketability of his neighbour’s wool. Indeed, the

neighbour may be grateful for the rancher’s contribution to pest reduction. Similarly, practices

which cause runoff and despoil waterways (a classic example of externalities) are equally

unlikely to be amenable to self-regulatory solutions.

State involvement need not be a necessary condition for the development of a self-regulatory

regime. However, the state is strategically positioned to support those self-regulatory regimes

which may not be self-sustaining. Even under the most promising circumstances (eg where the

gap between public and private interest is modest, and the relevant industry association wants

the code to work), self-regulation is likely to work best in conjunction with a broader range of

policy instruments, which compensate for the weaknesses from which even the best self-

regulatory schemes commonly suffer. For example, shaming cannot work against producers

with no reputation to protect. Expulsion cannot work where a farmer can still produce and

market effectively outside the industry association. If eighty percent of the industry agrees to

comply with a self-regulatory code, but twenty percent refuse to sign on, a failure to address the

misconduct of the latter (which since they are outside of the code, is beyond the scope of the
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self-regulatory scheme) will almost certainly result in the failure of the code. Here, government

can intervene directly to curb the activities of non-code members.

As an alternative to attracting the attention of the state, producers may be willing to submit to

the discipline of industry self-regulation, or it may do so as a matter of competitive self-interest.

Significantly, the most prominent achievements in self-regulation in agriculture, exist in those

mature, cohesive and professional industry sectors whose members are themselves attuned to

the requirements of export markets, and to the elements of international best practice.

The state is also in a position to reinforce self-regulation by positive means. A major

contribution of government to self-regulation in agriculture is that of capacity-building.909 By

contributing information about the commercial environment of a specific agricultural sector,

and by providing, where necessary, technical expertise in the design of self-regulatory systems,

government can assist an agricultural sector to keep its house in order. On a broader level,

governments may assist in publicising exemplary achievements in self-regulation within a

particular sector, with a view towards inspiring emulation in other industry sectors.

Again, it may be appropriate for a state agency to endorse a particular code by permitting it to

use the agency's logo or other official seal of approval, thereby giving the public greater

confidence in the code's credibility. This in turn may help the industry sell its product or

provide other commercial benefits. In these circumstances, the capacity of the agency to

withdraw its endorsement may provide a significant inducement to the target group to self-

regulate effectively. Governments may also provide financial incentives such as tax deductions

for producer investment in self-regulatory activities.

Moreover, all self-regulation operates in the shadow of rules and sanctions provided by the

general law, which provide reinforcement for industry controls. For example, misstatements by

producers concerning organic certification would breach consumer protection laws governing

misleading and deceptive conduct. Miscreants under an industry scheme of self-regulation are
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thus at risk of suffering sanctions at the hands of the state as well as at the hands of their peers.
910

There may also be the possibility of facilitating third parties to act as surrogate regulators,

policing the code as a complement or as an alternative to government involvement. We were

advised of one incident in the Australian State of Queensland in which the gross infestation of

one farmer’s crop was placing his neighbours’ crops at risk. Governments are generally

reluctant to take the extreme step of issuing and enforcing a crop destruction order, the cost of

which is borne by the offending producer. In this instance, the responsibilities were delegated

to and carried out by local producers, peers of the offender.

Beyond specialised compliance services and quality assurance (QA) professionals, the most

obvious third parties with an interest playing this role of surrogate regulators are consumers

themselves. This contribution may be through their direct involvement in administration of the

code itself (in which case it has greater credibility as a genuinely self-regulatory scheme), the

detection of violations, or in their capacity as potential victims of code malpractice to take

direct action against breaches of the code. Rival producers provide another important group

whose self-interest in ensuring a level playing field, and that their competitors do not abuse the

code and thereby gain a competitive advantage, can be used to good effect.

Economic instruments

Despite the utility of the instruments discussed thus far, there will be circumstances when

information, voluntary agreements, and self-regulation are insufficient to achieve desired

objectives. Foremost among these are win-lose scenarios, where preferred environmental

outcomes require real sacrifice on the part of the producer. The market for low-input product

may not be sufficient to induce many producers to reduce chemical use, and perceived profits

may be higher by using conventional pesticide-intensive methods of production. Similarly, in

the case of habitat preservation, the costs of adherence to environmentally preferable methods
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of agricultural production will commonly exceed whatever benefits they may bring to the

producer. In such circumstances, mere knowledge of environmentally desirable behaviour may

be insufficient to achieve it.

Rather, a range of other instruments, including positive incentives, property rights and price-

based instruments and regulation, might be necessary to encourage farmers to embrace

sustainable methods.

Positive incentives

Of these, the least interventionist and the most popular approach with agricultural producers is

likely to be positive incentives, consisting of "programs that seek to get producers to change

their land-use, cultivation and livestock raising methods, along with the inputs employed, either

permanently or on a temporary basis, in exchange for compensation paid in a lump sum or over

time, or else in return for tax benefits for the purpose of achieving environmental objectives". 911

Such incentives include tax credits, tax deductions, regulatory relief for private landholders

who voluntarily protect habitat, and payments to participants in "safe harbour" cooperative

agreements,912 purchasing of development rights, and other financial inducements for

particularly desirable conduct.913 For example, in the United Kingdom, the Environmentally

Sensitive Areas Scheme provides payment on a per hectare basis for habitat conservation, 914

while within the European Union more generally, the success of increased set-aside in

conjunction with a reduction in price support levels, is a clear example of "how changing the

price signals can be the most effective policy option in terms of the short term benefit to the

environment."915

Although they violate the polluter pays and user pays principles,916 and are a drain on the public

purse, positive incentives may have particular application in the agricultural sector. For

example, where the producers come from low income groups, then subsidies may be more

attractive in social welfare terms than taxes or regulation. In addition, the substantial political
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clout of agricultural communities may make it necessary to offset existing perverse incentives

with positive incentives rather than attempt their immediate removal. In some circumstances the

inclusion of positive incentives in a policy mix might render unnecessary the use of more

coercive instruments which may be difficult to enforce in such a geographically isolated sector.

On other occasions, positive incentives, for example compensation for income forgone

preserving the habitat of a highly endangered species, may sweeten the bitter taste of strict

prohibition when used in combination917.

For present purposes, in terms of achieving sustainable agriculture, there are two particular

areas where the use of positive incentives is both attractive and justifiable. First, in the case of

responsible chemical use, incentives serve to act as circuit-breakers, enabling producers to

overcome the short-term problems of transitioning from conventional pesticide-intensive

practices to sustainable ones. Second, in the case of biodiversity, there are powerful arguments

in favour of compensating (or in prospective terms) rewarding landholders: (i) for

environmental stewardship; and (ii) to achieve a transition to a property right regime that

protects biodiversity.

Turning to the first of these, we have noted that one of the main impediments to pesticide

reduction is the risk of financial loss, especially during the transitional phase. For an individual

producer, the transition to low input farming can be difficult. The anxieties and uncertainties

that accompany a change in methods may be borne out in weed resurgence, and in an explosive

increase in insect pest populations. Properly constructed incentive programs (which could

emanate from either private or public sectors) can help reduce this risk and facilitate conversion

to more environmentally benign farming methods.

As we saw above in the case of Campbell Soup,918 large corporate buyers may be in a position

to insure their growers against economic loss. Campbell shielded its growers from financial risk

arising from reduction in crop quantity or quality during the initial two years of the program.

Where the absence of a large and willing buyer precludes such support, insurance-based
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institutions may fill the gap. For example, in Canada, the Saskatchewan Crop Insurance

Program offers a higher range of coverage for organic grains, and the Prince Edward Island

Department of Agriculture underwrites fifty percent of any yield reduction associated with

transition to low input methods.919 A number of additional incentive mechanisms suggest

themselves, including production subsidies for farmers who rely on low input methods, or

transition subsidies during a period of conversion to low inputs. Given the costs of compliance

monitoring, one means of enlisting non-government resources could entail a requirement that

eligibility for a subsidy be conditional upon membership of an organic certification society.

All the above mechanisms may be regarded as circuit-breakers - short term measures which are

necessary in order to break to pattern of unsustainable production and to facilitate producers

embarking on a new approach which might not be practicable in the absence of such

intervention. But longer term subsidisation would be undesirable not only because of the

expense involved but also because of the likelihood that producers become dependent upon

them, and disinclined to strive for continuous improvement. Thus inducements to convert to

low-input agriculture should not be open ended, lest they encourage the same degree of

dependency that they were designed to overcome. One should also be mindful of the risk that

incentive systems can proliferate to the point of redundancy, risking waste of the taxpayer’s

money and confusion for the producer.920

In contrast to the problems of agricultural chemicals which lend themselves to solutions such as

transitional subsidies, the issue of biodiversity loss raises very different questions relating to

environmental stewardship. Positive incentives (in the form of reimbursing costs) may be

appropriate in two particular sets of circumstances.

The first is where the costs associated with biodiversity conservation cannot be recovered from

the market place. Examples of these costs include fencing out an area of value to an endangered

species so that it cannot be grazed and then keeping the area free of vermin. As no market exists

for the protection of habitats occupied by most endangered species, it is efficient for the
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beneficiaries of species protection (taxpayers on behalf of society) to reimburse those who

incur the cost of protecting them.921 As our colleague Mike Young has argued, efficiency

criteria would indicate that reimbursement should be only for those costs incremental and in

addition to those recoverable through market processes.922 In practice, such arrangements are

also supported by provision of periodic advice and a program that motivates people to feel

proud of the contribution they are making to society’s biodiversity conservation objectives.

Second - on equity grounds and to encourage efficient investment - most developed nations

provide a right to compensation for the removal of a right that is being exercised (for example if

restrictions are imposed upon the right to clear land). At the same time, however, most nations

also reserve the right, from time to time, to redefine the bundle of unfettered economic

opportunities embodied in a property-right and have encouraged people to speculate on the

profits and losses associated with them. Thus, establishing a precedent for the payment of

compensation for decline in land values should be seen as a very fundamental reform with

immense budgetary implications. If speculation is allowed, then the case for compensation

collapses to one of the need to achieve and retain political and community acceptability during

the transition period when assumed, but unspecified, property-rights are redefined.923

As with voluntary financial instruments for biodiversity conservation on land that remains in

private ownership, the role of compensation is largely one of a circuit breaker to bring about the

transition to an institutional and property right regime that promotes biodiversity, whilst

maintaining motivation, equity and community acceptance. Administrative costs may be less if

the initial policy change is accompanied by a plan to diminish the proportion of compensation

payable by, say, twenty percent per annum. When this is done the transition is speedier and, as

the threat is reduced more quickly, the mix may be more dependable.924

Finally, the broader question is whether positive incentives may appropriately be made part of

an integrated agricultural policy package. For example, an agricultural variation on the system

of accredited licensing (see chapter two) has been proposed in Australia by the Australian
 368

Farmers’ Federation.925 The proposed scheme would involve a two-stage process for training

landholders in the practices of sustainable production. The first stage would involve self-

assessment in which landholders would test their knowledge and practices of farm planning and

sustainable agriculture. Industry associations would be actively involved in the education and

training process. They would then seek formal accreditation of land management practices

jointly by government and industry authorities. Accreditation would make farmers eligible for a

wide range of assistance, including to discounts on farm inputs, lower interest rates on bank

loans, rate rebates from local government, grants from State governments and tax incentives.

Here we see a combination of instruments, where the synergies of information and motivation

are accelerated by the incentives available to those producers who can demonstrate compliance.

Such positive incentives would thus be appropriately aimed at the highest end of the

performance continuum. Directed at the very best performers, they recognise and reward

significant achievements. As such, their latent function is to reach more ordinary producers,

who might thereby be inspired to realise their potential - short-term subsidies during the period

of transition to low input methods are perhaps the best example. The celebration of exemplary

environmental stewardship, will ideally attract the attention of lesser performers, who, through

nonchalance or through lack of awareness are failing to comply with regulatory standards.

Despite their advantages in some circumstances, the use of incentives (other than perverse

incentives) in the domain of agro-environmental regulation would appear to have suffered from

relative neglect thus far.926 But even if they were to be implemented more widely and with

beneficial consequences, they would be unlikely to deliver a perfect world. First, in the

majority of circumstances it is more appropriate to make producers and landholders internalise

externalities rather than to subsidise them to change their behaviour-a strategy which if it

became widespread would also rapidly deplete the public purse. Second, there are those who

may be irrational, intransigent or incompetent, and who may lie beyond the reach not only of

voluntary but also of incentive-based mechanisms. Where these informational and positive
 369

incentive instruments do not prove effective, the availability and use of more negative

incentives should cut in. Foremost among these are prices, property instruments and regulation.

Property-rights and price-based instruments

In the case of biodiversity conservation market failure is pervasive, while in the case of

agricultural chemical use, it is evident in particular circumstances. 927 This failure is caused by,

inter alia, externalities, the complete absence of markets for some aspects of biodiversity, and

inadequately or incompletely defined property rights. The result is that many environmental

assets are seriously underpriced and are therefore overconsumed. Two particular forms of

economic instrument may be invoked to address these problems directly: property rights and

price-based instruments. In principal, such instruments have particular advantages in terms of

cost effectiveness or economic efficiency928.

Property-right instruments with applicability to the agricultural sector include: exclusive-use

rights929 (of which bio-prospecting contracts are a special form930); individually transferable

property-right mechanisms931; covenants and easements932; offset arrangements933; and leasing

and licensing.934 These types of instruments seek to compensate for, or reverse, market failure

through mechanisms which make resource use opportunities consistent with social values. By

privatisation or similar strategies, they seek to restrain or halt the overconsumption of

environmental assets, by making conservation more profitable to the producer.

Applying property rights to unsustainable farming practices can be done by simply extending

the private property ownership regime (for example legalising ownership of some threatened

African species).935 However, most property rights begin by defining what may be done and

then restrict action through various conditions. For example, easements and other legislative

arrangements may grant rights to those other than landowners, a conservation covenant may

prohibit clearing, or individually marketable pesticide use or emission rights might control
 370

overall chemical use in a region.936 Where public lands are leased to private agricultural users,

conditions of leasehold may require certain action and/or may prohibit specific practices.

In contrast to property-right mechanisms, which indirectly influence prices by changing the cost

of certain activities and altogether preventing others, agricultural production prices can be

influenced directly via price-based mechanisms such as charges, levies and use fees937; tax

instruments,938 and the removal of perverse incentives. Conceptually, such mechanisms could

be used to control most threats to biodiversity but this is rarely done in practice. For markets to

produce efficient solutions, it is necessary for transactions to be reversible in that any item

consumed can be replaced. In the case of biodiversity, however, many habitats can never be

recreated. Efficient markets need to be able to revise prices continuously through time and

across space. In the case of biodiversity, a system is required that enables government

institutions to constantly monitor and, when appropriate, change the prices they set. As a result,

price-based instruments are not useful "across the board" for protecting biodiversity.

Nevertheless, in selected circumstances, pricing mechanisms do have a significant role in

revealing the cost of preventing and controlling adverse impacts on biodiversity. As the OECD

(1996) points out:

...biodiversity is arguably different as an environmental and economic resource because its

fate depends on many decisions made in many different economic sectors. That is, it is

pervasive to the economic system, being affected by land and water use decisions, by

pollution and by economic activity generally. As such, biodiversity conservation policies

must themselves be pervasive, ie. they must be capable of filtering through the entire

economic system.939

In particular, there is a strong case for the removal or modification of perverse incentives that

significantly raise the cost of biodiversity conservation. Such incentives are more prevalent in

respect of agriculture and the environment than perhaps any other area of regulation. At the

global level, Panayotou940 has estimated that 90 cents in every dollar invested in biodiversity
conservation is spent on tasks such as: undoing the unintended effects of government subsidies;

and of protecting people from competition. "Countervailing subsidies" have encouraged land

clearing and chemical use, while price supports generally, have operated to neutralise other

instruments intended to encourage environmentally friendly production . 941 However, to remove

such subsidies risks imposing significant financial losses on producers, in a manner not likely to

win their hearts and minds to the cause of environmentally preferable agriculture. For this

reason, a gradual withdrawal of subsidies, or a shift in the nature of those subsidies (so they are

no longer perverse in environmental terms), or their combination with incentives for

environmentally desirable conduct, may be preferable to simply terminating them all at once.942

For example, contemplated reforms to the European Community's Common Agricultural Policy

include reduced reliance on market price support compensated by direct aid measures, partly

linked to environmental conditions; the monitoring of effects and reporting. Arguably, the

redesign of subsidies (tying them to positive environmental objectives) provides a powerful

policy tool for environmental protection whereas their complete removal might in some

circumstances produce more intensive and environmentally destructive activities. 943 Indeed, a

strong case can be made for payments to economically marginal producers to assist them in

leaving the land, thereby allowing more successful (and potentially more environmentally

competent) producers to acquire their holdings. Such a program was part of an Australian rural

adjustment policy in 1997.

In contrast with the very limited appropriateness and use of price-based instruments (other than

the removal of perverse incentives) to protect biodiversity, the use of charges and levies on

agricultural chemicals is commonplace. These encourage the producer to search for lower cost

(and presumably lower input) alternatives.944 Similarly, water pricing policies may be geared to

reduce water consumption and encourage irrigation practices that reduce chemical runoff. 945

Their relative ease of administration and revenue generating potential make them even more

attractive to governments in an era of fiscal restraint. However, these instruments encounter

serious problems when dealing with diffuse pollutants and groundwater contamination. The key

to their success is the ability of administrators to get the incentives right. Ultimately, the

feasibility of such instruments will depend upon the farmer’s bottom-line (and the viability of

alternative agricultural practices and/or business inputs). A doubling in the price of a chemical

may still pale in comparison to the loss of income which could result from a decline in quality

or yield. For a producer concerned about the prospect of significant economic loss, a significant

increase in input costs may be a small price to pay for security.

The extent to which property-right and pricing mechanisms can make a positive contribution to

biodiversity conservation and the reduction of agricultural chemical pollution is likely to

depend substantially on the particular contexts in which they are applied, 946 the threats to which

they are addressed,947 and the particular attributes of individual instruments.948 For example, in

addressing problems such as pesticide pollution, property rights through tradeable permits

commonly suffer from the size of the tradeable market, the inability to accurately monitor

trading, the complexity of transactions and problems associated with non-uniform mixing from

point source.

More broadly, price-based approaches may be less appropriate than other instruments in

addressing two key characteristics of biodiversity. These are that biodiversity loss is often

irreversible, and that ecosystems have limits and if stressed beyond those limits, they will

collapse. Nevertheless, property right and price-based instruments may contribute positively to

an integrated policy package. The latter may be expected to interact with informational

instruments relating to the virtues and profitability of low input methods, making the latter even

more attractive. Lest these taxes on inputs be perceived as punitive or unfairly directed at

farmers, the revenue generated by them may be hypothecated949 for a variety of purposes,

including research and development, water quality enhancement, or subsidies for low input

farmers.
As we have observed, the coupling of positive and negative incentives can also be a

complementary and effective strategy, which allows the former to become more palatable to the

farmer. This is well illustrated by the successful scheme introduced in the German State of

Baden-Wurttemburg, which combines direct compensation to farmers for reduced use of

nitrates and pesticides with a charge for water use.950 The linked instruments each address a

different factor underlying non-point source pollution; farmers whose pollution problems arise

from inappropriate use of water are influenced by the charges. Those who apply chemicals in

excess are encouraged by the subsidy to reduce input. Producers targeted by both instruments

experience less of a financial burden because of the combined use of stick and carrot.

Property-right and price-based instruments despite their considerable virtues, still lack

dependability, particularly in relation to the conservation of biodiversity, and for this reason

may at times require some degree of underpinning by regulation. The extent to which regulatory

intervention is justified (often in conjunction with voluntary and/or motivational instruments),

and the form it might take, will depend upon, inter alia, whether there is a danger of irreversible

biodiversity loss, and whether that loss gives rise to the possibility of a major environmental

catastrophe or system collapse, matters to which we will return.

Coercive Sanctions

In the domain of biodiversity conservation, the main regulatory instruments are well known 951

and include zoning,952 land-use restrictions,953 standards954 and bans,955 as well as some

licenses956 and quotas.957 For agricultural chemicals, they include outright prohibition, pre-

market approvals, conditions of use, and certification of user.958

In contrast to price-based instruments, regulation directly controls or restricts environmentally

damaging activities by mandating the reduction or restriction of harmful activities. As such it is

much more prescriptive. Moreover, legislation proscribing certain activity has a moral

dimension that is lacking in economic instruments, sending a clear message as to what is

socially unacceptable behaviour. However, the moral influence of law, while important, is also

variable, and is likely to be substantially reinforced by the provision of adequate information

and education. Regulation often lacks the flexibility associated with market-based approaches,

and is commonly criticised by economists for being inefficient, unnecessarily intrusive and

expensive to administer.959

Nevertheless, direct regulation may sometimes be necessary because, although the less coercive

instruments discussed above can make significant contributions to sustainable agriculture, there

are still circumstances in which they may fail to deliver preferred environmental outcomes, or

indeed, may fail to prevent serious environmental damage. Given these risks, and the possibility

of irreversible harm to some ecosystems, there remains a place for coercive sanctions in agro-

environmental regulation.

Even if the vast majority of producers do the right thing, there is always the chance that the

irrational, the incompetent, or the intransigent individual will produce serious harm. No less

than in other walks of life, there are those farmers who are quite simply resistant to new ideas.

There are others who, because of educational disadvantage, are unable to process information

which is readily available to them and to their peers. While relatively small, these minorities

cannot be ignored.

When the intransigent, the incompetent or the recalcitrant lie beyond the reach of voluntary,

property-right and financial incentives, more intrusive means might offer the most efficient way

of protecting the environment at least administrative cost. 960 As we were told by one farmer

"What will attract interest is a prosecution." This was echoed by another of our respondents, a

representative of a marketing authority who said simply, "In the end, you need a big stick". The

well-documented experience of land clearing control in South Australia also supports this

conclusion.961 Neither information, incentives, nor compensation, were sufficient to halt

widespread clearance of what small proportion of unspoilt habitat remained in that State. Only
the introduction of regulation (made politically palatable by combining it with transitional

compensation arrangements) achieved this effect962

Having said that, the more coercive instruments should be used with caution, given the cost

entailed in implementing them, the uncertainty involved in mobilising them successfully, and

the risk that if their use is perceived to be unjust, or unreasonable (particularly the agricultural

sector, with its long history of resistance to regulation), they can trigger a backlash which can

only work to the detriment of the environment. Following the principles set down by Ayres and

Braithwaite (1992),963 coercive sanctions should be used as a last resort, in response

proportionate to the compliance performance of the regulated entity. In this way, the application

of discretion in enforcement often enables regulation to function as an effective safety net, in

conjunction with other more flexible and constructive instruments. 964 For example, Pratt et al

(1997) describe how the Texas State Soil and Water Conservation Board seek a voluntary

solution to problems of nonpoint source pollution, and only when the problem persists do they

refer the matter to the state Natural Resource Conservation Commission for enforcement

action.965

Generally, regulatory approaches provide an effective means to stop actions which need to be

completely prevented or excluded across large areas, such as land clearing. In the case of

biodiversity regulation it has a particular role to play when biodiversity loss has proceeded so

far that any further loss is deemed unacceptable. In principle, the strength of regulation in these

circumstances is the greater certainty it provides, particularly where it takes the form of direct

bans on destructive activity, supported by sanctions. In practice, the most common form of

regulation has been to ban an activity, but to provide for exceptions (eg for those who obtain a

licence). Past experience in many jurisdictions is that the exemptions are so routinely granted as

to undermine the conservation objectives of the ban itself.966 Nevertheless, the South Australian

experience, referred to above, suggests that when regulation is not so constrained, it can be very

effective in preventing clearing.

As with other instruments, the relative effectiveness of regulation is likely to be context

specific. For example, there are limits to the extent to which regulation reinforced by sanctions

can serve to achieve biodiversity maintenance on privately managed semi-natural systems. As

Bowers (1994) demonstrates: "where maintaining biodiversity requires people to perform

actions that are not economic, sanctions will not in general work since primary operators

(farmers or foresters who work the land) are likely to respond by abandoning management

altogether."967

In contrast, when the aim is to preserve a natural system by preventing use, a regulatory

sanction may be much more effective than any other single instrument because it prevents

certain types of land-use change. Because land-use change usually "cannot be brought about by

doing nothing, the landholder ... cannot frustrate the intentions of the controlling authority by

passive resistance",968 and defiance can be both identified and punished by law. However, even

here it must be acknowledged that some positive management will be necessary to protect

biodiversity from feral animals and other threats, and that for reasons stated below, 969

management agreements can achieve such protection in a way that regulation alone cannot.

As we have seen, conventional command-and-control regulation in the agricultural sector has

been traditionally handicapped by information costs. Non-compliance may not be immediately

apparent, and evidence necessary to sustain the imposition of penalties may be difficult and

costly to collect. Developments in technology may well provide at least a partial solution to this

problem. The ability of government to monitor the environmental consequences of agriculture

may be expected to grow significantly, and the costs of such monitoring may be expected to

decrease. Greater surveillance capability will enhance the capacity to identify, and ultimately to

interdict harm to the environment. Progress in detection and measurement technology will

enhance the potential to identify habitat degradation and the sources of non-point pollution.

Governments have already begun to invest in remote sensing technology to measure tree

cover.970
At the end of the day, there is a place for command and control instruments to regulate both

chemical use and biodiversity conservation. They are best reserved for wilful, egregious

misconduct, or activity resulting in serious environmental damage. The mobilisation of

sanctions should be done in a manner which avoids creating the impression that all agricultural

producers are bad citizens. To this end, the celebration of virtue should accompany the

chastisement of wrongdoing. Here the enforcement principles enunciated by Ayres and

Braithwaite (1992) and encapsulated in their title Responsive Regulation, are most apposite.971

To the extent that departures from compliance come to the attention of regulatory authorities,

they are met with response which can escalate or de-escalate depending upon the subsequent

performance of the regulatee.

The role of precautionary regulation

There is one other role for regulation: to guide administrative process and warn when greater

precaution is necessary. In the face of the uncertainty and complexity that characterises both

biodiversity and agricultural chemicals, regulations and the standards associated with them can

be used to indicate the need for existing institutions to use different administrative processes.

Consequently, in the case of biodiversity conservation, rather than seeing regulations as

offering a "safe minimum standard" it can be more useful to envisage a continuum beginning

with a precautionary regulation (such as a requirement to obtain a permit) which is used to

indicate the presence of an irreversible threshold; precautionary standards which indicate the

need to change administrative procedures; and ending with minimum standards and targets. The

same principles would apply to the registration of agricultural chemicals.

Precautionary standards offer an effective means to trigger the adoption of different instruments

and administrative procedures. As such, they should not imply a need to choose between

regulation and other instrument categories, but rather an opportunity for complementary

combinations of instruments. For example, a precautionary regulation, such as a requirement to

apply for a clearing permit, might result in approval of clearing in one area conditional upon a

conservation covenant being placed on another area supported by a management agreement that

would reimburse the landholder for the cost of completing special fencing requirements. 972

Similarly, agricultural chemicals can be registered with conditions imposing restrictions on the

circumstances under which a particular substance can be applied.

Instrument interactions

In this section, we explore the overall role of various instrument types in the broader policy

mix, and the optimal relationship between them. Our particular focus is on the overall

relationship between property right, price-based and regulatory instruments, which we have not

so far explored. However, for the sake of completeness, we begin by briefly recapping on the

role of information, voluntarism and self-regulation.

We begin with information, which, as we have observed, is the foundation on which all other

instruments rest. When the interests of the producer and those of the general public coincide,

awareness of environmental risk and knowledge of how to do the right thing will foster

stewardship. In other settings, where a degree of sacrifice is required on the part of the farmer,

information will lower impediments to improved performance. However, information is

necessary, but usually not sufficient to achieve preferred agro-environmental outcomes.

Information can energise voluntaristic and self-regulatory initiatives, foster the efficient

functioning of markets and incentive schemes, and help legitimise command-and-control

regulation. As such it should be regarded as an important underpinning to all other classes of

instruments, serving to reinforce and enhance their impact.

Voluntaristic instruments have the virtue of being non-coercive, and because they are in a sense

"owned" by the regulated entity or industry, are likely to be embraced with a degree of

enthusiasm unlikely to be elicited by other instruments. The advantages of voluntarism are by

no means limited to matters of legitimacy. The psychological investment which voluntarism

requires on the part of the producer can strengthen commitment to principles of sustainability.

Because of the commitment which voluntarism requires on the part of the producer, such

instruments help develop a custodial ethic, and can contribute to peer education. At times,

voluntaristic initiatives may be inspired and sustained by market demand. In other situations a

degree of stimulus from the state may be essential. Voluntarism is not universally applicable,

however. Where the costs of voluntarism are high, the mobilisation of incentives, whether

positive or negative, will be required. Even where it is applicable, it has low dependability, and

for this reason, like information, it should not be used in isolation but in virtually all cases

should be supported by other instruments, most notably price and property-based instruments,

or regulation.

Self-regulation has many of the same virtues as voluntarism, including its non-coercive nature,

its legitimacy and the fact it is "owned" by the industry. It may also produce willing

commitment to achieve far more than regulation, and has considerably more flexibility. Yet as

we have seen, it is only likely to be viable in limited circumstances, and even here commonly

requires an underpinning of government regulation and third party oversight to compensate for

its inherent weaknesses.

Incentive instruments also have the virtue of being non-coercive, and their existence within a

comprehensive policy package may lessen the likelihood of resistance which might arise from

the presence of less palatable components of a regulatory mix. Incentives can, moreover, help

overcome impediments to sustainable practice arising from inertia or from prohibitive cost. Of

equal if not greater importance is the capacity-building function of those incentive instruments

which take the form of awards and recognition. To the extent that producers can see something

of themselves in a recognised exemplar, they may develop a feeling of competence and self-

efficacy which will permit them to engage in voluntaristic initiatives. The celebration of

exemplary environmental performance may also be expected to stimulate the search for
information on the part of some producers, thereby enhancing the effect of information-based

strategies.

Moving up the scale of intrusiveness, we turn next to property rights and price-based

instruments and to their relationship with regulation. Property-right mechanisms, by either

constraining or expanding the opportunities available to resource users, can be a powerful

controlling influence on agro-environmental performance. Where markets for these rights can

be created, often change can be achieved with less cost to society and with greater equity than

is achievable under other mechanisms. A particular strength of property-right instruments is

their lack of intrusiveness, and the fact in some circumstances that they can be tailored to site

specific problems in an administratively efficient manner.973 These considerable virtues of

property-right instruments suggest that they should play a central role in most policy mixes.

Similarly, price-based instruments such as user charges and levies can be an important way of

changing the economic signals given to those whose actions threaten the environment, and are

an important embodiment of the user-pays and polluter-pays principles. But should property

right and price-based instruments be combined solely with voluntary and/or motivational

instruments, or do they also require underpinning by regulation?

This last question is central, because while price-based instruments have considerable virtues,

they lack dependability. For example, a key characteristic of some price-based approaches is

that a price is set and the market then decides how much biodiversity conservation to deliver or

how much chemical input to use. This encourages people to find efficient ways to profit from

this trade-off and seek ways to do more or less damage depending upon the way that the

instrument operates. However, setting prices at the optimal level to influence behaviour is a "hit

and miss" approach, with the result that if the price is set too low (which may only be apparent

with hindsight) it will not have the anticipated effect on behaviour 974.
A further problem with relying on prices rather than regulatory compulsion, is that prices are

not well suited to dealing with the wide range of responses people make to the same price

signal. It may be that only those "at the margin" respond in the preferred direction. But for a

variety of reasons indicated earlier, ranging from incompetence or ignorance to intransigence,

there is likely to be a minority who, in the absence of more directive or even coercive policies,

will continue to behave in a manner which threatens conservation.975

This minority cannot be ignored. If left unchecked, it will have a substantial impact on

biodiversity or agricultural chemical use, not just directly through its own behaviour, but also

through its impact in demotivating other target group members-particularly in respect of

voluntary mechanisms. For example, there is evidence that land users and others who contribute

to voluntary programs such as the Australian Landcare program, may become dispirited if

others are free to continue to degrade adjoining land. In many circumstances, the creation of a

level playing field may be an essential prerequisite to the success of the sort of positive, less

interventionist approach that we envisage for the large majority of circumstances.

Regulatory approaches mitigate both the uncertainty and irrationality problems. They decide

what conduct is required and then let the market reveal the economic consequences of doing

this. In the domain of biodiversity conservation, the regulatory approach is often preferred over

pricing policies as it is changes in physical processes and quantities, not prices, that affect

ecosystems most directly. Arguably, there is more dependability when ecological constraints

are set and then price, demand and technological forces are allowed to work themselves out.

Management agreements (under which landholders are paid to protect biodiversity) and

regulations both do this. Financial incentives such as the former have the disadvantage,

however, of creating an atmosphere where people are only prepared to conserve biodiversity

when they are paid to do so and implying that they are entitled to destroy it irrespective of

social expectations. Moreover, because such instruments create the impression that people have
a right to destroy biodiversity, incentive-based approaches may be ignored. Where they are

effective, they can be expensive. They are also inconsistent with the polluter pays principle.

By combining instruments together, however, these weaknesses can be overcome. Initially,

information and voluntary initiatives would be deployed, followed by some form of inducement

for biodiversity stewardship. Ultimately, clearing of native vegetation, for example, may be

banned by regulation, transitional compensation offered to those adversely effected by this

measure and management agreements used to reimburse the costs of any new management

procedures that may be required. At the same time, any perverse incentives that encourage

biodiversity loss, like some land rating systems do, might be removed.976

In summary, where persuasion and education fail, where enterprises are unwilling to improve

their environmental performances voluntarily, and where economic instruments or voluntarism

lack dependability, then regulation may be the only technique capable of exerting pressure and

compelling resource users and others to protect the environment. Thus even those who do not

behave with economic rationality and respond to economic instruments can still be persuaded to

halt destructive practices. A further advantage of regulation that it has a moral and educational

influence which economic incentive-based strategies lack. In some circumstances, the very fact

that certain behaviour is proscribed by law may be sufficient to create moral inhibitions against

engaging in that behaviour though this is not necessarily the case.

Our conclusion is that there is a tension between achieving dependability (which implies a need

for regulation) on the one hand, and cost-effectiveness, flexibility and non intrusiveness

(through property-right and price-based instruments and voluntarism) on the other. How should

this tension be resolved?

The extent to which property-right or price-based instruments mechanisms (often in

conjunction with voluntary and/or incentive-based instruments) need to be underpinned by

regulation will depend on whether, in the circumstances to be addressed, there is a danger of

irreversible harm, and whether that harm may produce threshold effects giving rise to the

possibility of a major environmental catastrophe or system collapse. 977 In the latter

circumstance, any policy which compromises the resilience of ecosystems may have

uncontrollable effects and even small policy changes can have dramatic but unforeseen results.

Therefore, dependability becomes the most important objective when irreversibility or

threshold breach is at stake, but not otherwise.

In these circumstances we conclude that financially-attractive instruments are rarely adequate

on their own and often need to be underpinned by precautionary instruments, and ultimately by

a regulatory safety net to deal with recalcitrant producers (who in well designed systems should

be few in number). We explore the implications of this conclusion further in the section on

design criteria below.

To summarise the discussion, this section has moved through a series of arguments that began

by pointing out the need for instrument mixes and how the strengths of each instrument can be

harnessed to build a framework that is as dependable as possible in terms of preventing

irreversible losses and within this constraint trades-off criteria like efficiency, equity,

precaution, dynamism, administrative costs and community acceptability. We have argued first

for dependability, which implies the need for precautionary regulations and precautionary

standards underpinned by a firm regulatory safety net that prohibits irreversible actions.

However, we have also emphasised the importance of mechanisms that build community

support. To achieve such support, mechanisms must be both equitable and have acceptable

administrative costs.

Finally, the importance of using property rights, price-based and regulatory instruments in a

complementary manner has been emphasised. In particular the mere fact that the state makes

clear its willingness to escalate to regulation if voluntary, property-right and price mechanisms

fail, means that the latter are likely to work more effectively, since agricultural producers’

decisions concerning the use of voluntary and property-right instruments will be coloured by
their knowledge of the existence of a background of regulation. So paradoxically, the backdrop

of regulation is likely to render positive instruments more attractive - and thus more effective -

to industry, by presenting them with an unpalatable alternative.

Part 5: Institutional influences: the role of third parties

As we argued in chapter three, optimal policy design involves not just the use of a broader

range of instruments, but also either harnessing a broader range of institutions or empowering

them to act autonomously and creatively. These include a range of third parties, both

commercial and non-commercial. The role of public and environmental interest groups is

widely recognised,978 but far less so is the potentially crucial contribution of commercial third

parties. These non-governmental institutions, to the extent that they are able to exert a

controlling influence on the environmental performance of agricultural producers, can relieve

the state of some regulatory burdens which might otherwise prove insurmountable, given the

inherent limitations of command and control regulation and the fiscal constraints which beset

most governments today. The limited resources of the state may thus be reserved for those

contexts where they are essential, and most productive.

Commercial institutions, supply side pressure and sustainable agriculture

Some of the most significant influences in furtherance of sustainable agriculture arise from

commercial relationships. But the beneficial effect of commerce on agricultural practice is not

uniform. What works for pesticide reduction does not extend to preventing land clearing. Here

we explore some examples of constructive commercial influences, identify their strengths and

limitations, and suggest what other instruments might be introduced to enhance their positive

effects.

There is great potential to harness market forces, or indeed, to create market forces as surrogate

regulators of agricultural chemicals. Crucial here are the influences which large buyers exert on
their upstream suppliers. We have already noted the achievements realised by Campbell Soup

and its growers in reducing chemical input.979 In the late 1980s, the Campbell Soup Company

sought to reduce pesticide application by its growers by fifty percent. By 1994, the company

exceeded this goal for three crops, without any reduction in crop yield or quality. In some

locations, farmers were able to achieve significant profit improvements by reducing input costs.

Campbell's is not alone in imposing such pressures on its growers, and the indications are that

an increasing number of other enterprises are contemplating similar action.980

The case of the Beech Nut company is illustrative of a growing trend of supply chain pressure

being exerted in support of "green markets". Beech-Nut, a North American manufacturer of

baby foods, among other products, claims to be particularly conscientious about minimising

pesticide residue in its products.981 The company’s marketing claims that residue levels in their

baby food products are negligible to non-detectable, and thus "comparable to those containing

organically grown fruits and vegetables". The company boasts of a rigorous Pesticide Residue

Control Program which limits the use of pesticides "from seed to shelf." Contracts with growers

are based on compliance with exacting company standards including complete prohibition of

many pesticides, and limited use of approved chemicals during key growth periods. Producers

are subject to rigorous inspection, and rejection when they fail to meet company standards.

Beech-Nut has an extensive laboratory testing program, and compiles an extensive database on

each fruit or vegetable it uses. Future purchasing decisions are based on analyses of quality and

safety data.

Producers and manufacturers are not the only ones who, in pursuit of a comprehensive green

image, are bringing supply chain pressure to bear. Growing demand in the United States for low

input foods has inspired the creation of natural foods supermarkets, which specialise in meats

and vegetables raised without pesticides or chemicals. Even those supermarkets which do not

specialise in organic produce are strategically situated to influence the environmental

performance of their suppliers and a number of major chains are now doing so. 982 Some now
review suppliers’ audit records, to determine the nature, amount and timing of chemical

application on the produce considered for purchase.983 Environmental marketing programs can

also exist at the wholesale level. Matteson et al (1996) discuss how, in the Netherlands,

wholesale produce marketers contribute to "green" continuity in the supply chain. 984 They

require certain standards on the part of their suppliers, and in turn affirm these standards in

marketing their produce to retailers downstream.985 As a representative of the British

Agrochemical Association put it, "If you want to supply Sainsbury’s you have to meet their

standards".986 Coercive though they may be, market forces tend to be regarded as more

legitimate than government dictates. As one of our respondents put it: "There’s increasing

acceptance that that is in the nature of the game. Farmers see a reason for doing it if it’s through

the market."

Market forces can influence the production of fibre, as well as food. A number of prominent

apparel manufacturers have begun to use organic cotton in their product, thus increasing

demand for chemical-free raw materials.987 In 1995, the North American outdoors clothing

company Patagonia decided to use only organic cotton in its cotton products. Requiring that its

raw materials be grown without the use of pesticides or herbicides, the company purchased

500,000 pounds of organic cotton in 1996 at twice the cost of conventionally grown cotton. The

nonprofit NGO Pesticide Action Network is advising the company on alternative growing

techniques, which are then communicated to suppliers upstream. By taking up a significant

proportion of the available supply of organic cotton, the company, through its competitors, may

stimulate wider demand for organically grown cotton. Here is an example of how public

interest collaboration with the private sector can catalyse buyer-supplier relations and help

influence production practices upstream.

Efforts to measure and assess the environmental performance of suppliers and growers are

assisted by the technique of quality assurance, long a fixture in manufacturing and service

industries. In the past, classification of produce tended to be based on aesthetic considerations.

While these remain significant (as anyone who has recently visited a Japanese supermarket can

attest) they are being rivalled by other considerations, not the least of which pertain to chemical

residue. Indicative of this shift in perspective is the fact that some large food manufacturers and

retailers now maintain their own testing laboratories, enabling them to exercise substantial

upstream influence. As one agricultural consultant told us "The power of individual companies

in some of these industries (such as horticulture or meat) is becoming huge. If Woolworths (a

major supermarket chain) identifies a product attribute that they don’t like, it affects the whole

industry."

In Wisconsin, an experiment is currently taking place to apply another important quality control

system-- the technique of total quality management-- to the potato growing industry. This is

being achieved through the vehicle of ISO 14001 in conjunction with Integrated Pest

Management. Again the driving force is commercial buyers: over fifty percent of potatoes

grown in Wisconsin go to the production of french fries. This gives the large wholesale buyers

of those potatoes enormous leverage over the growers, leverage which is currently being used to

achieve radical changes in their approach to pesticide use and sustainable farming. The other

crucial driver in the Wisconsin approach is consumer pressure. While it is unclear whether or to

what extent consumers are willing to pay more for potatoes with less pesticide residue, if prices

are comparable between those and other potatoes, then the former will likely gain market share.

The influence of consumer preference may be enhanced by a basic "green" marketing message,

but arguably even more so if an accreditation or certification is invoked.

Independent compliance professionals are another group that have a constructive and

increasingly important role to play in improving the environmental performance of the

agriculture sector-including a contribution to monitoring and supply-chain pressure. As one of

our informants told us, "with the retraction of government services, consultants have become a

much more important resource." This role, however, differs somewhat from that of their

counterparts in manufacturing industry. The institution of environmental auditing has, as yet, a

smaller role in agricultural production, although a formal assessment of economic potential

which may accompany an application for finance and insurance may address aspects of

environmental impact. On the other hand, farm management consultants and their counterparts

in other areas of agriculture are in a position to profoundly influence the environmental impact

of large producer operations-and their influence is likely to percolate through vertical markets

and in some cases through modelling and example.

By assisting producers to minimise input costs, and to adopt methods of best agricultural

practice, consultants are strategically positioned to facilitate regulatory compliance on the part

of their clients (assuming there are existing regulations in place to begin with). Specialists in

integrated pest management and waste conversion technologies, for example, are in a position

to promise their clients cost savings, which translates into a better bottom line, as well as

minimising compliance difficulties, and "keeping them honest". As one of them boasted to us,

"We've had guys who have reduced their application by forty to fifty percent and improved

their yield." By virtue of their professional status, and the fact that their services are engaged

for a fee, their advice is likely to be perceived as more valuable, and thus more likely to be
988
heeded, than "free" advice emanating from sources outside the industry. As we were told,

"Farmers will get more benefit from advice if they pay for it. You value what you pay for."

What is especially noteworthy about the above examples of supply chain pressure and

monitoring of environmental performance is that they occur largely beyond the ambit of

government. To be sure, the state provides a basic legal framework for commercial activity, and

minimum standards of food safety and hygiene. Ideally, the state would also provide

mechanisms for penalising misleading and deceptive marketing claims. But the achievements

noted above are all market-driven, and based on standards of conduct far in excess of that

which any government would command. At the same time, because they emanate from the

market rather than from the state, they are regarded as more legitimate than state control.
Nevertheless there is no doubt that market instruments can be further enhanced by government

and independent third party activity and that an optimal regulatory design would seek to further

facilitate, support and expand such market driven initiatives. Through awards and recognition,

governments can celebrate exemplary practices, and thereby give a valuable marketing boost to

"green" produce. Through preferential procurement practices, governments can themselves

amplify market signals in furtherance of best environmental practice. Governments can also

contribute to the establishment and maintenance of certification and labelling schemes,

although, as we shall soon observe, non-state actors have begun to play an important role in this

regard.

Indeed, in the case of these commercial pressures, the potential role of public interest groups is

likely to be more important than that of government. In particular, the marketing of products

made from low-input ingredients can be reinforced through oversight exercised by public

interest third parties. In Europe, consumer interest groups test purported organic cloth for any

traces of chemical residues. Retailers who falsely advertise their products as chemical free are

liable to action for fraud. The retailer Esprit guarantees a paper trail of certification for their

organic cotton and has set an industry standard by giving funds to help establish an organic

certification program.

Public interest groups can also play an increasingly important role in the development of

consumer demand for products raised in an environmentally benign manner. By calling

attention to the hazards of high input agriculture, and by heralding those commodities which

have been produced by sustainable means, interest groups can contribute significantly to the

generation of market forces.

Additional pressures may emanate from consumer preferences and regulatory requirements in

overseas export markets. Japanese authorities raised the issue of chemical residues in order to

limit imports of Australian rice. Regardless of whether the basis of this resistance was

protection of the Japanese consumer, or rather protection of the Japanese farmer from foreign
competition, Australian rice growers were moved to improve their environmental performance.

State of the art production and storage technologies to ensure zero residues were introduced by

Australian rice growers, who now have access to the Japanese market.

Third party accreditation also plays an important role in supporting supply chain pressure.

Suppliers, buyers and consumers need some form of independent guarantee that a product

labelled "green" is indeed what it purports to be. Any failure at this level will bring an entire

"green" industry into disrepute. While in principle governments could play this role, in practice

the most important contribution is that of specialised companies which offer independent

testing and quality assurance services. Some provide an entire range of services, from

consulting, to field sampling, to pesticide residue testing, to furnishing documentation and

certification of test results. When properly delivered, such quality assurance services can "pay

for themselves" by maximising the market potential of clients’ products. 989 It should also be

noted that some commercial quality assurance services trade on their ability to anticipate and

address any regulatory compliance problems which a client might encounter, thus providing

peace of mind for the client and precluding any conflict which might arise between the client

and government regulatory agencies.

Depending on location in the supply chain, certification may occur under the auspices of

commercial laboratories, or producers’ associations. In Italy, a farmer’s organisation, the

Confederazione Nazionale Coltivatori Diretti grants a certificate to farmers who comply with

prevailing pesticide regulations. In France and Belgium at the regional level, labels for IPM

fruit production have been introduced.990 Governments too may develop certification standards,

although the difficulties inherent in a government sponsored eco-labelling scheme have been

discussed above in chapter two. Regardless of their location and institutional sector, many

certification organisations throughout the world now seek accreditation by IFOAM - the

International Federation of Organic Agriculture Movements. This accreditation should facilitate

access by organic products to international markets. There seems little doubt that some form of
formal certification can only serve to accelerate the effect of consumer power on production

methods.

Key to all of this, of course, is the definition of the standard in question. Standards which are

too permissive will fail to discriminate between environmental performers. They will do little to

encourage improvement above the existing low threshold. Unreasonably strict standards, on the

other hand, will be met by only a handful of producers, and ignored by the rest.

It will also be important to ensure that consumer decision-making does not become confused by

the proliferation of labelling and certifying schemes. It may be necessary for government to

introduce some degree of coherence.991 Given the rapid globalisation of the economy, it would

seem that some supra-national authority, whether intergovernmental (such as FAO) or

nongovernmental (such as IFOAM), may well come to play an important role. The state must

also maintain its traditional role, providing an underpinning of regulation where other, less

intrusive options, are unsuccessful or unavailable. That is, there will remain producers who may

lack the knowledge and/or the capacity to do the right thing. A degree of regulatory control,

focused most closely on high risk situations, will be essential to compensate for the absence of

controlling influences of a commercial nature. For example, in the absence of non-state

institutions with the capacity to protect against indiscriminate chemical use, strict vigilance

over the registration and application of chemicals will remain an important public function.

Institutions of finance and insurance

Institutions of agricultural finance might also play a more active role in fostering low input

agriculture.992 Ordinary commercial loan applications have already begun to entail scrutiny of

potential environmental liability, to the point of requiring a satisfactory environmental audit

report as a condition of loan approval. Loan approvals, moreover are subject to requirements

that the borrower comply with existing regulatory requirements. These controls can as easily be

extended to the environmental performance of agricultural producers. However, this is most

unlikely to happen until such time as financial institutions either perceive a direct and positive

connection between a borrower’s commitment to sustainable agriculture and its prospective

financial viability, or that their clients may be vulnerable to substantial damages as a result of

environmental liability.

Only the latter seems credible, and here much will depend upon the relevant liability regime. At

present, liability rules have a far greater influence on financial institutions in the United States

than in most other jurisdictions. Here, concerns about environmental liability may move lenders

to require environmental audit as part of their loan review, and may make credit for certain

facilities, such as chemical and fertiliser storage, more difficult to obtain. 993 This could have an

overall educative effect on producers, with positive consequences for environmental

performance.

The availability of insurance against loss of or damage to crops could also enhance the

attractiveness of low input agriculture. In the absence of such insurance, many producers will

continue to use chemicals to manage risk. This raises the question: is it possible to foster an

insurance market for low input producers? In the absence of a natural emergence of such a

market, some degree of state subsidisation might be both desirable and (in comparison with

other options) a cost-effective policy intervention. Such a form of intervention would not be

novel or inconsistent with other policy interventions. A rich variety of finance and insurance

subsidy programs exist in the industrialised world. Subsidised loans for small business, and

mortgage assistance for military veterans are among the most common. The Canadian province

of Ontario provides malpractice insurance premium subsidies for local physicians. 994

Government subsidies for general crop insurance are a fixture in the United States. 995

Governments concerned to reduce the risk entailed in the transition to low input agriculture

could leverage considerable support from financial institutions.

Commercial institutions, third parties, and biodiversity

The salience of commercial influences and institutions to the control of agricultural chemicals

stands in stark contrast to issues of biodiversity conservation such as agricultural land clearing.

For the most part, there is relatively little opportunity to involve commercial third parties in this

area: almost all the circumstances identified above which influence their behaviour in respect of

chemicals are absent.996 There is much less opportunity to benefit from green markets, and little

leverage to be gained from supply chain pressure. Nor can insurance contribute much in the

way of a solution, as land clearing is less driven by issues of risk management than by those of

productivity.

For the time being, the preservation of native vegetation and species’ habitat depend upon

instruments other than "green" commercial influences997. Although many environmentalists

object to certain retail fast food products on the grounds that rainforests have been cleared for

grazing land from which the ingredients are produced, these objections generate no discernible

market pressures impacting on land use. The day may well arrive when the biodiversity impact

of agricultural produce will become a widespread marketing criterion, but this will require a

much greater level of environmental consciousness than exists today.

There are nevertheless, some significant recent developments which are suggestive of how

commercial institutions might foster biodiversity conservation. The most notable has been

consumer resistance to rainforest timber and preference for sustainable forest products. The

Forest Stewardship Council, established in 1993, seeks to foster demand for products of

sustainably managed forests by accrediting certification schemes. 998 What can be done for

forests can arguably be done for other agricultural products. 999 With the development of quality

assurance programs such as those in The Netherlands, where, as we noted, thirty percent of all

pig meat can be traced to specific individual farms, accountability for the environmental impact

of producer performance may well reach a degree of precision previously thought

unattainable.1000
Again, the first steps in this direction would best be taken by producers (or producer

associations) themselves, as genuine commitment on the part of the individual is more likely to

flow from circumstances in which producers themselves share a sense of ownership. But this is

most unlikely to occur in the absence of an external activator. Producers’ motivation will be

that much greater when environmental NGO’s can raise public consciousness and public

opinion to the extent that consumer preferences become loud and clear. Ultimately, sourcing

and marketing practices of large retailers can both reflect and stimulate consumer demand.

Another activator of producer associations is the spectre of government regulation, which can

be a powerful inducement to initiate some form of self-regulation sufficiently credible to head

off that threat.

Institutions of finance, in collaboration with governments, may contribute to biodiversity

conservation in one important respect. "Debt for nature swaps," where a government or private

organisation agrees to purchase another nation’s debt on the secondary debt market, is the basic

model.1001 One could envisage a domestic application of "debt for nature" exchange, where a

secondary market could be created from the sale by banks of their farm mortgage income

streams. A prospective purchaser would seek out farms with serious repayment problems and

which contained areas of significance for the conservation of biodiversity. The purchaser might

also write off some of the debt in return for a conservation easement. Arrangements of this kind

may be satisfactory from the banks' point of view as they would be off-loading their riskiest

debt. In return, governments or NGOs would be picking up conservation easements at discount

prices.

On a more modest scale, but one with considerable potential, banks are becoming increasingly

aware of the relationship between agricultural and ecological sustainability. We were told that

"more and more banks are using a range of information to determine whether properties are

sustainable-- how good a risk they are in terms of investment. Banks are now employing

agronomists to do evaluations of loan applications."

Finally, there is the issue of bioprospecting, which may prove to be an important exception to

the general rule that commerce has very little role to play in influencing biodiversity

conservation in respect of land clearing. Bioprospecting is the search of an ecosystem for

products of potential commercial value.1002 Prospecting agreements provide remuneration to a

country (often through a public research institution) for the right of access to that country's

biodiversity and consideration for the commercialisation of such resources. They provide an

incentive to conserve biodiversity through the direct payment (often paid in advance), the

royalties, as well as the services and technology that is transferred.

The most prominent biodiversity prospecting contract is a contract between Costa Rica's

National Biodiversity Institute (INBio) and Merck & Co Ltd, a large pharmaceutical firm. In

1991, Merck agreed to pay INBio US$1.13 million for the right to screen samples from INBio's

biotic collection. If the screening results in a commercial application for Merck, INBio will

share royalties on product sales.1003 A set amount of the direct payment (ten percent) to INBio

and fifty percent of any royalties must be returned to conservation projects or National Parks

under the agreement. Another firm, Biotics, has negotiated contracts with suppliers in three

countries, including New Zealand. However, these contracts only provide for a share of

royalties and do not include an up-front payment.1004

As with the example of debt for nature, biodiversity prospecting contracts too may be "writ

small" and apply to individual landholders.

The limits of supply-chain pressure and green markets

Notwithstanding the potential for some commercial influence on biodiversity conservation in

limited circumstances identified above, for the most part, commercial influences are unlikely to

have a significant positive effect. In this area, the role of incentives, of price-based and

property-rights instruments, supported by regulation as described earlier, will remain crucial.

Even in the much more promising context of agricultural chemicals, market driven commercial

institutions may not always have the capacity to deliver environmentally favourable outcomes.

Large scale buyers commonly require continuity of supply, in terms of both quantity and quality

of product, which may be more difficult to achieve with no chemical input. Organic produce

tends to be more expensive, which may discourage buyers and consumers for whom cost is a

dominant consideration in purchasing. As one of our respondents, not inclined to understate

matters, put it, "Organic Farming is over. It’s gone. It’s a trivial market. The future of

agriculture is in high yield. You can’t feed the world on organic produce. And affluent

consumers don’t want it either."

Small scale producers, moreover, particularly those in sectors of agriculture where there is little

vertical integration of marketing arrangements, may be less exposed to environmentally

favourable commercial influences. And the complexities of food production may defeat efforts

to identify content in some cases. Soy-based ingredients are found in a vast array of food

products. It may be difficult for a consumer to act on a preference for or against a particular

variety of genetically altered soybeans when their contribution to the finished product is

peripheral.

This is another example of the point already made in a number of contexts, namely there are

limits to the appropriate use of all instruments and institutions and we must choose wisely and

well between them and that what we choose is highly context specific. This is a theme we

explore further in the next section on design criteria.

The contributions of environmental interest groups

Environmental interest groups will continue to play key roles in agro-environmental policy.

One uses the plural here quite deliberately, as the variety of interest groups, and the approaches

which they take, are diverse indeed.1005 In some cases, environmental interest groups can

supplement, and in others, even replace, activities of the state. Although space does not permit a
full exposition of interest group activity in the agro-environmental context, we suggest some of

the main contributions which they are in a position to make.

Perhaps the most important function performed by interest groups concerned in whole or in part

with agro-environmental issues is the provision of information.1006 By calling public attention to

biodiversity loss and to the risks posed by agricultural chemicals, public interest groups have

already contributed significantly to heightened public awareness about the adverse

environmental and health impacts of agriculture, and appropriate means for dramatic remedial

action. Depending on its content, the information which they produce may be directed at

farmers, governments, or the general public. Depending on the organisation's strategic

objectives, the information can have a positive or negative tone. While some organisations

publicise the damage inflicted by agricultural chemicals and other threats to biodiversity, others

extol the virtues of sustainable agriculture and species preservation.

Some organisations such as Greenpeace are more explicitly adversarial, involving considerable

reliance on non-violent direct action.1007 Similarly, the Pesticide Action Network, founded

1982, launched a campaign in 1985 to abolish the use of some of the most dangerous

agricultural chemicals. The "Dirty Dozen" campaign, as it came to be known, entailed the

collation and dissemination of information to the general public and to government agencies 1008

Of no less significance is the role of local grass-roots activists in publicising examples of acute

environmental damage, and exerting pressure on regulatory authorities to require higher

standards of performance on the part of producers. We noted above how one of the producer

representatives we interviewed now expects a fish kill occasioned by a misapplication of

chemicals to be followed by a prosecution, because the public would expect nothing less.

Among the most significant manifestations of information conveyed with a positive tone are the

products of organisations such as the World Wide Fund for Nature (WWF) and the National

Audubon Society in the U.S.1009 Another example of information in a positive key is that which

sensitises consumers to environmentally preferable produce. This, as we have seen, has had
significant upstream influence on retailers, wholesalers, and producers. On a sub-national level,

the Midwest Organic Alliance is a non-profit organisation in the United States which

encourages the reduction of enviromentally harmful agricultural chemicals in food

production.1010 It promotes the environmental and economic benefits of certified organic

production to farmers, processors, distributors, retailers, and consumers.

A related approach is to forge coalitions with other interests. For example, the "Green Scissors

Program" developed by Friends of the Earth in the United States targets US federal programs

on the grounds of fiscal extravagance and adverse environmental impact 1011. In so doing, it

appeals both to fiscal conservatives and to environmentalists, who might otherwise be regarded

as strange bedfellows. Among the targets of the Green Scissors campaign are price supports for

tobacco, sugar, peanuts and cotton, as well as irrigation subsidies, all of which encourage

exploitation of marginal land and high chemical input.

Aside from the provision of information, public interest organisations may be involved in

wielding, singly or in collaboration with government or industry actors, many if not most of the

regulatory instruments we have discussed. Citizen enforcement in particular, (given the limited

resources of government agencies) is likely to play an important continuing role in the

regulatory process. Defenders of Wildlife has been especially prominent in mounting legal

challenges to what it perceives to be inaction on the part the U.S. Department of the Interior and

the Fish and Wildlife Service (FWS) in failing to protect habitat. 1012 The U.S. Environmental

Protection Agency (EPA) has also been the target of legal action to prevent the use of an

unregistered pesticide.1013 Vigilance of this kind, reinforced by litigation, helps prevent

regulatory inaction where a degree of state intervention may be warranted. Provided they are

empowered to do so, citizen groups can also take action against second parties such as

landholders and others, For example, they may sue private developers where their activities

threaten endangered species.

Ideally, citizens would complement, not replace, enforcement by government agencies. The

challenge is to harness the constructive elements of private enforcement, neutralise those

elements which might be counterproductive, and combine them systematically with public

enforcement. The optimal ordering for citizen enforcement would entail some provision for

private actions. A degree of citizen involvement will complement the finite resources of

government, without sacrificing coherent enforcement policy in favour of uncontrolled and

opportunistic bounty hunting.1014

One model of how to achieve these competing goals is through the controlled use of private

enforcement along the lines of that authorised in the United States under a variety of statutes

which allow for a degree of private initiative, subject to safeguards against abuse. 1015 And short

of direct involvement in the enforcement process, one might envisage enlisting the assistance of

private citizens in the regulatory process by inviting them to report incidents of environmental

offending to appropriate regulatory or law enforcement authorities.1016 This can be reinforced

by offering rewards for information leading to conviction, such as those which are made

available in the United States under the Endangered Species Act.1017

The context most appropriate for citizen action of this kind would involve the most blatant

examples of environmental misconduct - negligent applications of chemicals resulting in injury

to humans or ecosystems, fraudulent misrepresentation of product, or, in the case of

biodiversity, wilful destruction of species or habitat.

Although in some circumstances the objectives of the public interest sector may be best served

by an adversarial posture, including litigation vis a vis producers and/or the state, there are

other circumstances in which a more cooperative approach is appropriate. This is particularly

the case in encouraging voluntaristic initiatives. Partnerships between environmentalists and

producers, based on cooperation rather than conflict, have the potential to produce significant

achievements, and win-win outcomes.1018 The Core Values Project, an example of constructive

engagement between apple growers and pesticide reduction activists in New York State, is
illustrative, as are some of the more successful Landcare groups in Australia. 1019 The New

South Wales Farmers’ Federation, the WWF, and the State Government have formed a

partnership to foster the fencing of remnant vegetation. As a representative of one nation’s peak

environmental body told us with regard to achieving significant improvement in the

environmental performance of farmers, "You can't take them on. You've got to bring them with

you. You have to deal with the industry productively."

Some environmental organisations are in a position to wield price-based instruments in

furtherance of biodiversity conservation, while others proffer incentives in furtherance of

pesticide risk reduction. Groups such as the Nature Conservancy and the Audubon Society

acquire acreage (or covenants) on the private market, creating in effect, private nature

reserves.1020 A number of recipients of the prestigious Goldman Environmental prize have been

recognised for their efforts to arrest land clearing. 1021 Defenders of Wildlife, a national

nonprofit conservation organisation in the United States, offers financial compensation to

ranchers for stock taken by wolves and grizzly bears.1022 They also offer a reward of $5,000

cash to landowners who permit a wolf to den and raise pups on their property.1023

Public interest organisations are also in a position to activate commercial influences in

furtherance of low input agriculture and biodiversity conservation. The campaigns for dolphin-

friendly tuna and sustainable forest products were almost entirely the work of public interest

organisations. Groups such as Mothers and Others and The Midwest Organic Alliance are

active in developing consumer demand for organic foods.1024

To the extent that the governments adopt a less active role in environmental protection, one

may expect environmental interest groups to become even more visible. The scope of this role,

in any event, will depend on the political and legal culture of the jurisdiction in question. In a

number of Western nations, the environmental NGO sector commands a degree of expertise

which may match or even exceeds that employed by the state or the private sector. Government

and industry alike are beginning to realise the potential for leveraging resources from
environmental interest groups. In many places direct government grants or tax incentives for

charitable contributions have helped sustain an active public interest sector. In the United

States, private philanthropy is an important source of support. But growing public appreciation

of the need for sustainable agriculture suggests that regardless of its configuration, the non-

profit sector seems destined continue to play a major role in the policy process.

Part 6: Design considerations

Having outlined the main instrument categories, the roles of third parties and the interactions

between them in general terms, it remains to address more specific design principles. In this

final section we will argue that, drawing from the above analysis, six guidelines are paramount

in designing policy mixes for agro-environmental regulation.

1. Instrument ordering

Even assuming that complementary instruments are available, and that an instrument mix is

preferred to single instrument approaches, there may be reasons for ordering the introduction of

the various instruments, rather than introducing them at the same time. For example, it would

seem sensible to remove or neutralise existing perverse economic incentives first, since these

would otherwise distort or reduce the effectiveness of new policy instruments. Where a tax

concession is inducing unacceptable vegetation clearance then it is more economically efficient

to remove the tax concession than to attempt to prohibit clearing.

Again, where more than one instrument or combination of instruments might achieve the

intended policy outcome, and dependability is not of the essence, it would also be appropriate

to introduce less intrusive and interventionist instruments before more intrusive ones, or where

it is only practicable to introduce instruments concurrently, then enforcement discretion should

similarly be nuanced so as to nurture virtue, escalating to more interventionist responses only

when less intrusive responses prove ineffective.1025

A policy instrument is more likely to produce both improved environmental performance and a

positive attitude change if it is perceived as noncoercive. This is particularly important in the

agriculture sector, given its traditional antipathy to command. It therefore follows that

instruments should be no more coercive than circumstances require. Following Ayres and

Braithwaite (1992) coercive response should be escalated or de-escalated depending on the

compliance performance of the regulated entity.1026 To this end, we recommend the sequenced

mobilisation of instruments in ascending order of coerciveness. Voluntary instruments are

likely to be preferred by resource users over direct regulation because they are often more

flexible, and they grant individuals greater freedom and opportunities to innovate. By offering a

choice, they are likely to be perceived as more legitimate, thus facilitating compliance. There

are also more positive reasons for preferring non-coercive responses, (and for decentralising

decision-making): specifically, to draw on farmer’s expertise and on-the-ground management

skills in searching for ways to combine agriculture with biodiversity and tailor pesticide and

fertiliser use to local conditions.

More generally, less interventionist incentive mixes, underpinned by regulations to prevent and

exclude irreversible actions, are likely to deliver more efficient outcomes than more

interventionist mixes. The reason for this is that less interventionist incentives permit trade-offs

and encourage innovation. They also address underlying causes of environmental threats which

if removed or countered by a compensating mechanism make further administrative action

rarely necessary. Of no less importance is their greater political acceptability and lower

likelihood of eliciting defiance and resistance.

Voluntaristic initiatives for pesticide reduction undertaken by European farmers through their

study groups and other forms of peer collaboration are a good example. When operating

effectively, they preclude the necessity for state regulatory enforcement.

2. Institutional Mixes: Utilising third parties

Implicit in the use of a broader range of instruments is the use of a larger range of actors to

implement them. Expanding the field of participation means not only the involvement of

governments (first parties) landholders or other users (second parties) but also a range of other

interested actors (third parties). In this context, it is important to note that scrutiny on the part

of citizens’ and public interest organisations can exceed vigilance by government agencies. It is

important to take advantage of both the democratic benefits which direct stakeholder

participation can bring, and the enhanced legitimacy and leverage in implementation which

broader third party engagement can provide.

As we have observed, there are circumstances in which the influence wielded by non-

government institutions, particularly in furtherance of responsible chemical use, far exceeds the

power of the state. This is especially apposite in relation to that part of the agriculture sector

comprised of a large number of small producers, who would otherwise pose formidable

problems of surveillance for regulatory authorities. In particular, if institutions of control can be

forged from within the agricultural community, their potential impact will be greater. The

resonance of information imparted by a fellow farmer, and the influence of one’s peer group

may surpass that of the state in terms of impact and perceived legitimacy. These non-

governmental instruments of social control can in turn be reinforced by commercial influences.

The role of third parties in contributing to the improvement of agro-environmental outcomes is

destined only to expand. Public interest groups contribute to raising the general level of public

awareness of agroenvironmental issues, and have begun engaging producer associations in

constructive partnerships. The activities of public interest groups in fostering consumer demand

for low input produce is perhaps most noteworthy. Public interest groups can play other roles

too. For example. The credibility and balance of biodiversity audits 1027 would be considerably

strengthened if the audit team included not only scientific experts, and local resource users, but

also a representative of a community group or other appropriate NGOs. Similarly, if clearing

restrictions are challenged by landholders who wish to argue a case for further clearing beyond

the legislative threshold, then third parties such as environmental groups should have a right of

standing, thereby acting as a countervailing force. For example, in the United States, the right to

bring "citizen suits" can enable local conservation groups to sue private land-users where their

activities threaten endangered species. This approach has the particular virtue of compensating

for lack of resources, and sometimes lack of political will, on the part of government

enforcement agencies, and of leveraging substantially increased enforcement capability. The

"whistle-blower" or "dob-in" factor is also an important one, capable of being harnessed in the

public interest, although it may be of only limited value where illegal activity largely

corresponds with local community mores.

Commercial influences in furtherance of sustainable agriculture appear destined to play an

increasingly important role in the regulatory process. As consumer demand for environmentally

preferable produce increases, upstream institutions will not only strive to meet that demand,

but will market their produce and services in a manner designed to increase that demand.

Moreover, one can expect to see more large institutions exercise upstream influence on

growers. Commercial drivers of sustainable agriculture have already begun to rival, indeed in

some cases, to surpass, regulatory interventions.

As a general principle, if adequate solutions are achievable without state intervention,

governments should defer to these alternative orderings. However, such spontaneous market

orderings are still the exception rather than the rule. In circumstances where commercial

institutions are not functioning optimally (in public policy terms) in that role now, but have the

potential to do so, the lesson for regulatory design is that they should be encouraged and

facilitated by the state. In particular, the state may use its influence to foster or enhance those

commercial influences which contribute most constructively to agro-environmental

performance. As we have seen, governments can preserve the integrity of markets by ensuring

that markets are informed, and that deceptive practices are identified and punished. It can also
use its own formidable buying power to foster demand for environmentally appropriate

produce. This can also entail the provision of technical assistance to producers, and providing

resources for public interest third parties to contribute constructively to policy.

Where non-state institutions fail to deliver, however, it is the job of government to provide a

safety net, particularly where there are threshold effects and environmental harm is irreversible.

The resources of governments are not unlimited. For this reason, they should be marshalled

with care. One should look first to market solutions. Where these do not emerge, governments

can seek to stimulate them. Where these efforts are unsuccessful, incentives targeted directly at

producers may be required. Should the above still fail to deliver preferred outcomes, a degree of

coercive intervention will be required. The role of the state is necessary, but by no means

sufficient.

3. Economic and Structural Setting

The organisational context of agriculture will also influence the choice of regulatory

instruments. As we have noted, agricultural production in the industrialised world has become

more centralised. Most nations have a small number of very large producers and a large number

of very small producers. The former, especially to the extent that they operate in mature,

cohesive industry sectors, are likely to have the capacity (though not necessarily the

willingness) to manage their chemical use in an environmentally appropriate manner. They will

already command, or have ready access to, the best information about cost-effective input

methods. They will have the ability to engage state of the art expertise and technology, such as

geo-positioning for precise chemical application, and specialised management consultants.

They will have the capacity to engage in voluntaristic and self-regulatory initiatives. 1028

Whether they also have the motivation to engage in environmentally responsible chemical

practices will depend upon a number of factors. The extent to which they are integrated into a

supply chain leading to discerning regulatory systems and consumers abroad, is likely to be
particularly important. And they will be most sensitive to market signals, both domestic and

international. While these factors are by no means guarantors of exemplary environmental

performance, the ability of many agricultural producers around the world to meet the most

exacting standards imposed by importing countries and large commercial buyers suggests that

commercial pressures are quite significant.

In contrast, small producers, particularly those who are economically marginal, may lack the

knowledge, the resources, or the capacity to comply1029. This situation will be even more

difficult to the extent that they are not well integrated in cohesive producer associations and in

supply chains that have constructive downstream influences. It is this latter group where carrots

and ultimately, sticks, may be necessary to achieve preferred environmental outcomes.

In essence, different mixes will be appropriate in different socio-economic circumstances. All

else being equal, voluntary mechanisms and management agreements will be more attractive to

the economically secure primary producer. By contrast, transferable tax credits and subsidies

will be more appealing to those (such as the subsistence farmer) who are "up to their ears in red

ink" and receive little or not taxable income. Accreditation and labelling schemes will be more

applicable to those interests which may be influenced by purchasing power. And coercive

strategies will be reserved for the intractable minority.

4. Design for Precaution

To account for irreversibility and lack of knowledge, regulatory packages which build in

dependability and involve more rather than fewer instruments, will be necessary. This is

particularly apposite in the case of biodiversity conservation, where the existence of threshold

effects poses a risk of catastrophic harm. So too has it become the foundation of agricultural

chemical regulation, characterised in recent years by increasingly stringent pre-marketing

approval and registration.

In the case of biodiversity, Perrings and Pearce (1994) have argued that the existence of

irreversible threshold effects (and often fundamental ignorance about the implications of

crossing a threshold) introduces uncertainty which renders the development of economic

instruments to achieve biodiversity conservation objectives problematic. 1030 If price-based

instruments do not work as predicted, it may be too late to save the ecosystems or species

concerned. Perrings and Pearce argue that in such situations, regulation is probably the most

dependable strategy. However, most tradeable right systems use regulations to place limits on

acceptable behaviour.

Unfortunately, economists such as Perrings and Pearce may well have an over optimistic view

of the virtues of regulation in this context. For while regulation does have considerable

advantages over the sorts of incentive-based mechanisms discussed above, regulations are not

dependable enough to rely upon alone. Regulatory failure is not uncommon. Effective

implementation and enforcement are crucially important to regulation’s dependability: yet

failures at this level are well documented and widespread.1031 In circumstances of biodiversity

protection, where valued attributes are widely dispersed, enforcement resources are thin on the

ground, and regulation is often not supported by the local community, the possibility of

regulatory failure is substantial.

Our view is different to Perrings and Pearce. Recognising that the agriculture sector is

comprised of many diverse sub-sectors, we do not suggest that regulation alone - or indeed any

other policy instrument - has sufficient dependability to act as an effective safety net in its own

right. On the contrary, we see regulation as a last line of defence which is fallible. Accordingly,

one of the functions of other instruments and mechanisms, in concert with astute institutional

arrangements, is to dissuade resource users from actions that, with minor mis-judgement, could

result in an irreversible change in an ecosystem type, the demise of a species or the loss of

genetic traits.1032 Regulation in this context is rather like an elastic safety net with holes in it:

the greater the weight imposed on the safety net, the larger the holes become. One role of other
instruments is to keep the weight off the safety net, because in the case of biodiversity

conservation, the greater the expectation of regulation, the less effective regulation is likely to

be.

Accordingly, given the severity of the consequences of policy failure and the limited

dependability of regulation, we argue for a mixed approach which uses the full suite of

instruments available. The logic is similar to that applied to aircraft design. Because the

consequences of the failure of a single system without backup would be catastrophic, aircraft

design deliberately incorporates multiple systems to compensate for the possible failure of any

one in particular (fail-safe mechanisms).

Setting administrative cost issues to one side, generally those mixes that involve more rather

than fewer instruments are likely to be more effective in preventing irreversible loss. Put

differently, emphasis on dependability and precaution means that the most effective instrument

mix will include mechanisms and instruments that appear to be redundant but are there because

from time to time others are expected to fail. Under this approach, the role of non-regulatory

instruments is to increase dependability by reducing the need for regulatory mechanisms to be

used as the first line of defence.

5. The First mover problem and moral hazard

Lack of public knowledge about the environmentally harmful impacts of agriculture gives rise

to opportunistic behaviour on the part of individuals. This militates in favour of measures

which, in concert, make the incentive for (most) individuals to act in the public interest greater

than the incentive to pursue private gain.

This problem is at its most acute in the case of biodiversity conservation. Against the backdrop

of considerable uncertainty about the consequences of biodiversity loss, and ignorance about its

extent, how can one best deter opportunistic behaviour which could inflict irreversible damage?
As a public good, there is often a large gap between private values and the public interest in

protecting biodiversity. Moreover, because of the lack of information about biodiversity,

administrators are not always aware of the size of this gap. As Bowers (1994) has pointed out,

from time to time unforeseen contingencies may arise which offer opportunities for profit at the

expense of biodiversity.1033 These situation will give rise to a special case of the First Mover

Problem, namely: if others seize private opportunities and seek to profit from them by masking

public values from the control authority, then they may damage biodiversity before the

authority responsible for protecting biodiversity can act.

If, for example, a farmer discovers that remnant vegetation on her property contains an

endangered species or, more seriously, one thought to be extinct, then unless there is a

guarantee of compensation she has a strong financial incentive to hide this fact from the

community.1034 Similarly, there is a strong temptation for a person who applies for a clearing

permit to omit to note the presence of an endangered species within the area covered by the

application, or for a forester to shoot an endangered animal and remove all evidence of this in

the area he wishes to log.1035

There are two means of dealing with the first mover problem. The first is for governments to

invest in detection, monitoring and information gathering so as to reduce the risk of the first-

mover losses occurring. Given the limited capacity of most bureaucracies to anticipate and

respond quickly to change, however, this strategy is not a dependable one. Moreover, the

collection of more information takes time to implement. By the time the information is collated,

an irreversible biodiversity conservation threshold may have been passed.

The second means is to introduce control instruments which, in concert with one another, make

the incentive for (most) individuals to act in the public interest greater than the incentive to

mask it in pursuit of private gain. Management agreements that encourage people to renegotiate

the contract when circumstances change are the most common method used to reduce the first-

mover problem. Another common method is to offer compensation for the value of the income
opportunity lost as a result of the discovery of a public interest greater than the expected private

one. This is consistent with the culture of dependency on subsidies which has characterised the

agricultural sector in a number of nations. This latter option, however, runs the risk of

encouraging people to hold out for bigger and bigger rewards.1036 The idea of a "safe harbour"

under the United States Endangered Species Act, whereby regulators offer future land use

assurances to a landowner in return for the landowner's commitment either to enhance habitat

or to maintain for a period habitat that may eventually be used by endangered species, also goes

some way towards alleviating the first mover problem by this method. If it were combined with

a tax credit for the costs associated with maintaining the habitat of endangered species, or the

capacity to sell safe harbour rights to other landowners, then it would go even further. 1037

A related issue which illustrates the unreliability of regulations is the issue of moral hazard.

Moral hazard arises from the fact that, for biodiverse resources, the chance of being detected

breaching a regulation or agreement can be very low. One means of dealing with the moral

hazard problem is to build institutional capacity and responsibility for preserving biodiversity at

the industry and local level. If, through co-management and astute property-right arrangements,

biodiversity conservation is seen as a community and industry responsibility then arguably the

risk of discovery will be greater, and hence the incentive to cheat less. Industry and community

responsibility can be developed further via the use of motivational instruments such as the

issuance of prizes, awards and accreditation that give status to those who are seen as one’s

peers.

Another means of dealing with the moral hazard problem is to link reward to performance of

the actual objective being sought. Thus a management agreement might, for example, pay

people for the number of birds breeding in an area and not the cost of getting them to breed

there. Under such an agreement, the work required to attract and retain birds would not be

specified, and hence the moral hazard problem would not arise.
6. Financially Attractive

Where ongoing and active contributions to the sustainable agriculture are required, financially

attractive instrument mixes should be preferred to ones that reduce the welfare of producers.1038

This is particularly the case given the "bottom line" focus of most producers, and the cultural

heritage of subsidisation which has characterised western agriculture, where incentives became

a way of life in the late twentieth century.

The overall success of a policy regime will be substantially higher and the prospects for

sustainable agriculture will be greater if direct regulatory approaches are overlain with a web of

mechanisms that create a financially attractive and voluntary atmosphere encouraging

cooperation and the sharing of information. For reasons described below, only the latter

approach is likely to induce resource users and communities to actively contribute to

sustainable practices.

There are a variety of ways in which financially attractive instrument mixes can be created. For

example, in many countries, it has become common to use financial instruments to close the

gap between the private and public demands for biodiversity conservation. Often the incentive

offered is less than the full cost of an action. For example, in Western Australia, landholders

are offered fifty percent of the cost of fencing out remnant native vegetation and, if they sign a

30 year memorandum of understanding to maintain that remnant, a significant local government

rate rebate will apply. Also in Western Australia, sharefarming arrangements have been

developed whereby farmers receive an annuity for allowing the state or private forestry

companies to grow and harvest timber on their land. Sustainable management of such timber

resources will help conserve biodiversity and arrest soil degradation.

In the domain of agricultural chemicals, incentives for moving from traditional methods to low-

input production would be an attractive alternative, or at least complement, to a levy imposed

on inputs. Cross-compliance, where eligibility for a benefit is conditional upon compliance with

regulatory requirements, is preferable to simple direction.

One important use of financial inducements is to act as a ‘circuit breaker’ during a transition to

a new regime. This principle extents to biodiversity conservation as well as chemicals

regulation. In South Australia, the introduction of widespread clearing controls was made

politically palatable by coupling it with the provision of compensation; in turn, this

compensation provision was removed after an transitional period in which the land clearing

controls gained a widespread acceptance.1039 Subsidies during the period of transition to low

input agriculture are similarly illustrative.

Financial inducements may achieve even more when initial participation is voluntary, because

in these circumstances community acceptance of the circuit-breaking change to a new regime, is

strengthened. The result, even when financial support is removed or phased out, is a more

genuine and more durable attitude change. Once agreement has been reached over the new

regime, however, the mix can involve significant penalties.

Financially-attractive mixes are particularly important where there is a need to encourage

ongoing management of a resource: a situation where, as we will see, negative regulation is

likely to be particularly ineffective. Another key to ensuring ongoing management of resources

is some mechanism (for example a covenant or easement) to ensure that protection does not

cease with the termination of the management agreement. Policy instruments which merely halt

existing biodiversity loss are important, particularly in gaining breathing space during which

more constructive policies can be developed, but they do not in themselves ensure that

resources will be appropriately managed so as to preserve biodiversity. For example, although

the South Australian experience1040 suggests that compensation backed by legislation can have

considerable success, even this mix remains, in one aspect, seriously inadequate. The South

Australian model is essentially one of prohibition on clearance coupled with compensation,

with only very modest provision for management of land subject to clearance controls. 1041 For
this reason, it is likely to be far more successful in preventing clearance than in ensuring

effective ongoing care of native vegetation and woodland habitat on private land.

Farrier (1995), in particular, has argued that those who are forcibly constrained from clearing

land are unlikely to be enthusiastic land managers, and that for this reason, regulation must be

combined with adequate financial instruments but that "these should take the form of forward

looking payments for management rather than backward looking compensation". 1042 He

suggests a reordering of current land protection initiatives as a possible way of meeting this

objective. In his view:

The priorities of these initiatives need to be adjusted to ensure that greater emphasis in

placed on the retention of existing native vegetation rather than replanting, and that

restructuring in local communities is not based exclusively on short term productivity

concerns, but also takes into account the much longer term economic interest that the

community has in conserving biodiversity.1043

The final element in terms of ensuring ongoing management of resources is some mechanism

(eg a covenant or easement) to ensure that protection does not cease with the termination of the

management agreement.

To summarise the lessons of this section: instrument mixes which are net, financially attractive,

maximise acceptance, are largely self-enforcing, and create a dynamic incentive to search for

more cost-effective solutions. Often, they also provide a continuing incentive to improve

beyond the target.1044 They are essential where there is a need to ensure ongoing management of

a resource.

There may be a tension between the need to maintain net, financially attractive instrument

mixes, and the need for sustainable agriculture to be achieved at least cost to government. In

cases where a permanent financial incentive is offered, particular questions of efficiency and

administrative feasibility need to be addressed. The case for continuing use of financial
instruments is dependent upon the gap between public concern and private interest and

opportunities to close that gap via the use of other instruments. As indicated above, the greater

that gap, the greater the need for financial instruments to encourage ongoing management.

Recognising that the administrative costs of any scheme involving annual payments are high, in

many cases it may be more cost-effective to change property-rights either with or without a

compensation payment than to pursue annual payments.

The goal of cost effectiveness is particularly challenging in the area of property rights.

Property-rights are often incompletely specified. Governments, on behalf of the community,

usually retain the right to respecify the rights and obligations associated with a property

entitlement. Where property-rights are unclear, the introduction of financial payments can act to

turn a property-right still held by society into one held by a title holder. Several Australian

states, for example, have introduced regulations that require people to obtain a permit to clear

native vegetation. Prior to the introduction of these regulations, most landholders thought they

had a right to clear land.

Recognition of these issues has led Young to the conclusion that it is critical to distinguish

between: reimbursement of non-marketable costs associated with protecting biodiversity values

for society by, for example, fencing an endangered habitat; compensation for lost property-

rights like the right to graze an area; and pricing policies that either internalise or subsidise the

costs of controlling and preventing threats to biodiversity associated with economic activity. 1045

Conclusion

In this chapter, we have seen that the environmental threats posed by the use of agricultural

chemicals, and the threats which current agricultural practices pose for biodiversity

conservation, are unlikely to be solved under existing regulatory and policy regimes. Many of

the most serious problems of contemporary approaches: the inability to overcome entrenched

resistance from powerful agricultural interests; the difficulties of monitoring and ensuring
compliance; the enormously damaging impact of perverse incentives; and that the low level of

awareness which characterises some small producers, cannot be overcome by modest

modifications to the status quo. Sustainable agriculture will require much broader and

innovative policy prescriptions.

Because the threats to biodiversity conservation in particular, are complex and multifaceted,

they do not lend themselves to single or simple answers, and in this chapter we do not purport

to provide any. Nor do we claim that redesigning instruments and policy mixes alone will be

sufficient to achieve all our environmental and economic goals in respect of agriculture.

However, we do argue that we are likely to move much closer to the goal of sustainable

agriculture if we seek to use (along with other policies beyond the scope of this book)

complementary combinations of policy instruments and to harness the contribution of a broader

range of parties.

Precisely what this will involve necessarily varies with the context and content of the problem

to be addressed. We have shown that the sorts of combinations of instruments and parties that

may work best in curbing the use of agricultural chemicals, may be very different from those

which are optimal for addressing the challenge of land-based biodiversity conservation. For

example, while there is very considerable potential to enable commercial third parties to act as

surrogate regulators in the case of agricultural pesticides, much less opportunity exists with

regard to biodiversity conservation1046. And even within each of these categories, much will

depend upon the particular economic, social and political context, and upon the nature of the

threat itself. For example, different solutions are called for in addressing problems of

irreversible biodiversity loss than in other circumstances. Similarly, viable policy options vary

greatly depending upon whether one is dealing with "win-win" or "win-lose" scenarios, large

agribusiness as opposed to the subsistence farmer, and upon whether the benefits of investing in

sustainable practices are short term or long term.

How then should we go about the task of designing context-specific policy mixes? In this

chapter we have emphasised not only the nature of the major environmental problems

confronting the agricultural sector, but also the changing nature of agriculture itself, and the

challenges to and opportunities for policy-making that this presents. For example, the shift to

concentration and specialisation and the accompanying trend to vertical integration present

exciting possibilities for utilising the tightly coupled chain of supply from seed to supermarket

shelf in the cause of sustainable agriculture. Here, increasing consumer awareness of

environmental issues, in conjunction with the leverage which wholesale buyers and retailers

have over producers, are critically important in harnessing market forces in furtherance of

agricultural chemical control.

We have argued that effective policy prescriptions must be capable of addressing the very

considerable problems confronting existing regulatory and policy regimes. In designing mixes

we have emphasised, for example, the need to address such major obstacles as the resistance of

the agricultural lobby (or what we termed in chapter one, the objective of political

acceptability). Our proposals for the design of financially attractive instrument mixes, for the

judicious combination of positive and negative instruments and for further use of mechanisms

such as the Californian partnerships approach, were amongst our suggestions to overcome this

obstacle. Again, the existence of perverse incentives permeates agricultural policy in many

jurisdictions, and recipients of such incentives (commonly subsidies) are unlikely to be

enthusiastic supporters of their demise. Addressing this problem, our proposals include

reshaping such subsidies in the short term so that they produce environmentally benign

consequences, rather than seeking to abolish them. Innovative solutions are also available to

deal with the problem of non-compliance, not least of which is cross-compliance, which in the

agricultural sector has enormous potential, by tying government subsidies to compliance with

other regulatory requirements.

We also emphasised the counterproductive nature of some existing regulatory approaches (eg

the way in which the United States Endangered Species Act unintentionally encourages

landowners to destroy habitat that might become the home of an endangered species) and

proposed more constructive alternatives. Similarly, we have suggested how incentives for

chemical use can be replaced by incentives for low input production methods. To the extent

possible we sought to achieve "win-win" solutions while recognising that such solutions are not

always possible.

And we attempted to grapple with such thorny issues as the first mover problem and the need to

make biodiversity conservation cost effective. The critical importance of providing positive

incentives to landholders to adopt a stewardship ethic, and the impracticality of them doing so

without reimbursement for incremental costs was also emphasised, while seeking to balance

this against the political implausibility, and sometimes undesirability, of permanent, ongoing

compensation. In the case of agricultural pesticides, we further explored the roles of

constructive engagement between consumer, environmental and commercial interests.

Throughout, we argued that there are a variety of instruments that can make an important

contribution to achieving the goals of sustainable agriculture. In broad terms, we categorised

these as informational, voluntary, self-regulatory, price-based, property-based and regulatory.

Yet for the most part, these instruments have not realised their potential, largely because single

policy instruments generally have both strengths and weaknesses and are unlikely to

successfully achieve a number of different policy goals. Accordingly, their use as "stand alone"

policy tools is seriously sub-optimal, yet this is precisely how these instruments have often been

used.

In the large majority of circumstances, the multiple objectives of sustainable agriculture will be

achieved most effectively through a mix of instruments and mechanisms targeted to the suite of

threats extant at any location. An optimal strategy will harness the strengths of individual

mechanisms while compensating for their weaknesses by the use of additional and
complementary policy instruments. We have sought to indicate the circumstances in which each

category of instruments might most appropriately be used, and to suggest optimal instrument

combinations suited to particular contexts. For example, while regulation is an important

instrument of last resort, it is also a particularly blunt one, and wholly unsuited for dealing with

either first mover problems or those which require positive and ongoing future management of

a resource. The comparative virtues of positive custodianship management agreements, and the

considerable promise of the Californian experiments in partnerships are obvious.

Finally we stressed the potentially very positive and creative role of third parties in achieving

sustainable agriculture. The role of environmental groups and other NGOs is well rehearsed, as

are the means by which they might play such a role. However, the even greater potential of

commercial third parties is as yet only dimly understood and seriously underexploited. We

showed how a number of commercial institutions: banks , insurance companies, wholesalers

and retailers, might play important and constructive roles as de facto regulators, and how

governments can actively support, enlist and facilitate such efforts. In doing so, we have sought

to move beyond the market-government dichotomy to devise better ways of achieving

environmental protection at an acceptable economic and social cost. As we have seen, this

approach would still involve government intervention, but selectively and in combination with

a range of market and non-market solutions.

In seeking to design optimal combinations of instruments and actors, the greatest obstacle is the

fact that it will be necessary for the mix to accommodate a vast array of ecological, political,

social and economic contexts. For example, so complex and various are the causes of

biodiversity loss and the circumstance in which they arise that no single instrument, and indeed

no single mix of instruments, could conceivably be successful in addressing all or even most of

them. As a result, generalisations are extremely hazardous. In short, the complexities of social,

economic and ecological processes preclude simple broad-brush solutions.1047 The only answer

to the question: "what is the optimal combination of instruments and mechanisms?" is: "it all
depends, and that the optimal combination will change with time and context." 1048 As one

recent study put it: " a priori rules are inferior to case-by-case analysis".1049 Rather than seeking

to identify optimal mixes in the abstract, a context 1050 and threat-specific approach is preferable.

We have adopted precisely such an approach in this chapter, but in order to go beyond a case-

specific approach, we also sought to identify a set of design criteria which be believe should be

paramount in constructing policy mixes more generally. In the final chapter we hope to take this

one step further by developing a process and principle-based approach to the design of optimal

policy mixes.

*
Some aspects of this chapter relating to biodiversity policy design draw on ideas developed by Neil

Gunningham and Mike Young while writing a report to the Australian Government's Department of
Environment Sport and Territories (M D Young; N Gunningham; J Elix; J Lambert; B Howard; P
Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based,
property-right, and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series
Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra) and
previously appeared in N Gunningham and M D Young "Towards Optimal Environmental Policy: The
Case of Biodiversity Conservation" (1997) 24(2) Ecology Law Quarterly 244-297. They were also
heavily relied upon (with acknowledgment) in OECD, Saving Biological Diversity: Economic Incentives
(1996), OECD, Paris. The final version of this chapter has particularly benefited from comments on an
earlier draft by Lee Breckenridge and Jan Keppler.

809
We do not purport to address the very different (in policy terms) issue of how to protect biodiversity on
public land, for example on reserves or through protected areas.

810
For a definition of sustainable agriculture, see President's Council on Sustainable Development,
Sustainable America: A New Consensus (1996), Washington DC, p 125 and following.

811
University of California Sustainable Agriculture Research and Education Program, What Is Sustainable
Agriculture? (1996), [Link]

812
Recent statistics from FAO give some indication of the magnitude of world agricultural production.
Statistics are for the year 1996, in metric tons: Cereals 2,033,380,000; Vegetables 555,070,300; and Fruit
410,280,400.
 420

813
G Debailleul, "Economic Incentives for Biodiversity Conservation in the Agricultural Sector" in
OECD, Investing In Biological Diversity: The Cairns Conference (1997), OECD, Paris, p 237.

814
OECD, Agricultural and Environmental Policies: Opportunities for integration (1989), OECD, Paris,
pp 13-15; OECD, Towards Sustainable Agricultural Production: Cleaner Technologies (1994), OECD,
Paris, pp 14-16 and 69-71; OECD, Agricultural and Environmental Policy Integration: Recent Progress
and New Directions (1993), OECD, Paris, p 37; D J Briggs & F M Courtney, Agriculture and
Environment: The physical geography of temperate agricultural systems (1985), Longman, London, pp 3-
6; Y Hayami & V W Ruttan, Agricultural Development: An international perspective (1985) , The John
Hopkins University Press, Baltimore, p 228; and OECD, Sustainable Agriculture: Concepts, issues and
policies in OECD countries (1995), OECD, Paris, pp 11-16.

815
E O Wilson, The Diversity of Life (1992), Harvard University Press, Cambridge, Mass., pp 281-310
(discussing the benefits humanity obtains from biodiversity); Australia and New Zealand Task Force on
Biological Diversity, National Strategy for the Conservation of Australia's Biological Diversity (1993),
Department of the Environment Sports and Territories, Canberra, p 2; E B Barbier; J C Burgess; & C
Folke, Paradise Lost? The ecological economics of biodiversity (1994), Earthscan Publications, London,
p 18: and C Prescott-Allen & R Prescott-Allen, The First Resource: Wild species in the North American
Economy (1986), Yale University Press, New Haven.

816
Biodiversity Resource Center at the California Academy of Sciences (last visited March 25 1997)
<[Link] p 1.

817
G Debailleul, "Economic Incentives for Biodiversity Conservation in the Agricultural Sector" in
OECD, Investing In Biological Diversity: The Cairns Conference (1997), OECD, Paris, p 236.

818
J Mummery & N Hardy, Australia’s Biodiversity: An overview of selected significant components
(1994), Biodiversity Series, Paper No 2, Biodiversity Unit, Department of Environment Sport &
Territories, Canberra.

819
Commonwealth Department of Environment Sport & Territories, The National Strategy for the
Conservation of Australia’s Biological Diversity (1996), Department of Environment Sport & Territories,
Canberra.

820
World Resource Institute (IUCN UNEP), Global Biodiversity Strategy: Guidelines for action to save,
study, and use earth’s biotic wealth sustainably and equitably (1992), WRI, Washington DC, p 9.

821
P Lowe; G Cox; M MacEwen; T O'Riordan; & M Winter, Countryside Conflicts: The politics of
farming, forestry, and conservation (1986), Brookfield Publishing, Aldershot, p 56 (B Howard, "WA
Wheatbelt Case Study" in M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E
McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right,
 421

and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9,
Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra, (1996), Appendix 2.1,
part 2 p 40).

822
See J B Kirkpatrick, "The Geography and Politics of Species Endangerment in Australia" (1991) 29(2)
Australian Geographical Studies 246-254.

823
Beyond the threats which it may pose to biodiversity, soil degradation itself detracts from agricultural
productivity. Soil degradation is arguably the major environmental problem in some developed countries
today and is of serious concern in much of the developing world. P Gretton & U Salma, Land
Degradation and the Australian Agricultural Industry (1996), June, Industry Commission, Canberra; B
Beale & P Fray, The Vanishing Continent: Australia's degraded environment (1990), Hodder &
Stoughton, Sydney; and R D Grartz; M A Wilson; & S K Campbell, Landcover Disturbance Over the
Australian Continent: A contemporary assessment (1995), A report for the Department of the
Environment, Sports and Territories, Biodiversity Series, Paper No 7, Biodiversity Unit, Canberra. For the
United States, see G Gardner, Shrinking Fields: Cropland Loss in a World of Eight Billion (1996),
Worldwatch Paper No. 131, The Worldwatch Institute, Washington, DC.

824
D A Saunders; R J Hobbs; & C R Margules, "Biological Consequences of Ecosystem Fragmentation: A
review" (1991) 5(1) Conservation Biology 18-32.

825
See D L McFarlane; R J George; & P Farrington "Changes in the Hydrologic Cycle" in R J Hobbs & D
A Saunders (eds) Reintegrating Fragmented Landscapes (1993), Springer-Verlag, New York observe that
agriculture can produce irreversible changes to hydrology.

826
A A Burbidge & K J Wallace, "Practical Steps for Conserving Biodiversity" in R A Bradstock; T D
Auld; D A Keith; R T Kingsford; D Lunney; & D P Sivertsen (eds) Conserving Biodiversity: Threats and
solutions (1995), Surrey Beatty & Sons, Chipping Norton, NSW.

827
G Debailleul, "Economic Incentives for Biodiversity Conservation in the Agricultural Sector" in
OECD, Investing In Biological Diversity: The Cairns Conference (1997), OECD, Paris, p 237.

828
K Short, Quick Poison, Slow Poison: Pesticide risk in the lucky country (1994), Envirobooks, Sydney.

829
See Organisation for Economic Co-operation and Development (OECD), Agricultural Policies,
Markets and Trade in OECD Countries: Monitoring and evaluation (1996), OECD, Paris; and K Allen,
(Ed) Agricultural Policies in a New Decade. Resources for the future (1990), Washington, DC.

830
E B Barbier; J C Burgess; & C Folke, Paradise Lost? The ecological economics of biodiversity (1994),
Earthscan Publications, London, p 184.
 422

831
See further OECD, Making Markets Work for Biological Diversity: The role of economic incentives
measures (1996), OECD, Paris.

832
N F Barr & J W Cary, Greening a Brown Land: The Australian search for sustainable land use
(1992), Macmillan, South Melbourne; and B R Davidson, European Farming in Australia: An economic
history of Australian farming (1981), Elsevier Scientific Publications, Amsterdam.

833
P Glasbergen, "Agro-Environmental Policy: Trapped in an iron law?" (1992) 32(1) Sociologia Ruralis
30-48. All else equal, where agro-environmental issues are high on the public agenda, and there are fewer
competing environmental concerns such as those arising from industrial pollution, one may expect more
direct state intervention to regulate agricultural practices.

834
In 1990, California became the first state to require that all agricultural pesticide use be reported.
Today, this includes not only pesticides used on crops but also applications to such sites as parks and golf
courses, as well as roadside weed control applications. See [Link]

835
One exception to this generalisation is the case of the Netherlands, a nation otherwise characterised by
co-operation rather than by command, but which has developed "the most elaborate and compulsory
system of regulations for the use of agricultural nutrients of any country" (P Glasbergen, "Agro-
Environmental Policy: Trapped in an iron law?" (1992) 32(1) Sociologia Ruralis 30-48 at 36. See also M
Wiering, "Regulating Farmers: Enforcement styles in the environmental regulation of the animal
husbandry in the Netherlands" (1996), Paper presented at the Annual Meeting of the Law and Society
Association, Glasgow, Scotland, 11 July). This may be explained by the intensity of the nutrient problem
in a densely populated environment.

836
This list is based on G Debailleul, "Economic Incentives for Biodiversity Conservation in the
Agricultural Sector" in OECD, Investing In Biological Diversity: The Cairns Conference (1997), OECD,
Paris, p 241.

837
For a useful general summary see T Panayotou, Economic Instruments for Environmental Management
and Sustainable Development (1994), International Environment Program, Harvard Institute for
International Development, Harvard University, Massachusetts, US.

838
For example, many property right instruments combine regulation, price-based and institutional
incentives into a single package.

839
These are designed to heighten agricultural producers’ awareness of the importance of biodiversity
conservation for their own interests as well as for the wider public interest. In some cases, they explicitly
encourage flora and fauna conservation, as well as land stewardship. In their basic form, they entail many
elements of the traditional agricultural extension service, although in some cases, efforts are made to
involve the wider community in the production and dissemination of information.
 423

840
A wide range of voluntary mechanisms have been introduced, with varying degrees of formality, in
which co-operative agreements are reached between primary producers and government in furtherance of
specific conservation goals. In some jurisdictions, farmers may nominate part of their land as a registered
private sanctuary. In general, to the extent that they are widely heralded, voluntary programs serve a
broader, educative purpose beyond the immediate conservation goals at which they are aimed.

841
For example, a number of incentive programs exist to foster the propagation of endangered species.
Scottish Natural Heritage, in an effort to preserve the habitat of the corncrake, an endangered bird species,
offers crofters a bounty for the use of special grassland management methods. In return for keeping
livestock out of enclosed grasslands between the months of April and July, crofters may receive a bounty
of £20 per acre per year for the first 12 acres; £10 per acre per year for the next 12 acres; and £4 per acre
per year for the remainder of habitat preserved (A Cramb, "Protection Money Will Help Crofters and
Corncrakes" (1993) Reuters News Service, 24 February).

A variety of other positive incentive instruments may be available for biodiversity conservation, including
tax relief, government leasing of environmentally sensitive areas from landowners, and outright grants. In
some locations, land containing significant biodiversity value can be purchased outright and set aside for
conservation purposes by governments, or non-profit organisations. The most prominent of these is the
Nature Conservancy, which controls over 1500 reserves and manages over one million acres in the United
States and elsewhere.

842
Increasing attention has been accorded regulatory mechanisms involving the creation and transfer of
property rights in furtherance of biodiversity conservation. The creation of easements and covenants,
which restrict a landholder’s ability to exercise certain rights over his or her land, are perhaps the most
prominent example. Governments or third parties may also acquire easements or covenants. (M D Young;
N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future: An
evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra, vol 2, p.10). The Wetlands Reserve Program in the
United States is a good example of the application of easements. In return for payment, participants agree
to set aside wetland over a 30 year period, and implement a conservation plan (Organisation for Economic
Co-operation and Development (OECD), Economic Incentive Measures for the Conservation and
Sustainable Use of Biological Diversity: A Survey of OECD Member Countries (1994a), Group on
Economic and Environment Policy Integration, Expert Group on Economic Aspects of Biodiversity,
OECD, Paris).

Market-based mechanisms are also evolving to include such devices as tradeable development rights
(analogous to tradeable emissions permits) (T Panayotu, Economic Instruments for Environmental
Management and Sustainable Development (1994), unpublished manuscript, Harvard Institute for
International Development, Harvard University, Cambridge, MA).
 424

843
One of the more common regulatory instruments applied to agricultural production is that of zoning,
that is, restrictions on where certain types of agricultural activities may take place (P Glasbergen, "Agro-
Environmental Policy: Trapped in an iron law?" (1992) 32(1) Sociologia Ruralis 30-48 at 36). The
Netherlands, for example, has specified certain groundwater protection zones, within which stringent
requirements for manure management apply. Similarly, the French have water source protection zones, in
which certain agricultural practices are prohibited (P Glasbergen, "Agro-Environmental Policy: Trapped
in an iron law?" (1992) 32(1) Sociologia Ruralis 30-48 at 36 and 39). Authorities in the United Kingdom
have introduced nitrate-sensitive areas (N Ward, "Technological Change and the Regulation of Pollution
from Agricultural Pesticides" (1995) 26(1) Geoforum 19-33).

844
In many locations around the world, the issue of land clearing is now a matter of history. In others, it is
of intense contemporary significance. Contrast the European experience, for example, with that of Brazil,
where massive clearing of the Amazonian rainforests continues unrelentingly. In the developed world,
prohibitions on land clearing have been increasingly common in and near areas of particular ecological
significance, such as wetlands. Land use planning systems are common mechanisms of control (D Farrier,
"Vegetation Conservation: The planning system as a vehicle for the regulation of broadacre agricultural
land clearing" (1991) 18(1) Melbourne University Law Review 26-59). In other settings, landholders enter
into management agreements with governments, and agree to refrain from particular activities (or to
engage in certain environmentally beneficial activities), with or without reimbursement (International
Institute for Sustainable Development (IISD) International Institute for Sustainable Development (IISD)
Making Budgets Green: Leading practices in taxation and subsidy reform (1994), IISD, Winnipeg).
Within the European Community, landholders receive compensation if they agree to maintain features of
the landscape (UNEP, Measures for the Conservation of Biodiversity and Sustainable Use of its
Components (1994), Global Biodiversity Assessment, UNEP, Nairobi).

845
Most jurisdictions have legislation to prevent the extinction and to promote the recovery of threatened
species, populations and ecological communities. Perhaps the most prominent of these is the United States
Endangered Species Act. Passed in 1973 and reauthorised in 1988, the Act regulates a wide range of
activities which impact on plants and animals designated as endangered or threatened (C C Mann & M L
Plummer, Noah’s Choice: The future of endangered species (1996), Knopf, New York; and National
Research Council, Science and the Endangered Species Act (1995), National Academy Press,
Washington, DC).

846
In the main, species specific measures (mostly the prohibition or limitation of taking) have dominated
but note the gradual emergence of a new type of instrument: the threatening process concept. See C de
Klemm "The Regulation and Management of Destructive Processes" Environmental Law and Policy
(1997) 27(4) 350-354. See also C Ford Runge, "Environmental Protection from Farm to Market" in M R
Chertow and D C Esty, Thinking Ecologically: The Next Generation of environmental Policy (1997) ale
UP.
 425

847
We use the term pesticides to refer collectively to insecticides, fungicides, rodenticides, and related
products.

848
For an overview of the most dangerous substances, see
gopher://[Link]/00/orgs/panna/reports/dozen/dozen_aboutchart.

849
DDT, once used liberally in many western nations, is largely prohibited. Among the products which
have been withdrawn or had further restrictions placed upon their use in recent years by Australian
authorities are persistent organochlorines, mercurial fungicides, and dithiocarbamates (Commonwealth of
Australia, Department of Primary Industries and Energy, Standing Committee on Agriculture and
Resource Management, Agricultural and Veterinary Chemicals Policy Committee, Australian National
Strategy for Agricultural and Veterinary Chemicals, Draft, 10 April 1997, Department of Primary
Industries and Energy, Canberra, p 9).

850
For example, Australia’s current management arrangements for agricultural and veterinary chemicals
(Commonwealth of Australia, Department of Primary Industries and Energy, Standing Committee on
Agriculture and Resource Management, Agricultural and Veterinary Chemicals Policy Committee,
Australian National Strategy for Agricultural and Veterinary Chemicals, Draft, 10 April 1997,
Department of Primary Industries and Energy, Canberra) consists of three components: a national
registration scheme which assesses the suitability of a chemical, and authorises its manufacture and supply
to the point of sale; regulation of safe and appropriate use which tends to be based on information and
education; and traditional regulatory instruments. Residue monitoring programs are supported by both
government and industry sectors, as are various research and development activities.

851
An European Community Directive is an European Community law binding on the Member States as
to the result to be achieved, but the choice of method is left to each individual state. In practice, national
implementing legislation in the form deemed appropriate in each Member State is necessary in most cases.

852
Els Wynen Agriculture and the Pesticide Reduction Scheme in Denmark, Eco Landuse Systems
Canberra, August 1994; and Els Wynen Agriculture and the Pesticide Reduction Scheme in Sweden, Eco
Landuse Systems, Canberra August 1994.

853
The Farmers of Sweden, "We are Creating the World’s Cleanest Farming" (1994), IV(4) Tomorrow:
Global Environment Business 87.

854
J A W A Reus; H J Weckseler; & G A Pak, Towards a Future EC Pesticide Policy: An inventory of
risks of pesticide use, possible solutions, and policy instruments (1994), Centre for Agriculture and
Environment, Utrecht, p 32. Authorities in the Netherlands published its Multi-Year Crop Protection Plan
in 1991. Central to this plan was a 50 percent reduction in the use of chemical pesticides by the year 2000.
Responsibility for the Plan is shared between four Ministries and other stake-holder groups (eg the
Netherlands' Society for Nature and the Environment). The most interesting feature of these leading edge
 426

programs is their autocratic nature - all were simply imposed by government. The program envisages that
the goals be achieved by voluntary means, but in the event of a shortfall other instruments would be
implemented, beginning with a levy on pesticides.

855
See for example, Regulation (EEC) No 2078/92. See also Directive 91/414/EEC concerning the
placing of plant protection crops on the market.

856
Biodiversity Resource Center at the California Academy of Sciences (last visited March 25 1997)
<[Link]

857
A Goedmakers, "Ecological Perspectives of Changing Agricultural Land Use in the European
Community" (1989) 27 Agriculture, Ecosystems and the Environment 99-106; J B Kirkpatrick, "The
Geography and Politics of Species Endangerment in Australia" 29(2) Australian Geographical Studies pp
246-254.; and J C Scanlan, & E J Turner, The Production, Economic and Environmental Impacts of Tree
Clearing in Queensland (1995), Department of Lands, Brisbane.

858
Organisation for Economic Co-operation and Development (OECD), Towards Sustainable
Agricultural Production: Cleaner Technologies (1994), OECD, Paris.

859
US EPA (1994). For example, in the State of Florida, acreage used in sugar cane production increased
by 80% from 1970 to 1990 to a total of 420,000. During this period phosphorous concentrations in runoff
water flowing into Lake Okeechobee nearly doubled, with consequent adverse impact on the Everglades
ecosystem (South Florida Water Management District, Lake Okeechobee Water Quality Monitoring
Report: October 1984 September 1985 (1986), South Florida Water Management District).

860
According to the California Department of Pesticide Regulation there were 1,332 illnesses in 1994 that
had a potential or confirmed link to pesticide use (News Release No. 96-39, December 12, 1996).

861
K Short, Quick Poison, Slow Poison: Pesticides Risk in the Lucky Country (1994), Envirobooks, St
Albans, NSW; Heaton, (1994), 46; B Commoner, Making Peace with the Planet (1990), Pantheon Books,
New York, p 332.

862
A further striking weakness of most agricultural regulatory regimes is the large variety of agencies at
various levels of government responsible for oversight and control. The result is often a fragmentation of
jurisdiction, and a division of substantive regulatory responsibility which may impede rational regulatory
planning. (D T Hornstein, "Lessons from Federal Pesticide Regulation on the Paradigms and Politics of
Environmental Law Reform" (1993) 10 Yale Journal on Regulation 369-446 at 408) has commented that
the system of environmental law in the United States "increasingly resembles a Rube Goldberg machine".
For example, six federal agencies and at least 25 federal statutes deal with issues relating to the regulation
of wetlands M Grossman, Habitat and Species Conservation in the European Union and the United States
(1997) 45(1) Drake Law Review 19-49 at p. 45; See also J Wargo, Our Children’s Toxic Legacy: How
 427

science and law fail to protect us from pesticides (1996), Yale University Press, New Haven; J Dryzek,
Ecological Rationality (1987), Blackwell, Oxford; A Weale, The New Politics of Pollution (1992),
University of Manchester Press, Manchester; & P Glasbergen, "Agro-Environmental Policy: Trapped in
an iron law?" (1992) 32(1) Sociologia Ruralis 30-48.

863
R MacRae; S Hill; J Henning; & A Bentley, "Policies, Programs and Regulations to Support the
Transition to Sustainable Agriculture in Canada" (1990) 5(2) American Journal of Alternative Agriculture
76-92 at 80.

864
Organisation for Economic Co-operation and Development (OECD), Agricultural and Environmental
Policies: Opportunities for integration (1989), OECD, Paris, pp 32-33.

865
M Thornton, Court Wetlands Ruling Halts Regulatory Creep. Focus on Agriculture, 17 February 1997
([Link]

866
Organisation for Economic Co-operation and Development (OECD), Agricultural and Environmental
Policy Integration: Recent progress and new directions (1993), OECD, Paris, pp 80-88; and Organisation
for Economic Co-operation and Development (OECD), Towards Sustainable Agricultural Production:
Cleaner Technologies (1994b), OECD, Paris. Enforcing those laws which exist to regulate the
environmental impact of agriculture is difficult for a number of reasons. Access to private land may be
difficult, not only by enforcement officials, but even by biologists seeking to monitor the behaviour of
ecosystems.

867
J de Witt Civic Environmentalism (1994), C Q Press, Washington, p 10.

868
G D Meyers & S Temby, "Biodiversity and the Law: A review of the Commonwealth Endangered
Species Protection Act of 1992" (1994) 3(1) Griffith Law Review p 88-89.

869
G D Meyers & S Temby, "Biodiversity and the Law: A review of the Commonwealth Endangered
Species Protection Act of 1992" (1994) 3(1) Griffith Law Review p 88-89.

870
See also C C Mann & M L Plummer, Noah’s Choice: The future of endangered species (1996), Knopf,
New York.

871
C C Mann & M L Plummer, Noah’s Choice: The future of endangered species (1996), Knopf, New
York.

872
Banks too may specify chemical use as a condition of finance. See R MacRae; S Hill; J Henning; & A
Bentley, "Policies, Programs and Regulations to Support the Transition to Sustainable Agriculture in
Canada" (1990) 5(2) American Journal of Alternative Agriculture 76-92 at 80.
 428

873
D T Hornstein, "Lessons from Federal Pesticide Regulation on the Paradigms and Politics of
Environmental Law Reform" (1993) 10 Yale Journal on Regulation 369-446 at 397-8). The Canadian tax
code contained a number of disincentives for sustainable agriculture, including deductions for fertilisers,
and for expenses incurred in bringing marginal land into production.(R MacRae; S Hill; J Henning; & A
Bentley, "Policies, Programs and Regulations to Support the Transition to Sustainable Agriculture in
Canada" (1990) 5(2) American Journal of Alternative Agriculture 76-92 at 80). Price support programs
militate against alternative agriculture techniques (C Ogg, "Farm Price Distortions, Chemical Use, and the
Environment" (1990) 45(1) Journal of Soil and Water Conservation 45-47.

874
D T Hornstein, "Lessons from Federal Pesticide Regulation on the Paradigms and Politics of
Environmental Law Reform" (1993) 10 Yale Journal on Regulation 369-446 at 396.

875
It has been argued that the EC Drinking Water Directive imposes unreasonably stringent standards
thereby imposing excessive compliance costs. See also M G Faure; & J G J Lefevere, An Analysis of
Alternative Legal Instruments for the Regulation of Pesticides (1994), University of Limburg, Maastricht.

876
There are a vast array of policy instruments that might be invoked for biodiversity conservation. To
address policy instruments and mixes at a conceptual level we have developed a sub-set of instrument
categories which, while informative, is not exclusive.

877
See M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing
the Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory
incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra, Vol 1, pp 107-110.

878
For example, there are numerous cases of successful farm enterprises based on methods of Low Input
Sustainable Agriculture (LISA) Integrated Pest Management (IPM), and coexistence with thriving
biodiversity (J P Madden; & P F O’Connell, "LISA: Some Early Results" (1990) 45(1) Journal of Soil
and Water Conservation 61-64; and J P Reganold; R I Papendick; & J F Parr, "Sustainable Agriculture"
(1990) June Scientific American 72-78). But only if information concerning these successes is widely
disseminated may it be possible to overcome the disinclination to change and to break the hold which
traditional agricultural practices have had on the farmer: pressure to maximise yield, and the use of
chemicals as a means of insuring against risk.

879
In Australia, The National Farmers’ Federation’s Property Management Planning process shows
farmers that clearing land may involve substantial environmental costs such as erosion and rising salinity.
It also indicates that retaining native vegetation can actually result in higher crop and livestock yields
through the benefits of shelter and shade (W Craik, IPM - The Way Forward (1996) Address to The
Avcare Annual Convention, Perth, Western Australia, 15 October:
[Link] This challenges the traditional premise that land
clearing is necessary to increase production.
 429

880
S E Johnson & H M Jacobs, "Public Education for Growth Management: Lessons from Wisconsin's
Farmland Preservation Program" (1994) 49(4) Journal of Soil and Water Conservation 333; and A
Campbell, Landcare: Communities shaping the land and the future (1994), Allen and Unwin, Sydney.

881
See W McGuire, (1985) "Attitudes and attitude change" in G. Lindzey (ed) The handbook of social
psychology, 3rd ed, Vol. II, Random House, New York, pp 233-347. See also P Zimbardo; & M R
Lieppe, The Psychology of Attitude Change and Social Influence (1991), Temple University,
Philadelphia; and D Makeswaran & J Meyers-Levy, "The Influence of Message Framing and Issue
Involvement" (1990) 27 Journal of Marketing Research 361.

882
Programs such as the Land for Wildlife scheme in the Australian State of Victoria already recognise
the central role of information supply. Land for Wildlife produces a series of booklets for landowners
which provide constructive advice on matters such as native vegetation management, wetlands and
waterway management and weeds control, in addition to assisting in the establishment of wildlife habitats
and biodiversity corridors (M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E
McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right,
and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9,
Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra p 107).

883
Personal communication, John Bradsen 5/10/95.

884
The case studies contained in appendices 2.1 to 2.7 and summarised in chapter 4 in Young et al (1996)
(M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra) illustrate the benefits of, and provide
some examples of, this approach.

885
Ideally, information would be generated from within the agricultural community, or by the market. This
will alleviate fiscal pressure on the state, or at least allow limited governmental resources to be conserved
for use when voluntaristic or market solutions are not available. Moreover, information from a source
close to the farmer will have greater resonance than will information emanating from a source which is
relationally distant ( See generally, D Black, "The Epistemology of Pure Sociology" (1995) 20(3) Law
and Social Inquiry 829.

Whether, in an era of fiscal constraint, the state will actually play this role, is more problematic. As one
agricultural economist, observing the decline in state provided agricultural extension services, told us that:
"There has been enormous change in the last ten years. No longer can the public sector provide the one-
on-one interaction and exchange of information that it once might have done. The role of government is
now to provide basic information and let others do that." Realistically, this is a most unlikely prospect
with regard to biodiversity conservation issues, and still only occasionally the case in the domain of
 430

agricultural chemicals. Where private institutions fail to provide a sufficient base of information, it falls to
public interest organisations and ultimately, to institutions of the state, to generate the information in
question. Such an investment to compensate for information failure is a very sound investment, both
reducing the need for more interventionist and more costly instruments, and, where these remain
necessary, softening their impact.

886
Grants to facilitate specific projects are also included in this category, notwithstanding that they also
provide a financial incentive provided that the grant is intended to provide only partial financial support
for the project, which still relies heavily on the voluntary efforts of the recipients for its successful
completion. Well targeted, such grants can have high multiplier effects. Because they usually cover only a
proportion of the total costs, grants avoid much of the moral hazard associated with management
agreements where people have an incentive to falsify receipts and overstate expenditures.

887
United States, Environmental Protection Agency (EPA), (1996).

888
A F Bennett, "Conservation and Management on Private Land - Facing the Challenge" in A F Bennett;
G Backhouse; & T Clark, (eds) People and Nature Conservation: Perspective’s on private land use and
endangered species recovery (1995), Surrey Beatty and Sons, Chipping Norton. The most basic process in
social change involves developing widespread awareness of and sensitivity to the underlying issue, a
process often better fostered and encouraged than imposed.

889
E Ostrom, Governing the Commons: The evolution of institutions for collective action (1990), CUP,
New York.

890
A F Bennett; G Backhouse; & T Clark, (eds) People and Nature Conservation: Perspective’s on
private land use and endangered species recovery (1995), Surrey Beatty and Sons, Chipping Norton.

891
In circumstances such as the above, where the public and private interest substantially coincide, one
might imagine that the agricultural community would embrace voluntarism spontaneously, without any
prompting from external institutions. However, there are only very limited circumstances where such
orderings have evolved independently (see M Olson, The Logic of Collective Action: Public Goods and
the Theory of Groups (1995), Harvard University Press, Cambridge, MA), suggesting the need for
external stimuli (in addition to information) to prompt such action. Such stimuli might include signals
from the market, or the spectre of more intrusive government involvement, both of which are discussed in
greater detail below.

892
Even when resource users do have full awareness of their self-interest in protecting biodiversity, there
is still some danger in relying solely on voluntarism to the exclusion of more interventionist mechanisms.
Not all resource users will necessarily behave with rationality. Policy must also take account of the
minority who may be irrational, incompetent or intransigent, underlining the need for a regulatory safety
net.
 431

893
See generally I Brotherton, "On the Voluntary Approach to Resolving Rural Conflict" (1990) 22
Environment and Planning 925-939.

894
The basic problem derives from the fact that private landholders (or indeed other private users of
resources) commonly lack any economic incentive to take account of the social costs of their actions. That
is, we encounter a classic externalities problem where the direct benefits of biodiversity loss (eg increased
agricultural production from clearing land) go to individual property owners, whereas the costs (in terms
of loss of species, ecosystems, genetic resources and other potential uses) fall on society at large. In
collective terms, the problem is that the impact of one landholder clearing their land will make little
impact on the overall problem, nor will this individual decision influence the behaviour of other
landholders. Accordingly, each landholder will be tempted to take advantage of the willingness of others
to protect the environment while continuing to despoil it themselves. See M Olson, The Logic of
Collective Action (1995), Harvard University Press, Cambridge, MA.

895
In Australia, such programs as Land for Wildlife in Victoria have successfully persuaded many
landowners to voluntarily manage land as wildlife habitat without offering any direct financial assistance.
(See appendix 1 in M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone,
Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right, and
regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9,
Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra.). Such programs have
the added benefit that they may also promote awareness of biodiversity conservation, thereby contributing
to motivational change - a factor acknowledged in the Convention on Biological Diversity. In The
Netherlands, voluntary management agreements relating to manner of land use form the basis of a contract
with the state. To the extent that these can occur without any threat or inducement, they too are truly
voluntaristic, and reliant in part, upon altruism for their success. Thus the agricultural sector enjoys a long
history of voluntarism, which policy makers would be well advised to support and further develop.

896
See pp 00.

897
J Welner, "Natural Communities Conservation Planning: An ecosystem approach to protecting
endangered species" (1995) 47 Stanford Law Review 319 at 339. See also M Bean; & D Wilcove "Ending
the Impasse " 13(4) (July/Aug 1996) Environmental Forum 22.

898
Cross reference with chapter 6.

899
Legislation can also be used to set general targets, while relying on voluntary approaches as the most
desirable vehicle to implement them. For example, in June, 1992, Swedish Farmers pledged to reduce
pesticide use by fifty percent, renounced the use of hormones or antibiotics to influence the growth of
animals, and to substantially reduce the leaching of manure by introducing better handling practices.
Moreover, they advertised these commitments internationally, (The Farmers of Sweden, "We are Creating
the World’s Cleanest Farming" (1994), IV(4) Tomorrow: Global Environment Business 87). Similarly,
 432

plans to reduce chemical use by an additional fifty percent by the turn of the century, on a completely
voluntary basis, have been announced by the Netherlands Council for Co-operative Business in
Agriculture,(B Sletto, "Goals Clear, Methods Not" (1995) V(1) Tomorrow: Global Environment Business
24-26.) while Dutch bulb growers have signed an agreement to refrain from spraying a 1.5 metre buffer
strip along waterways (P Rowland, Recent Changes in International Crop Protection Practices: The
growing trend to reduce pesticide use and pesticide risk (1995), Bureau of Resource Sciences,
Department of Primary Industries and Energy, Canberra, p 26). Crucially, both the Swedish and Dutch
initiatives appear to have been introduced in response to legislatively specified targets. In this sense, they
were not spontaneously voluntaristic, but rather initiated by government initiative.

900
Another approach is to develop partnerships between agricultural producers and regulators. In the
United States, the Pesticides Environmental Stewardship Program (PESP) is based on voluntary
partnerships between producers and the EPA (P Rowland, Recent Changes in International Crop
Protection Practices: The growing trend to reduce pesticide use and pesticide risk (1995), Bureau or
Resource Sciences, Department of Primary Industries and Energy, Canberra, p 15; and
[Link] Participating producers agree to implement formal
environmental stewardship strategies and report regularly to the agency. In return, they receive personal
advice, information, and assurances that their views will be considered in subsequent regulatory
decisionmaking. Also in the United States, The Partners for Wildlife Program has involved the
cooperation of: Federal, State and local government agencies; conservation organisations; educational
institutions; corporations; and almost 13,000 private landowners in furtherance of habitat restoration
(Endangered Species Bulletin Vol. XXI No. 1 at [Link]

901
C Petzoldt; & J P Tette, Farmers Communicating to Consumers about their Environmental
Stewardship at [Link]

902
The Artichoke Research Association, established by California artichoke growers in 1973, developed
pest control strategies specific to the crop and to its problem pests. The IPM strategies developed -
including pheromone traps, and pest monitoring programs - helped reduce annual crop losses from thirty
percent to less than five percent, while also reducing insecticide use by as much as twenty percent.
California Department of Pesticide Regulation, Press Release 97-06 - IPM Innovator Awards January 28,
1997, Department of Pesticide Regulation, Sacramento. See generally E Ostrom, Governing the
Commons: The evolution of institutions for collective action (1990), CUP, New York.

903
For example, to avoid the possibility that industry self-regulation becomes a sham, it is necessary for it
to be underpinned by external oversight and monitoring. The capacity should exist for government to step
in and regulate directly, where self-regulation turns out to be ineffective.

904
See E Ostrom, Governing the Commons: The evolution of institutions for collective action (1990),
CUP, New York; and C Rose Property and Persuasion: Essays in History, Theory and Rhetoric of
 433

Ownership (1994), Westview Press, Boulder, Colorado. Ostrom in particular examines the effectiveness
of self-governing schemes and how this may depend upon the completeness and ecological subtlety of the
definition of property rights.

905
See above Chapter 4 pp 00. More generally, on the conditions under which self-governing schemes
may flourish (see E Ostrom, Governing the Commons: The evolution of institutions for collective action
(1990), CUP, New York).

906
Cattle Council of Australia, Cattlecare (1997), Cattle Council of Australia, Sydney at
[Link]

907
See further Chapter 4 pp 00 for a more detailed analysis of self-regulation.

908
This industry-based certification system enables the tracing of product to specific farms . To the extent

that a producer is subject to such a degree of scrutiny, the capacity for social control is that much greater.
B Sletto, "Goals Clear, Methods Not" (1995) V(1) Tomorrow: Global Environment Business 24-26 at 25.

909
In those political systems where the agriculture sector is less politically influential, the threat of state
coercion is more likely to instigate self-regulatory initiatives. than provoke industry backlash.

910
One Australian farmer was convicted of fraud and sentenced to a term of imprisonment for selling
wheat which had been chemically treated as an organic product. See Saunders, M "Farmer Jailed for
Duping Food Giant on Organic Wheat" (1997) The Australian, 2 October, p.5.

911
G Debailleul, "Economic Incentives for Biodiversity Conservation in the Agricultural Sector" in
Organisation for Economic Co-operation and Development (OECD) Investing in Biological Diversity:
The Cairns Conference (1997), OECD, Paris, p242.

912
On the latter, see further pp 00 below.

913
These may also include incidental permits for the taking of endangered species (M Grossman, "Habitat
and Species Conservation in the European Union and the United States" (1997) 45(1) Drake Law Review
19-49) and protection from private nuisance suits (R Moore, "Controlling Agricultural Nonpoint Source
Pollution: The New York experience" (1997) 45(1) Drake Law Review, 45 103-124 at 122). See also T J
Centner; J E Houston; C Fuchs; & J Zeddies, J "Employing Best Management Practices to Reduce
Agricultural Water Pollution: Economics, regulatory institutions, and policy concerns" 45(1) Drake Law
Review 125-141.

914
For an overview of incentive instruments see M D Young; N Gunningham; J Elix; J Lambert; B
Howard; P Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary,
price-based, property-right, and regulatory incentives for the conservation of biodiversity (1996),
Biodiversity Series Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit,
 434

Canberra; R Gale; S Barg; & A Gillies, (Eds) Green Budget Reform (1995), Earthscan Publications,
London pp 160.

915
European Commission, DG 11, Towards Sustainability, (1997) Brussels, section 1.4.

916
Organisation for Economic Co-operation and Development (OECD), Agriculture and the Environment
in the Transition to a Market Economy (1993), OECD, Paris, pp 32-4 and 59; Organisation for Economic
Co-operation and Development (OECD), Agricultural Policy Reform: Environmental externalities and
public goods in Agricultural Policy Reform: New Appproaches. The role of Direct Income Payments
(1994), Organisation for Economic Co-operation and Development (OECD), Paris; Organisation for
Economic Co-operation and Development (OECD), Agricultural and Environmental Policy Integration:
Recent Progress and New Directions (1993), OECD, Paris, p 33; Organisation for Economic Co-
operation and Development (OECD), Agricultural and Environmental Policies: Opportunities for
integration (1989), OECD, Paris, pp 29-30; and Organisation for Economic Co-operation and
Development (OECD), Sustainable Agriculture: Concepts, issues and policies in OECD countries (1995),
OECD, Paris, pp 17-22.

917
Where for example, a particular course of action is deemed environmentally preferable, but not
essential (such as postponing mowing until the end of the nesting season) an inducement alone may
suffice. On the other hand, preserving the habitat of a highly endangered species may require strict
prohibition, combined with compensation for producer income forgone.

918
See chapter 3 above p 00.

919
German farmers in Saarland may receive up to $2500 compensation for lost income during transition
(R MacRae; S Hill; J Henning; & A Bentley, "Policies, Programs and Regulations to Support the
Transition to Sustainable Agriculture in Canada" (1990) 5(2) American Journal of Alternative Agriculture
76-92 at 80).

920
K Turner; E Ozdemiroglu; & P Steele, "Environmentally Sensitive Areas in the United Kingdom:
Economic incentives for sustainable farming" (1995) in R Gale; S Barg; & A Gillies, (eds) Green Budget
Reform (1995), Earthscan Publications, London pp 119-135 at 129-30.

921
The World Bank’s Global Environment Facility (GEF) describes this concept as one of reimbursing the
incremental costs of providing benefits to society. The notion is simply one of paying people to do work
which, if they did not do it, would be undertaken by government. Payments should be limited to
expenditure which cannot be recovered from the market place. Costs can be reimbursed either by periodic
payments or a one-time off payment associated with a conservation covenant, or other similar
arrangements that are binding on future land holders.
 435

922
Young has suggested that this should be called a Beneficiary-Compensates Principle, emphasising that,
following an appropriate transition period, payment should be limited to reimbursement of costs incurred
in the course of maintaining biodiversity values (M D Young; N Gunningham; J Elix; J Lambert; B
Howard; P Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary,
price-based, property-right, and regulatory incentives for the conservation of biodiversity (1996),
Biodiversity Series Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit,
Canberra).

923
See M Young & N Gunningham "Mixing Instruments and Institutional Arrangements for Optimal
Biodiversity Conservation" in Organisation for Economic Co-operation and Development (OECD),
Investing in Biological Diversity (1996), OECD, Paris, pp 141-167.

924
See M Young & N Gunningham "Mixing Instruments and Institutional Arrangements for Optimal
Biodiversity Conservation" in Organisation for Economic Co-operation and Development (OECD),
Investing in Biological Diversity (1996), OECD, Paris, pp 141-167.

925
D McGauchie, The Future of Agricultural Land Use in Australia (1996), address to the Waite
Agricultural Research Institute, Adelaide, South Australia, 26 March.

926
For a variety of examples of incentives for environmentally appropriate agriculture, see R Gale; S
Barg; & A Gillies, (Eds) Green Budget Reform (1995), Earthscan Publications, London pp 93-160; and M
D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra.

927
Here, one is beginning to observe the emergence of market influences in furtherance of
environmentally preferable practices. See pp 00 below.

928
See further chapter 2 above.

929
Economic theory suggests, controversially, that when people are granted an exclusive right to use and
profit from a resource they have a greater incentive to conserve that resource and a lesser incentive to
exploit it unsustainably.

The principle of exclusive-use rights, however, is perceived by some people to conflict with the
widespread belief that biodiversity is owned collectively by society at large and not available for people to
use for profit. The challenge is to decide which areas can be transferred to exclusive private property and
which must be managed via closely supervised government processes. In examining exclusive rights
mechanisms, it is important to distinguish a right to use a resource as they wish from a right to the
exclusive benefit from a resource.
 436

Zimbabwe’s CAMPFIRE program (Communal Areas Management Programme for Indigenous Resources)
is perhaps the best known and most effective case of this "exclusive rights" approach to species protection
( see E B Barbier, "Community-based development in Africa" in T M Swanson and E B Barbier (eds)
Economics for the Wilds (1992), Island Press, Washington DC; and M’t Sas-Rolfes "Trade in endangered
species: Is it a option?" (1994) 14 (3) Economic Affairs 2). See also Organisation for Economic Co-
operation and Development (OECD), Group on Economic and Environment Policy Integration Expert on
Economic Aspects of Biodiversity, Making Markets Work for Biodiversity: The role of economic
incentive measures (1995), Draft final report, Fourth session 11-13 July, p 24; and R Eckersley,
"Rationalising the environment: How Much am I Bid?" in S Rees; G Rodley and F Stilwell (eds) Beyond
the Market: Alternatives to economic rationalisation (1993), Pluto Press, Leichhardt, NSW, p 245; and B
A Aylward, "Appropriating the Value of Wildlife and Wetlands" in T M Swanson & E B Barbier, (eds)
Economics for the Wilds (1992), Island Press, Washington DC at p 34) and as such, must be protected by
other means.

930
Bioprospecting contracts are a special form of exclusive right used to maintain equity and encourage
people to maintain a resource in the hope that people will find an asset which can be marketed. They seek
to make biodiversity protection the ‘highest and best use’ for a resource.

The most prominent biodiversity prospecting contract is a contract between Costa Rica’s National
Biodiversity Institute (INBio) and Merck and Co. Ltd., a large pharmaceutical firm (see appendix 1 of M
D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra).

More generally, the intellectual property regime could provide a mechanism for the equitable re-
distribution of exclusive use rights between resource custodians and resource users such as bio-
prospectors. For further discussion, see K Old, Utilisation and Conservation of Australian Plant Genetic
Resources: The role of monopoly privilege (1994), Honours Thesis submitted to the Faculty of Law,
Australian National University, October 1994; also M A Gollin, "An Intellectual Property Rights
Framework for Biodiversity Prospecting" in W V Reid; S A Laird; C A Meyer; R Gamez; A Sittenfeld; D
H Janzen; M A Gollin and C Juma, (eds) Biodiversity Prospecting: Using genetic resources for
sustainable development (1993), World Resources Institute, US.

931
These are rights to use specified resources which can be transferred to another person without having to
obtain prior consent. The most common case is that of tradeable permits and licences such as transferable
fishing quotas. The strength of tradeable permits and licences is that they offer a dependable means to
constrain use within a biodiversity target whilst still giving industry the opportunity to decide how they do
that. As a mechanism, however, they are limited to resources that are relatively homogeneous. See M D
Young & B McCay, Building Equity, Stewardship and Resilience into Market-Based Property-Right
 437

Systems (1995), World Bank, Washington DC; and Organisation for Economic Co-operation and
Development (OECD), Making Markets Work for Biological Diversity: The role of economic incentives
measures, (1996), OECD, Paris; and D Farrier, "Policy instruments for conserving biodiversity on private
land" in J Bradstock. (ed) Conserving Biodiversity: Threats and solutions (1995), Surrey Beatty and Sons,
Chipping Norton).

932
Covenants (and, in the American terminology, easements as well) are instruments which restrict a
landowner’s ability to exercise particular rights over their property; for example, they can be used to
prohibit the clearance of natural vegetation, or to preserve an area which supports certain types of wildlife.

Because they are negotiated on an individual basis, covenants present the opportunity for careful targeting.
The experience of a number of countries suggests that covenants and easements offer considerable scope
for the "establishment of buffer zones, wildlife corridors and protected area management" (Organisation
for Economic Co-operation and Development (OECD), Making Markets Work for Biological Diversity:
The role of economic incentives measures, (1996), OECD, Paris) although the costs of monitoring and
enforcing compliance must be weighed against these benefits. Easements are particularly cost effective
when the areas needing special protection are fragmented and the main requirement is to prevent an action
such as clearing. See further the discussion of the nature conservancy in the USA in D Farrier,
"Conserving Biodiversity on Private Land" (1995) 19(2) Harvard Environmental Law Review pp 304-
405.

933
Under these arrangements, industry is given the choice between off-setting the damage they cause or
paying an authority to do it on their behalf.

Off setting arrangements with regards to wetlands - known as wetlands mitigation - has been a prominent
part of American environment policy for over two decades (White House Office on Environmental Policy,
Protecting America’s Wetlands: A fair, flexible and effective approach (1993), Washington DC) but grave
doubts are held by many as to their value as a means of wetlands protection (see further D Farrier, "Policy
Instruments for Conserving Biodiversity on Private Land" in J Bradstock. (ed) Conserving biodiversity:
Threats and solutions (1995), Surrey Beatty and Sons, Chipping Norton pp 304-405).

It has been argued that such means are simply ecologically ineffective, because of insufficient knowledge
about the science of creating or restoring wetlands. Even if successful, mitigation efforts can result in
fragmented segments of wetlands of far less richness and diversity than the areas which they are intended
to replace. Others have criticised the administrative framework used to oversee mitigation projects,
claiming that inadequate resourcing has meant that project plans are often not carried out at all or, if they
are implemented, are not monitored or maintained. (J Silverstein, "Taking Wetlands to the Bank: The role
of wetland mitigation banking in a comprehensive approach to wetlands protection" (1994) 22 Boston
College Environmental Affairs Law Review p 129).
 438

There have been some moves to address these regulatory problems with increased use of mitigation
banking - which requires the restoration or creation to be performed in advance of the proposed loss (J
Silverstein, "Taking Wetlands to the Bank: The role of wetland mitigation banking in a comprehensive
approach to wetlands protection" (1994) 22 Boston College Environmental Affairs Law Review p 129)
but this does not address the issue of whether such mitigation is ecologically viable.

934
In their simplest form, licenses, leases and permits combine economic opportunity with a series of
restrictions in the form of conditions tailored to a specific location - as such, they have some
characteristics of regulation as well as of property rights. Their prime administrative advantage is that they
give administrations a periodic opportunity to review progress and use conditions. They are probably the
main mechanism used to control activity that has site specific implications for biodiversity (See I Hodge,
"Incentive Policies and the Rural Environment" (1991) 7 Journal of Rural Studies p 373-84).

935
See chapter 2 above.

936
J A W A Reus; H J Weckseler; & G A Pak, Towards a Future EC Pesticide Policy: An inventory of
risks of pesticide use, possible solutions, and policy instruments (1994), Centre for Agriculture and
Environment, Utrecht, p 79.

937
These can be used to change the economic signals given to people whose actions threaten biodiversity
values. To this end the OECD has made an important contribution by recommending ways to implement
the Polluter-Pays Principle and, to a lesser extent, the User-Pays Principle. Collectively these principles
imply that, where-ever possible, the costs of supplying access to biodiversity should be recovered from the
direct beneficiaries of biodiversity conservation. Similarly, the costs of controlling and preventing direct
threats to biodiversity should be recovered from the people who cause those threats. The money collected
through the implementation of these mechanisms can be used both as a means to ration use so that it is
kept within sustainable limits, and to finance research, management and protection. They can also be used
as a means to raise government revenue. Links between management and resource users are strengthened.
Political pressure for the administering authority to reduce costs emerges. Cost recovery is now being
applied routinely in many industries. Also see M D Young; N Gunningham; J Elix; J Lambert; B Howard;
P Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based,
property-right, and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series
Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra, chapter
4; and OECD, Group on Economic and Environment Policy Integration Expert on Economic Aspects of
Biodiversity, Making Markets Work for Biodiversity: The role of Economic incentive measures (1995),
Draft final report, Fourth session 11-13 July.

938
From a tax perspective, biodiversity conservation can be assisted through two mechanisms. The first is
by making greater economic use of its attributes. When this occurs, expenditure on biodiversity
maintenance is tax deductible because it is expenditure made in the course of earning income. Use of the
 439

attributes of biodiversity also shifts the nature of threats faced. Taxation mechanisms can also be used as a
mechanism to change the cost of undertaking various activities, and are already used as a means to close
the gap between social and private values.

They can also be used as a means to encourage people to contribute to national objectives. The argument
for these taxation incentives is that, because they establish an entitlement, people are encouraged to pursue
such opportunities without having to prepare submission to and obtain permission from the bureaucracy.
They also encourage altruistic behaviour and where there is a national commitment to achieving an
objective, like biodiversity conservation, the objective is likely to be achieved at much less cost to
government than would be the case if government departments managed all biodiversity conservation of
this nature themselves.

However, taxation mechanisms can also work against biodiversity conservation by encouraging people to
develop resources rather than conserve. Another argument against these mechanisms is that, when not
channelled through a well developed non-government organisation or screening mechanism, they are
prone to taxation rorts.

939
Organisation for Economic Co-operation and Development (OECD), Making Markets Work for
Biological Diversity: The Role of Economic Incentives Measures (1996), OECD, Paris.

940
T Panayotou, Reducing Biodiversity Expenditure Needs: Reforming perverse incentives (1996), paper
presented to an OECD Conference on Incentive Measures for Biodiversity conservation and Sustainable
Use, Cairns, Australia, March 1996.

941
Organisation for Economic Co-operation and Development (OECD), Agricultural and Environmental
Policies: Opportunities for integration (1989a), OECD, Paris, p 112; and see R Gale; S Barg; & A
Gillies, (Eds) Green Budget Reform (1995), Earthscan Publications, London pp 93-160.

942
With the phasing out of farm subsidies which began during the Clinton administration, the predictions
of free market environmentalists about the likely benefits of terminating farm subsidies may ultimately be
subject to empirical verification.

943
R Soufi & M Tudderham, "Reform of the Common Agricultural Policy" in R Gale; S Barg; & A
Gillies, (Eds) Green Budget Reform (1995), Earthscan Publications, London; and K Turner; E
Ozdemiroglu; & P Steele, "Environmentally Sensitive Areas in the UK: Economic incentives for
sustainable farming" in R Gale; S Barg; & A Gillies, (Eds) Green Budget Reform (1995), Earthscan
Publications, London.

944
J A W A Reus; H J Weckseler; & G A Pak, Towards a Future EC Pesticide Policy: An inventory of
risks of pesticide use, possible solutions, and policy instruments (1994), Centre for Agriculture and
Environment, Utrecht, p 73.
 440

945
The Environmental Defence Fund has proposed an incentive based system to reduce agricultural run-
off which would specify a pollution reduction goal, then give farmers the flexibility to decide how best to
meet that goal (Environmental Defence Fund, "Economic Incentives Could Reduce Water Pollution From
Agriculture" (1994) Vol XXV (September) EDF Letter 5). EDF also recommends more efficient
irrigation technologies to minimise agricultural runoff
([Link]

946
Compare, for example, commercialisation of wildlife, performance bonds and tradeable permits,
discussed above at endnote 00.

947
For example, instruments which are appropriate to address pollution may work very differently when
applied to other threats to biodiversity.

948
For example, management agreements coupled with reimbursement can fulfil a particular function (for
which regulation or other instruments are no substitute). Similarly, some property rights mechanisms have
the distinctive characteristic of providing the land user with an incentive to protect the environment, and in
doing so encourage positive custodianships of biodiversity and support for biodiversity objectives.
Experience with the effectiveness of property rights based mechanisms however, is mixed. In particular,
the effectiveness of property-right mechanisms is dependent upon the capacity of the institutional
mechanisms used to develop, review and enforce them.

949
One mechanism often used to increase acceptance of charges and levies is to give those whose incomes
are affected by the charge or levy a say in determining how the resultant money is spent. Alternatively, a
government can promise to commit the money collected to a cause. Known as hypothecation, this
mechanism is used to underscore the point that communities should contribute directly to the financing of
programs that improve the environment (Department of Finance, Submission to HORSCERA: Inquiry into
management arrangements for inscribed World Heritage Areas (1994) AGPS, Canberra; and M D
Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future:
An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra p 124).

950
W Rudig & R A Kraemer, "Networks of Cooperation: Water Policy in Germany" (1994) 3(4)
Environmental Politics 52-79.

951
Regulatory approaches utilise either: (i) spatially defined (exclusionary or zonal); (ii)species,
ecosystem or community specific; or (iii) threat specific triggers, to address biodiversity conservation,
including that which is agriculture-based.

952
Traditionally zoning is used to define what activities take place in certain areas but can be used to
create and protect a wide range of public amenities. Zoning can be used in conjunction with other
 441

measure, such as offsetting arrangements, cross-compliance, and development rights to create incentives
(M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra, vol 1, p 26).

953
In Australia each state has legislative controls aimed at protecting native vegetation. Clearing controls
vary from state to state in their design and application. No state has totally banned clearing of native
vegetation but stringent controls exist South Australia, Victoria and Western Australia. Both
Commonwealth and state governments are involved with fisheries management (M D Young; N
Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future: An
evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra, vol 1, ch 2).

954
Direct regulations can play a particularly vital role in preventing and eliminating those actions which
under present arrangements could result in losses that are either totally irreversible or only irreversible at
unacceptably high costs. In such situations, the conventional approach is to recommend that a safer
minimum standard be set. For biodiversity conservation, however, we often don’t know what the safe
minimum standard is. Indeed for a significant number of areas in Australia that point may have been
passed and the need is for species recovery plans and rehabilitation of ecosystems (M D Young; N
Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future: An
evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra, vol 1, ch 6).

955
Regulation's strength in some circumstances is the certainty it provides, particularly where it takes the
form of direct bans on destructive activity, supported by sanctions. It is true that there will remain a
temptation to cheat, particularly where breaches are not transparent. For example, a ban on clearing is
likely to be more effective than a ban on killing endangered species because the administrative costs of
monitoring clearing are lower than those of watching the fate of a species. The American experience is
that when an endangered species is present, the maxim "shoot, shovel and shut up" still prevails despite
regulation. How strong this temptation will be, and how likely people are to succumb to it, will depend in
part on the perceived legitimacy of the regulation (reinforcing the need for education and motivation) and,
in part, on the likelihood of detection and severity of sanctions (C Perrings & D Pearce, "Troubled Effects
and Incentives of the Conservation of Biodiversity"(1994) 4(1) Environmental and Resource Economics
13-28).

956
One traditional mechanism used by governments is to issue licences, leases and permits to use natural
resources. Examples explored in the case studies under-taken in this report include licenses to shoot
 442

kangaroos, pollution permits, licenses to collect native plants and leases to graze rangelands. In their
simplest form, these permits combine economic opportunity with a series of restrictions in the form of
conditions tailored to a specific location. Their prime administrative advantage is that they give
administrations a periodic opportunity to review progress and review use conditions. As such they are
probably the main mechanism used to control activity that has site specific implications for biodiversity.
In theory, a high degree of dependability is offered. In practice, unless careful attention is given to
institutional arrangements, administrators are easily captured by licence and permit holders with the
consequence that official objectives are poorly achieved. They are, however, a mechanism used routinely
by private enterprise and, in countries where non-government is actively involved in biodiversity
conservation, by these organisations.

A problem with many existing systems is that all the pressure for change is placed on new licence holders
and not those whose conditions are fixed. Another is a failure to allocate rights and conditions on an
ecosystem basis so that the total impacts of all licences is kept within sustainable limits (M D Young; N
Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future: An
evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the
conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the Environment,
Sport and Territories, Biodiversity Unit, Canberra, vol 1, ch 6).

957
Individual Transferable Fishing Quotas have been implemented in Australia and around the world with
varying degrees of success. The Southern Bluefin Tuna system, introduced in 1984, provided individuals
with rights to harvest a given quota of stock. The sum of all quotas represented the Total Allowable Catch
(TAC) which was theoretically equivalent to the species maximum sustainable yield. Difficulties in
estimating the maximum sustainable yield, and therefore the TAC, meant the system has not been
successful at maintaining species (Bureau of Industry Economics, Environmental Regulation: The
economics of tradeable permits - a survey of theory and practice (1992), Research Report 42, AGPS,
Canberra).

958
See above pp 00.

959
As we saw in chapter 2, some regulations limit innovation and discourage people from searching for
new, more efficient ways to achieve the intent of a regulation. Moreover, regulatory instruments may be
inequitable, and difficult to revise as new information becomes available. Again, while regulation may
serve to bring people up to a prescribed minimum standard, or prevent damage below a threshold, it is not
well equipped to bring about continuous improvement, to influence behaviour above the threshold or to
achieve on-going management and environmental stewardship. See further B A Ackerman & R B Stewart,
"Reforming Environmental Law" (1985) 37 Stanford Law Review 1333.

960
Of course, the recalcitrant, incompetent or intransigent could also ignore regulation. However, for a
variety of reasons, they are far less likely to do so. The techniques that regulators can invoke to achieve
 443

compliance are far more compelling than those available for other categories of instruments (see J F
Dimento, Environmental Law and American Business: Dilemmas of compliance (1986), Plenum Press,
New York). As to the literature which examines the suggestion that regulatory law deters violations in
ways superior to other approaches, see R Kagan & J T Scholz, "The "Criminology of the Corporation"
and regulatory Enforcement Strategies" in K Hawkins & J M Thomas, (eds) Enforcement Regulation
(1984), p 67.

961
Bradsen, J (1994) The "Green Issues": Biodiversity Conservation in Australia" in B Boer, R, Fowler &
N, Gunningham (eds) Environmental Outlook: Law and Policy, Federation Press, Sydney.

962
A firm response to flagrant misconduct is important for three reasons. First, it is necessary as a
deterrent to future harm doing. Unsurprisingly, compliance will be greater if recalcitrant offenders are
penalised severely and publicly so that the effectiveness and the attractiveness of less interventionist and
more financially desirable instruments is maximised. Second, where visible damage is inflicted on an
ecosystem, the public often demands a firm response as a reaffirmation of environmental values. Third,
given that the infliction of environmental damage can also be regarded as an offence against those who
have done the right thing, often at substantial personal sacrifice, a firm response suggests to them and to
others that their sacrifices were not in vain. The appearance of a level playing field may be an essential
prerequisite to the success of the sort of positive, less interventionist approach which we envisage for the
large majority of circumstances.

963
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992),
Oxford University Press, New York.

964
However, escalation up an enforcement pyramid, as advocated by Ayres and Braithwaite (1992) (I
Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992), Oxford
University Press, New York) requires a continuing relationship between regulator and regulatee, under
which the regulator applies a "tit for tat" strategy. Such a strategy will have no application in the case of
"one off" events, such as land clearing, though it may be considerably more valuable where there is a
commitment to ongoing management, and sanctions and rewards can be applied depending upon the
regulatees past behaviour.

965
S J Pratt; L Frarey; A Carr, "A Comparison of US and UK Law Regarding Pollution From Agricultural
Runoff" (1997) 45(1) Drake Law Review 159-196.

966
For example, the experience under New South Wales endangered species legislation, at least until the
issue of State Environmental Planning Policy 46 in August 1995, was that licences were very commonly
granted, thereby defeating the biodiversity aims of the legislation to a significant extent. Even without the
licensing exception, it is true that there will remain a temptation to cheat, particularly where breaches are
not transparent. How strong this temptation will be, and how likely people are to succumb to it, will
 444

depend in part on the perceived legitimacy of the regulation (reinforcing the need for education and
motivation) and, in part, on the likelihood of detection and the severity of sanctions.

967
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 13. However, note that in the USA the Endangered Species
Act has effectively induced the formulation of long-term management arrangements, including the hiring
of trained managers, enforced as conditions in permit for development activity.

968
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 14.

969
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 37.

970
Australian Bureau of Agricultural and Resource Economics (1995).

971
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992),
Oxford University Press, New York.

972
Direct regulations can play a particularly vital role in preventing and eliminating those actions which
under present arrangements could result in losses that are either totally irreversible or only irreversible at
unacceptably high costs. In such situations, the conventional approach is to recommend that a safer
minimum standard be set. For biodiversity conservation, however, we often don’t know what the safe
minimum standard is. Indeed, for a significant number of areas in Australia, that point may have been
passed, and now the need is for species recovery plans and rehabilitation of ecosystems.

Faced by uncertainty and the need for dependability, regulations can contribute to biodiversity by
signalling where precaution is necessary. The recently introduced Western Australian and New South
Wales clearing controls provide examples of the approach. In each case a precautionary regulation
requires people to obtain a clearing permit before they clear significant areas of vegetation.

Where there is a possibility that a development might have irreversible consequences for biodiversity, the
Precautionary Principle would suggest that the onus is on the proponent to demonstrate that this is not the
case. In the land clearance examples listed above (p 00), the prohibition, however, is not absolute.
Consistent with the precautionary principle, permission to clear native vegetation can still be obtained
providing the proponent shows that clearance will not have unacceptable effects on the environment or
biodiversity values. The onus of proof is shifted from the government to the proponent. These
precautionary standards provide a second function of indicating areas where expenditure on recovery and
rehabilitation might be justified. Recognition of these characteristics, coupled with recognition of the
importance of seeking dynamic and continuing improvement, suggests that periodic review of these
precautionary regulations and standards is necessary to ensure that they are set at appropriate levels. This
 445

is particularly important, for most decisions to permit further biodiversity loss decreases the margin of
safety left in the system. Regulatory mechanisms that are not reviewed periodically are unlikely to be
dependable (M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone,
Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right, and
regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9,
Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra p 132).

973
See T Panayotu, Economic Instruments for Environmental Management and Sustainable Development
(1994), unpublished manuscript, Harvard Institute for International Development, Harvard University,
Cambridge, MA, pp 15-20. Note that tradeable rights systems only work in regions where there are
enough fungible goods and actors to make up a market. On the other hand, other property right systems ,
eg site specific easements or land trust arrangements, are a good way to deal with site specific problems.

974
As Lee Breckenridge points out (personal communication November 1997) price-based instruments
will only be effective if there is a mechanism in place for making rolling adjustments based not only on
changing economic conditions but also on discovery of new scientific information.

975
The existence of such a minority was acknowledged by a wide diversity of stakeholders during the
consultation process.

976
In Australia, local government is funded partially from revenue raised from a tax on the unimproved
value of land. In assessing the amount of tax to be paid land is assessed at its value if it was being used for
its highest and best use in the market place. Thus, those who have not cleared there land are forced to pay
tax as if they had cleared it. This gives them a clear and unintended signal that this land should be cleared
irrespective of its biodiversity value.

977
E B Barbier; J C Burgess; & C Folke, Paradise Lost? The ecological economics of biodiversity (1994),
Earthscan Publications, London, p 184.

978
See pp 00 below.

979
See p 00.

980
For example, the Gerber Company, a manufacturer of baby foods, has required its contract growers to
provide detailed pesticide application records before the crops are purchased (World Wildlife Fund,
Reducing Reliance on Pesticides in Great Lakes Basin Agriculture (1995), World Wildlife Fund,
Washington DC pp 2 and 15).

981
Beech-Nut, Beech-Nut Pesticide Residue Control Program (1997), at
[Link]
 446

982
Major French supermarket chains such as Monoprix and Carrefour sell some organic produce.
Sainsbury’s in the UK has announced its intention that all of its food from all over the world be produced
under IPM regimes (P Rowland, Recent Changes in International Crop Protection Practices: The
growing trend to reduce pesticide use and pesticide risk (1995), Bureau or Resource Sciences,
Department of Primary Industries and Energy, Canberra, pp 5-6; and Sainsbury’s has a web page devoted
to the environment: [Link]

983
The largest supermarket chain in the Netherlands, Albert Heijn, has an in-house Controlled Cultivation
Program. The company, which has a 28 percent national market share, sets progressively higher
environmental guidelines for its suppliers (P Matteson; L den Boer; & J Proost, "Green Labels in The
Netherlands: Careful Negotiations and Clearer Choices" (1996) 6(4) (December) Global Pesticide
Campaigner). So too do such North American chains as Wegman’s, which prides itself on its
environmental policy, and which now sells produce bearing an IPM label. The IPM label program was
developed by a partnership between Wegmans, Comstock Michigan Fruit, which supplies Wegmans'
produce, and Cornell University. The University extension program assists Comstock’s growers in
developing their IPM programs. See
[Link]

984
P Matteson; L den Boer; & J Proost, "Green Labels in The Netherlands: Careful Negotiations and
Clearer Choices" (1996) 6(4) (December) Global Pesticide Campaigner.

985
See also A-M Moodie, "Control System Helped Food Firm Trace Problem" (1996) (8 November)
Australian Financial Review 61.

986
Pike (1997) relates that Sainsbury’s competitor Tesco requires farmer-financed audit reports as a
condition of supply. Pike, AG (1997) "Pesticide Risk Reduction: The Role of the UK Pesticides Forum"
Presented at the National Pesticide Risk Reduction Workshop, Bureau of Resource Sciences, Department
of Primary Industries and Energy, Canberra, Australia , April 16 1997

987
Innovators in organic cotton production have been recognised by the United Nations Environment
Program (UNEP). See organically grown naturally colored cotton UNEP-WGD-SPD NEWSFAX, (1996)
Issue 3 (6th April) at [Link] The large manufacturer
Levi Strauss has ordered 2,300 bales of organic or transitional cotton from the 1997 crop in the United
States. (Green Newsletter, April, 1997). The Gap, a three billion dollar company with 1,300 retail stores
in the United States, Canada and the UK, is making a commitment to using organic cotton in their
products at [Link]

988
To the extent that the state withdraws from its traditional role as the provider of extension services,
commercial compliance professionals have the potential of substituting for them. The agricultural
consulting industry is poised to fill a vacuum about to be created by current trends in public sector service
delivery. The movement in most western societies towards privatisation of governmental functions has
 447

begun to include agricultural extension services. Whether the privatisation of these functions will
contribute overall to improved environmental performance remains to be seen. Marginally viable
agricultural enterprises may be unable to afford the services of professional consultants; in such cases,
industry associations may be able to provide services at minimal cost.

989
For an example of one such service, see [Link]

990
J A W A Reus; H J Weckseler; & G A Pak, Towards a Future EC Pesticide Policy: An inventory of
risks of pesticide use, possible solutions, and policy instruments (1994), Centre for Agriculture and
Environment, Utrecht, p 81.

991
D Dumaresq & R Greene, From Farmer to Consumer: The future of organic agriculture in Australia
(1997), Rural Industries Research and Development Corporation, Canberra.

992
M Farrell, "Raising Capital For An Organic Grower" (1996) 18(6) In Business 34; and Agri Finance,
Checking Out Organic Farming (1994) 36(3) Agri Finance 33

993
M Boehlje; M Duncan; & D Lins, Agricultural and Rural Finance Policy (1996) at
[Link]

994
[Link]

995
See United States General Accounting Office, Crop Insurance: Opportunities exist to reduce
government costs for private-sector delivery (1997) RCED-97-70 April 17, at
[Link] The principle could easily be extended to low input or
transitional production.

996
We do not address the issue of eco-tourism, which is only marginally related to the issue of agricultural
land clearing.

997
However, potentially there is quite a role that could be played with regard to biodiversity and habitat
conservation in situations where liabilities were firmly defined or the prospect of asset loss clear. For
example, insurers already play a key role in keeping development and other activities out of flood prone
areas by refusing to insure or exacting high premiums. If farmers’ liability for damages to wildlife were
more firmly set out in tort or regulatory laws , then presumably insurers and even banks could play a role
within the umbrella of that liability scheme. Pers communication Lee Breckenridge, Nov 1997.

998
E Meidinger, Look Who’s Making the Rules: The roles of the forest stewardship council and
international standards organisation in environmental policy making (1996), paper prepared for the
Colloquium on Emerging Ecological Policy: Winners and Losers, Oregon State University, Corvallis, 23
September.
 448

999
See for example the successful campaign for dolphin-friendly tuna. The British supermarket chain
Sainsbury’s proudly claims to source only dolphin-friendly tuna ([Link]
[Link]/environment/[Link]). The Rainforest Action Network advertises a wide variety of
products derived from sustainable forests. ([Link]
This could be the embryonic form of biodiversity-friendly commerce. The Portland, Oregon-based Pacific
Rivers Council (PRC) is seeking to introduce a labelling system for produce and other goods produced in
a way that doesn't harm salmon through chemical runoff (The Green Business Letter, July 1997).

1000
B Sletto, "Goals Clear, Methods Not" (1995) V(1) Tomorrow: Global Environment Business 24-26 at
25.

1001
M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the
Future: An evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives
for the conservation of biodiversity (1996), Biodiversity Series Paper No 9, Department of the
Environment, Sport and Territories, Biodiversity Unit, Canberra, vol. 2, p 39).

1002
Organisation for Economic Co-operation and Development (OECD), Contracting for Genetic
Resources (1994), Group on Economic and Environment, OECD, Paris.

1003
UNEP, Measures for the Conservation of Biodiversity and Sustainable Use of its Components (1994),
Global Biodiversity Assessment, UNEP, Nairobi.

1004
Organisation for Economic Co-operation and Development (OECD), Economic Instruments for the
Conservation of Domestic and Global Biodiversity: Project proposal (1993), Expert group on Economic
Aspects of Biodiversity, Environment Policy Committee, OECD, Paris.

1005
There exists a rich variety of organisations concerned with environmental and human health risks
posed by agricultural chemicals (for an overview, see G Ekstrom (ed) World Directory of Pesticide
Control Organisations (19 ), Crop Protection Publications, London; and for an overview of biodiversity-
oriented interest groups, see Commonwealth Department of the Environment Sport and Territories,
Biodiversity Information Sources [Link]

1006
J C Pierce; M A E Steger; B S Steel; & N Lovrich, Citizens, Political communication and Interest
Groups: Environmental organizations in the United States (1992), Praeger, Westport, CT.

1007
Greenpeace, for example, has targeted particular producers of agricultural chemicals by means of
dramatic aerial photography with a view towards discrediting them publicly (D King, "It’s Clean, It’s
Green, and It’ll Feed the World" (1997), 2 (vii) (March/April), Tomorrow 10-12. Greenpeace’s strategic
posture is by no means limited to adversarial activities. Their constructive engagement in planning the
Sydney 2000 Olympic Games and in the development of a CFC-free refrigerator are illustrative.
 449

1008
In addition, the campaign monitors registration of exceptionally toxic chemicals around the world. The
organisation lobbies governments as well as marge financial institutions such as the World Bank and the
IMF (A Schonfield; W Anderson; & M Moore, "PAN's Dirty Dozen Campaign - The View at Ten Years"
(1995), 5(3) September, Global Pesticide Campaigner, Pesticide Action Network North America, San
Francisco, CA.

1009
Both of these organisations seek to raise general public awareness about threats to biodiversity. The
approach of WWF and Audubon to governments and to industry is based more on negotiation and
consultation rather than confrontation. These and other organisations also contribute sophisticated policy
analysis to government decisionmaking fora (P Faeth, Growing Green: Enhancing Environmental and
Economic Performance in US Agriculture (1995), World Resources Institute, Washington). As an
interviewee from one NGO told us: "We’ve played a major role in shifting the debate. We have had a lot
of input into major government inquiries and studies" ([Link]
[Link]

1010
[Link]

1011
[Link]

1012
[Link] [Link]

1013
gopher://[Link]/0PESTIS/r.877057768.4469.12.

1014
Notwithstanding the importance of preventing frivolous or vexatious citizen action, it is important that
safeguards avoid a chilling effect on citizen speech or action. For example, as we noted above in chapter
two, public concern over use of the pesticide Alar and other agricultural chemicals moved agribusiness
interests to promote "veggie libel" statutes, which make disparagement of certain agricultural products
actionable as libel (G Pring & P Canan, SLAPPs: Getting sued for speaking out (1996), Temple
University Press, Philadelphia, p 191). By 1996 twelve states in the United States had enacted agricultural
disparagement statutes (R Finn, "Libel Concerns Are A Reality For Scientists Who Speak Out In Public"
(1996) 10(6) (March 18) The Scientist 15).

1015
The False Claims Act permits private citizens who discover fraud against the government to initiate a
private civil action on behalf of the United States. If successful, the private plaintiff receives a proportion
of the damage award. Procedural safeguards significantly reduce the risk of frivolous or vexatious actions
(see E Caminker, "The Constitutionality of Qui Tam Actions" (1989) 99 Yale Law Journal 341-388).
Regulations under the Surface Mining Control and Regulation Act allow citizens to request an inspection
by federal regulatory authorities. The citizen must submit a signed written statement which would give
regulatory authorities reason to believe that a violation exists. The citizen may accompany the inspector in
the course of the inspection, and is entitled to receive a copy of the inspector’s report In the event that no
inspection is conducted, the citizen is entitled to a written explanation for the decision in question (see N
 450

Shover; D Clelland; & J Lynxwiler, Enforcement or Negotiation: Constructing a regulatory bureaucracy

(1986), State University of New York Press, Albany). A wide variety of US environment statutes such as
the Clean Air Act, the Clean Water Act, The Endangered Species Act and the Resource Conservation and
Recovery Act, all have citizen suit provisions.

1016
In a small, close-knit community, this may not be easy. As one producer told us, "When you know
your neighbour’s doing the wrong thing, and your kids are going to the same school as his, it’s hard to dob
him in." On the other hand, agricultural workers, and the growing number of newcomers to the land may
be less inhibited. We are indebted to Professor Laureen Snider for this observation .

1017
See also P N Grabosky, 'Regulation by Reward: On the Use of Incentives as Regulatory
Instruments, Law and Policy, 17, 3, (July, 1995) 256-281.

1018
L A Thrupp, New Partnerships for Sustainable Agriculture (1996), World Resources Institute,
Washington.

1019
S Lockie & F Vanclay, (eds) Critical Landcare (1997), Centre for Rural Social Research, Charles
Sturt University, Wagga Wagga, NSW.

1020
[Link]

1021
[Link]

1022
[Link] [Link]

1023
[Link]

1024
[Link] [Link]

1025
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992),
Oxford University Press, New York.

1026
I Ayres & J Braithwaite, Responsive Regulation: Transcending the deregulation debate (1992),
Oxford University Press, New York.

1027
Biodiversity audits would involve a small audit team containing scientific and either expertise and
including respected members of the local community. Their role would be to assess the biodiversity
significance of land in the area (see further M D Young; N Gunningham; J Elix; J Lambert; B Howard; P
Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational, voluntary, price-based,
property-right, and regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series
 451

Paper No 9, Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra pp 109-
11).

1028
This is not to suggest that some small producers are not exceptionally innovative. Some can respond
to new challenges fare more rapidly than their counterparts with entrenched cultural attitudes.

1029
However, as Ostrom, (Governing the Commons: The evolution of institutions for collective action
(1990), CUP, New York Governing the Commons, 1990) suggests, on occasion it is the small producers
that are most keenly motivated by their dependence on local conditions to take long range and coordinated
measures to ensure sustained productivity by protecting underlying resources, rather than "mining" them
for short term profit.

1030
This is in part because threshold effects invalidate the normal test for efficiency in the allocation of
resources. See C Perrings & D Pearce, "Threshold effects and incentives for the conservation of
biodiversity" (1994) 4 Environmental and Resource Economics 13-28.

1031
For a general review see N Gunningham, "Negotiated non-compliance: A case study of regulatory
failure" (1987) 9(1) Law and Policy 69-97 and references therein. Much of the existing legislation is
supported by grossly inadequate budgets, leaving enforcement agencies with an almost complete
incapacity to discharge some of their statutory functions. When this problem is compounded by a lack of
political will and a desire on the part of politicians not to offend rural constituencies, then the impact of
the legislation may be very modest indeed. On the other hand, in South Australia, where the law is clear,
simple and well known, it has had a very substantial impact and may well have succeeded, over time, in
making the prohibition of broad acre clearing acceptable to local communities.

1032
In the context of uncertainty, it is very difficult to know if a threshold is being approached. A
precautionary approach would be to prohibit clearing unless those proposing it could prove it did not have
threshold effects.

1033
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 19.

1034
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 13.

1035
In the United States of America the expression that accompanies this practice is "Shoot, shovel and
shut-up."

1036
J Bowers, Incentives and Mechanisms for Biodiversity: Observations and Issues (1994), CSIRO
Division of Wildlife and Ecology, Canberra p 19.

1037
See generally M Bean and D Wilcove "Ending the Impasse" (1996) 13(4) Environmental Forum p 22.
 452

1038
We define a financially attractive mix as one that, at the point of introduction, has the potential to
increase the wealth or income of those who participate.

1039
For details see M D Young; N Gunningham; J Elix; J Lambert; B Howard; P Grabosky; E McCrone,
Reimbursing the Future: An evaluation of motivational, voluntary, price-based, property-right, and
regulatory incentives for the conservation of biodiversity (1996), Biodiversity Series Paper No 9,
Department of the Environment, Sport and Territories, Biodiversity Unit, Canberra p 122.

1040
See in particular, the South Australian approach under the Native Vegetation Management Act 1985
(subsequently repealed by the Native Vegetation Act 1991) described in J Bradsen, "The "Green Issues:
Biodiversity Conservation in Australia" in B Boer, R, Fowler & N, Gunningham (eds) Environmental
Outlook: Law and Policy (1994), Federation Press, Sydney.

1041
A permit is required to clear native vegetation, which is likely to be refused in a very large majority of
cases. Payment of compensation, which was automatic under the Native Vegetation Management Act
1985, is no longer so under the 1991 legislation. Nevertheless, the system still contemplates the offering
of financial incentives for foregoing development rights, and financial assistance with the management of
reserved stands of native vegetation and planned revegetation (M D Young; N Gunningham; J Elix; J
Lambert; B Howard; P Grabosky; E McCrone, Reimbursing the Future: An evaluation of motivational,
voluntary, price-based, property-right, and regulatory incentives for the conservation of biodiversity
(1996), Biodiversity Series Paper No 9, Department of the Environment, Sport and Territories,
Biodiversity Unit, Canberra p 25).

1042
D Farrier, "Conserving Biodiversity on Private Land" (1995) 19(2) Harvard Environmental Law
Review pp 304-405.

1043
D Farrier, "Conserving Biodiversity on Private Land" (1995) 19(2) Harvard Environmental Law
Review pp 304-405.

1044
T Schelling (ed) Incentives for environmental protection (1983), Massachusetts Institute of
Technology Press, Cambridge, US; and P N Grabosky, 'Regulation by Reward: On the Use of
Incentives as Regulatory Instruments, Law and Policy, 17, 3, (July, 1995) 256-281.

1045
Young argues in particular for reimbursement of nonmarketable costs, and limiting compensation for a
transitionary period. See the discussion and references at p 00 above (earlier in this chapter).

1046
Although as Breckenridge (personal communication November 1997) points out, there are
possibilities for developing better methods of audit and certification for some crop management that could
address aspects of biodiversity (eg efforts to encourage growing coffee beans under a canopy of trees).
 453

1047
K Turner, & H Opschoor, "Environmental Economics and Environmental Policy Instruments:
Introduction and overview" in H Opschoor and K Turner (eds) Economic Incentives and Environmental
Policies: Principles and practice (1994), Kluwer Academic Publishers, Dordrecht.

1048
For example, tradeable rights can operate effectively where natural resources are not site-specific and
where "acceptable overall-impacts can be determined", but they are not appropriate where resources are
site-specific, as is commonly the case with habitats or ecosystems.

1049
H Opschoor, & K Turner, Economic Incentives and Environmental Policies: Principles and practice
(1994), Kluwer Academic Publishers, Dordrecht, p 35.

1050
The OECD suggests that the key variables include: the structure of existing conservation laws,
regulatory techniques, and property rights to land and resource use; the distribution of the benefits and
costs of biodiversity across key target groups; government administrative structure and capacity; public
awareness of biodiversity values; characteristics of the biodiversity values to be conserved (local or
national public good; relative importance of use and passive use values); and characteristics of
uncertainty, potential for threshold effects, and the need for safe minimum standards and "threshold"
instruments. See OECD, Saving Biological Diversity: Economic Incentives (1996), OECD, Paris.

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