Managing Environmental Quality

Managing Environmental Quality

ChapterChapter 15

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This chapter:

Explains how pollution risks are assessed to determine which are most important to regulate.

Discusses alternative approaches to regulation with emphasis on new, more flexible initiatives.

Illustrates how many companies are now managed differently so they can move beyond simple legal compliance.

Louisiana-Pacific Corporation Opening Case

In 1984 LP’s eastern Colorado plant begins emitting pollution.

1985 Colorado regulators mandate pollution controls. For the next two years the plant repeatedly violates its

permit. In 1993 the EPA fines LP $11 million and forces it to

install $70 million in new pollution control equipment. In 1995 the EPA brings a criminal indictment against LP

and two employees. Since its indictment it reports that notices of violation

from regulatory agencies have steadily declined from almost 80 in 1995 to only 3 in 2004.

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Command-and-control enforcement is critical in environmental regulation. Yet, broad progress toward nonpolluting, sustainable manufacturing requires corporations to go beyond compliance.

Regulating Environmental Risk The cost to the nation of complying with

environmental regulations is greater than the cost of complying with all other forms of social and economic regulation combined.

For every dollar spent on environmental regulation the nation gets between $1 and $4 in benefits.

Environmental expenditures need to be focused on the highest risks to human health and the natural environment.

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Elements of Risk Assessment and Risk Management and Their Sequence

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Risk Assessment In theory, risk assessment is a scientific

process leading to an objective, quantitative measure of the risks posed by any substance.

The EPA and other agencies make a series of precautionary assumptions based on the fear that scientific data might understate risks to human health.

Risks are often overstated to ensure that public health is protected with a margin of safety.

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Hazard Assessment Hazard assessment establishes a link

between a substance and human disease. Animal testing is one method, with problems:

Scientists rely heavily on strains of rats and mice genetically disposed to high rates of tumor production.

In animals exposed to large amounts of a chemical, tumors can arise from tissue irritation rather than carcinogenesis.

Animal physiology can be so different from humans that disease processes are unique.

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Hazard Assessment (continued)

A second method of identifying hazards is epidemiological study.

Epidemiological studies have the advantage of measuring real human illness, but also have problems. Low statistical power riddled with uncertainties. Cancer latency periods so these studies may not

detect harm done by recent exposures. Data from one population may not predict risk

for another population.

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Dose-Response Assessment A dose-response assessment is a

quantitative estimate of how toxic a substance is to humans or animals at increasing levels of exposures.

For most chemicals, regulators use extrapolation from high doses to predict the effects on human populations at much lower doses. Linear-dose response rate

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Exposure Assessment Exposure assessment is the study of how

much of a substance humans absorb through inhalation, ingestion, or skin absorption.

To make exposure assessments, researchers measure activities that bring individuals in contact with toxic substances.

Regulators present their estimates as a distribution of individual exposures.

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Risk Characterization Risk characterization is an overall

conclusion about the dangers of a substance. It is a detailed, written narrative describing the

scientific evidence, including areas of ambiguity. Risk characterizations are built on a series of

calculations about toxicity, potency, and exposure that are made using scientific method. Risk characterizations may not be accurate.

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Risk Management Control options

These are alternative methods for reducing most risks.

Legal considerations Many environmental laws are specific about risk

reduction required and methods of achieving it. Other economic and social factors

Risk decisions cannot always be based solely on scientific findings.

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Cost-Benefit Analysis Cost-benefit analysis is the systematic

calculation and comparison of the costs and benefits of a proposed action.

Cost calculations typically include such factors as: Enforcement costs Capital and compliance costs to industry Foregone net benefits such as lowered crop

yields or the costs of substitution for a banned substance

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Cost-Benefit Analysis (continued)

Benefits can include: Lives saved Reduced absenteeism from work Lower health care expenditures Rising property values Increase tourism Heightened aesthetic appeal

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Advantages of Cost-Benefit Analysis

Forces methodical consideration of each economic impact a policy will have on society.

Injects rational calculation into emotional arguments.

Cost-benefit analysis that reveals marginal abatement costs can help regulators find the most efficient levels of regulation.

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Criticisms of Cost-Benefit Analysis

Fixing price values of costs and benefits is difficult and controversial.

Methods of calculating the value of human life are controversial because they clash with public values of fairness and equity.

Environmentalists dislike cost-benefit approaches because they invite trade-off of environmental quality.

Benefits and costs of a program often fall to separate parties.

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The Spectrum of Regulatory Options

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Command-and-Control Regulation

One cause of high pollution-abatement costs is heavy reliance on command-and-control regulation.

Advantages It enforces predictable and uniform standards. There is great equity in applying the same rules to

all firms in an industry. It produces abatements and it comforts the public to

know that the EPA is watching and regulating. However, this approach can be inefficient and

increase costs without commensurate increases in benefits.

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Market Incentive Regulation

Taxes and feesDeposit and refund lawsEmission trading programs Information disclosure

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Voluntary Regulation Another way that regulation is made more

flexible is the voluntary program. When a company signs up for a voluntary

program, there are often reporting requirements, but no enforcement actions are taken for failure to meet goals.

Company motives for participating: Regulatory relief and cost savings Competitive advantage

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Managing Environmental Quality

In the 1970s corporations left an era of freedom in which they were subject to few environmental restraints and entered an era of strict rules and limits.

Consequently, many companies have adopted environmental management systems.

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Environmental management system

A set of methods and procedures for aligning corporate strategies, policies, and operations with principles that protect ecosystems.

Capitalism Evolving Companies must be more productive with

resources and more conserving of energy and material.

There must be a shift to biologically inspired production models.

Strategy must move to new business models emphasizing services rather than the sale of goods.

Business must find ways to create value from maintenance and restoration of ecosystems.

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Reducing Adverse Environmental Impacts

Precautionary actionPollution preventionProduct analysisEnvironmental metrics

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Concluding Observations Global economic growth carries with it many

threats to the thin, fragile biosphere in which human life exists.

As such threats are recognized, societies adopt regulations to control the danger.

Regulation that only commands is inadequate to the ultimate task, which is the creation of industrial activity that harmonizes with natural cycles.

The trend is clearly toward less-polluting, less-resource-intensive economic activity.

Leading corporations are more environmentally proactive, but sustainability is still a remote ideal.

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