Voluntary Approaches for Environmental Policy in OEDC ...F6rkey-Voluntary.pdf · Voluntary...

Voluntary Approaches for Environmental Policy

in OEDC Countries: An Assessment

Peter Börkey, Matthieu Glachant and François Lévêque

A first version of this report was discussed at the 14th Session of WPEEPI

(1213 November 1998). This text incorporates comments received and additional

information and analysis. A concluding chapter has been added.

CERNA, Centre d’économie industrielleEcole Nationale Supérieure des Mines de Paris

60, bld St Michel - 75272 Paris cedex 06Téléphone : (33) 01 40 51 90 91Télécopie : (33) 01 44 07 10 46

E-mail : [email protected]

Voluntary Approaches for Environmental Policy in OEDC Countries: An Assessment Peter Börkey, Matthieu Glachant & François Lévêque

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Table of contents

Executive Summary_______________________________________________________________________4

Chapter 1. The economic analysis of voluntary approaches ___________________________________8

1. The nature of voluntary approaches__________________________________________________________________________81.1 Voluntary approaches: a family of environmental policy instruments_________________________________________________81.2 Key features of voluntary approaches________________________________________________________________________111.3 The theoretical nature of voluntary approaches_________________________________________________________________121.4 Economic instruments and voluntary approaches_______________________________________________________________13

2. A polluter’s motives to voluntarily abate pollution______________________________________________________________142.1 Regulatory gains_________________________________________________________________________________________152.2 Saving inputs, increasing sales and enhancing reputation________________________________________________________162.3 The collective dimension of abatement costs and benefits_______________________________________________________17

3. Regulatory capture of voluntary approaches by industry interests______________________________________________193.1 What is the capture of voluntary approaches by industry?________________________________________________________193.2 The competitive advantage of industry within the environmental policy arena ________________________________________203.3 Safeguards to limit regulatory capture of voluntary approaches by industry interests___________________________________22

4. Bargaining in voluntary approaches_________________________________________________________________________234.1 Where a pollutee and a polluter negotiate_____________________________________________________________________244.2 The effects of contracting costs on bargaining and the potential failure of voluntary approaches due to the number of parties andopportunism _______________________________________________________________________________________________25

5. Conclusions: main lessons from theory______________________________________________________________________26

Chapter 2. Empirical Evidence of the Use of Voluntary Approaches in OECD Countries_________28

1. Introduction ______________________________________________________________________________________________28

2. The diversity of voluntary approaches in the European Union__________________________________________________302.1 Types of approaches_____________________________________________________________________________________302.2 Negotiated agreements: the European model of voluntary approaches ______________________________________________312.3 Public voluntary programmes_______________________________________________________________________________392.4 Unilateral commitments___________________________________________________________________________________41

3. The diversity of voluntary approaches in Japan_______________________________________________________________443.1 Types of approaches_____________________________________________________________________________________443.2 Negotiated agreements____________________________________________________________________________________443.3 Unilateral commitments___________________________________________________________________________________483.4 Conclusions____________________________________________________________________________________________50

4. The diversity of voluntary approaches in the United States______________________________________________________504.1 Types of approaches_____________________________________________________________________________________504.2 Negotiated agreements____________________________________________________________________________________514.3 Public voluntary programmes_______________________________________________________________________________554.4 Unilateral commitments___________________________________________________________________________________584.5 Conclusion_____________________________________________________________________________________________60

5. Other OECD Member countries______________________________________________________________________________61

6. Conclusion _______________________________________________________________________________________________64


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Chapter 3. Towards an evaluation of voluntary approaches___________________________________66

1. Some methodological principles for evaluating voluntary approaches__________________________________________661.1 The evaluation criteria____________________________________________________________________________________661.2 Environmental effectiveness_______________________________________________________________________________661.3 Economic efficiency______________________________________________________________________________________671.4 Administration and compliance costs________________________________________________________________________671.5 Competitiveness implications______________________________________________________________________________671.6 Soft effects_____________________________________________________________________________________________671.7 Innovation and learning effects _____________________________________________________________________________681.8 Viability and feasibility____________________________________________________________________________________681.9 Types of evidence_______________________________________________________________________________________68

2. Evaluating negotiated agreements ___________________________________________________________________________692.1 Environmental effectiveness_______________________________________________________________________________692.2 Economic efficiency______________________________________________________________________________________722.3 Administrative and compliance costs________________________________________________________________________742.4 Competition concerns_____________________________________________________________________________________752.5 Dynamic effects, innovation________________________________________________________________________________762.6 Soft effects, diffusion of information__________________________________________________________________________762.7 Viability and feasibility____________________________________________________________________________________762.8 Preliminary conclusions___________________________________________________________________________________77

3. The evaluation of public voluntary programmes______________________________________________________________803.1 Environmental effectiveness_______________________________________________________________________________803.2 Economic efficiency______________________________________________________________________________________833.3 Administrative and compliance costs________________________________________________________________________833.4 Soft effects_____________________________________________________________________________________________843.5 Viability and feasibility____________________________________________________________________________________843.6 Other criteria____________________________________________________________________________________________853.7 Preliminary conclusions___________________________________________________________________________________85

4. The case of unilateral commitments__________________________________________________________________________86

Chapter 4. Conclusions and recommendations _____________________________________________88

1. The lessons from experience _______________________________________________________________________________881.1 What are voluntary approaches?____________________________________________________________________________881.2 How are voluntary approaches used in OECD countries?_________________________________________________________881.3 How well do voluntary approaches perform?___________________________________________________________________89

2. Policy recommendations for design and implementation of VAs________________________________________________902.1 How to use negotiated agreements and public voluntary programmes_______________________________________________902.2 Recommendations on the design of voluntary approaches________________________________________________________922.3 Future areas for research on the efficiency and effectiveness of voluntary approaches_________________________________93

References______________________________________________________________________________94


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Executive Summary

Unlike marketbased instruments, voluntary approaches for environmental policy have beencreated by practitioners. More precisely, VAs have been developed by policymakers andindustrialists to provide pragmatic responses to new policy problems, namely the need for moreflexible ways to achieve sustainability, and the need to take into account the rising concerns aboutindustrial competitiveness and the increasing administrative burden after three decades ofcommandandcontrolbased environmental policy. As a result, a pervasive use of VAs can beobserved in OECD countries: over 300 negotiated agreements in European Union countries, about30 000 local pollution control agreements in Japan and over 40 voluntary programmes managedby the US government at the federal level have been surveyed in recent years. This widespreadevidence allows a first overview of the use and the performance of voluntary approaches inOECD countries.

The report reviews the available evidence to answer three main questions:

1. What are voluntary approaches?

2. How are voluntary approaches used in OECD countries?

3. What is the performance of voluntary approaches and when should they be used?

What are voluntary approaches?

Voluntary approaches covered in this report are schemes whereby firms make commitments toimprove their environmental performance beyond legal requirements. This definition provides awide scope, since it also applies to self regulatory arrangements (e.g. voluntary codes).

Three main types of voluntary approaches are identified in this report, according to the partiesinvolved in defining VA commitments towards environmental protection (presented below indecreasing order of importance of public authorities’ involvement):

Public voluntary programmes involve commitments devised by the environmental agency and inwhich individual firms are invited to participate. Since participation in the voluntary programmeis a choice left to individual companies, they can be seen as “optional regulations”. Examples arethe US programme 33/50 or the EcoManagement and Auditing Scheme (EMAS) implemented inthe European Union since 1993.

Negotiated agreements involve commitments for environmental protection developed throughbargaining between a public authority and industry. They are frequently signed at the nationallevel between an industry sector and a public authority, although agreements with individual firmsare also possible.

Unilateral commitments are set by the industry acting independently without any involvement ofa public authority. The Responsible Care programme is a wellknown example of a unilateralcommitment made by the chemical industry in many countries.


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A final category of voluntary approaches is private agreements, reached through direct bargainingbetween stakeholders: polluters and pollutees. However, these private agreements are onlymentioned in this report, as little information is available regarding their use and performance.

How are voluntary approaches used in OECD countries?

Although evidence of all three types of voluntary approaches above can be found in eachindividual OECD country, distinct national patterns of VA use can be identified. These underlinethe relevance of the different institutional and economic contexts.

In Japan a pervasive use of negotiated agreements concluded at the local level is observed (e.g.between a municipality and an individual firm). These negotiated agreements bridge the gapbetween the requirements of national regulations and local needs. Moreover, they are alsopreferred due to lower institutional obstacles: negotiated agreements need not be approved bylocal legislation. Enforcement is exerted by local authorities through the permit system for newfacilities and production extensions.

Despite the considerable institutional diversity among European Union Member states, an overallrepresentative pattern of VA use can be identified. In this regard, most countries appear to usenegotiated agreements at the national level, concluded between the government and a coalition offirms, mostly represented by a branch organisation. They have been developed as part of aregulatory reform seeking improved efficiency in environmental policy. Enforcement is providedthrough the threat of new legislation, should the negotiated agreement fail to reach its targets.

In the United States, the most preferred VA type appears to be public voluntary programmes.They are signed between the Environmental Protection Agency and an individual company,without any enforcement provisions. Companies’ incentives to join the programmes are mainlydriven by public image considerations. Thus, the US public voluntary programmes mainly aim atproducing incremental environmental improvements. In addition, the development of unilateralcommitments is also significant in the US, even though their use is hampered by antitrust law.

How well do voluntary approaches perform?

Over the last few years, a growing debate developed among industrialists, policymakers, scholarsand environmental interest groups about the potential contribution of voluntary approaches tothe efficiency and effectiveness of environmental policy. The available evidence to date onlycovers a limited number of cases of negotiated agreements and public voluntary programmes.

There is limited evidence as to the environmental effectiveness of VAs which seem to providelittle incentive to innovate and can be weakened by a lack of credibility, especially visàvis publicopinion. Yet VAs are likely to generate significant “soft effects” in terms of dissemination ofinformation and awarenessraising. On the other hand, their ability to reduce administrative costsremains an open question; transaction costs should also be evaluated. Finally, freeriding andregulatory capture can seriously affect the effectiveness of VAs.

Available evidence on the performance of VAs suggests two main ways of using negotiatedagreements and voluntary programmes efficiently:

1. Using them in a policy mix.

2. Using them to explore new policy areas.

Using negotiated agreements and voluntary programmes in a policy mix

A straightforward route is to associate voluntary approaches with a traditional command-and-control system, and substantial evidence in this regard exists. Voluntary approaches improve the


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flexibility and cost effectiveness of the policy mix, and allow for potential savings inadministrative costs. Reciprocally, regulatory components provide voluntary approaches withsafeguards against their main shortcomings, namely low expectations in their environmentaltargets, weak enforcement provisions, and the lack of credible and efficient monitoring andreporting requirements.

Voluntary approaches could also be mixed with economic instruments. However, the overallperformance of this kind of policy mix remains unknown, as in practice few examples areavailable so far.

Using negotiated agreements and voluntary programmes in new policy areas

Negotiated agreements or voluntary programmes often constitute a first step in exploring a newpolicy area, environmental policy issues which are not covered by existing regulations. Availableevidence points to a considerable number of voluntary approaches applied to this end. Inparticular, VAs are typically used to deal with climate change and waste recycling problems, whichentered the political agenda in the early 1990s. In this regard, voluntary approaches can be seenas a policy instrument with a transitional function, i.e. to operate until the time is ripe for otherregulations to come into force. They are particularly suitable for this role, since they are likely togenerate soft effects and provide learning experience which can help improve the future design ofmore traditional instruments.

Recommendations for devising voluntary approaches

Because VAs deal with so many subjects and are initiated for a wide variety of reasons in verydifferent contexts, there is no single preferred model of VAs. Nevertheless, given the strengthsand weaknesses of negotiated agreements and public voluntary programmes, somerecommendations on the implementation of voluntary approaches can be made:

• Clearly defined targets

The targets should be transparent and clearly defined. VAs should define quantitative targets.Moreover, the setting of interim objectives is crucial since they permit all the parties to identifydifficulties arising during implementation at an early stage.

• Characterisation of a businessasusual scenario

Before setting the targets, estimates of a businessasusual trend — what the emission levels orother target variables are likely to be, given natural technical progress within the consideredindustry — should be established in order to provide a baseline scenario.

• Credible regulatory threats

Made at the negotiation stage, a threat of regulation by public authorities provides companieswith incentives to go beyond the businessasusual trend.

• Credible and reliable monitoring

Provisions for monitoring and reporting are essential for keeping track of performanceimprovements. They constitute the key to avoiding failure to reach targets. Monitoring should bemade at both the firm level and the sector level in the case of collective VAs. In certain contexts,monitoring by independent organisations may be used.

• Third party participation

Involving third parties in the process of setting the objectives and the performance monitoring ofVAs increases their credibility. More generally, environmental performance should be made publicand transparent. It provides industry with additional incentives to achieve their commitments.


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• Individual penalties for non compliance

Provisions should be made for individual sanctions for noncomplying firms, by either makingbinding commitments, or by establishing linkages between VA commitments and regulatoryrequirements (e.g., the integration of VAs requirements into operating permits).

• Informationoriented provisions

In order to maximise the informational soft effects of VAs, supporting technical assistanceactivities, technical workshops, and publishing best practice guides should be promoted.

• Provisions reducing the risk for competition distortions

In the case of collective VAs, safeguards against adverse effects on competition could be providedby notification of new VAs to antitrust authorities.

In conclusion, case studies and surveys on voluntary approaches carried out in the last few years inseveral OECD countries give a clear picture of the use of these instruments. However, one shouldbear in mind that an assessment of their performances remains limited, as empirical andtheoretical economic analysis of voluntary approaches are still underdeveloped. From thisperspective, two research gaps are noteworthy. First of all, additional research efforts should bedevoted to study soft effects. Although they seem to represent a key advantage of voluntaryapproaches over commandandcontrol regulation and marketbased instruments, a clearunderstanding of soft effects, such as learning and awarenessraising, is still underdeveloped. Thiscalls for empirical studies as well as theoretical work aimed at understanding the very nature ofthis phenomenon. Secondly, some reflection on the performance of voluntary approachescombined in a policymix along with marketinstruments is also becoming increasingly necessary.Such an analysis appears particularly crucial for the ongoing policy debate on climate change.Added to the fact that many OECD countries have relied on voluntary approaches as a first stepfor reducing CO2 emissions in energyintensive sectors, the possibility of emissions trading beingdefined at the international level in the near future, point in the direction of the relevance of VApolicymixes with tradable permit systems and taxes, in the postKyoto context.


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Chapter 1. The economic analysis of voluntary approaches

1. The nature of voluntary approaches

Unlike taxes and tradable permits, voluntary approaches as a means to tackle environmentaladverse effects have not been conceived and prescribed by economic theory. They are not evenmentioned in current textbooks on environmental economics. Voluntary approaches wereinvented by those who devise and implement them: policymakers, business associations, individualfirms, nongovernmental associations, etc. As a result there is no readytouse specific theory tounderstand their very nature; to identify their main types amongst a rich variety; to carry out anevaluation of their effects on social welfare. Nevertheless, the general economics “tool box”provides some interesting sets of tools to cast light on voluntary approaches, namely industrialeconomics, political economy, and law and economics. These tools are used in this section to givesome insights into three major issues: Why would a polluting firm decide to voluntarily abate itsemissions? To what extent do voluntary approaches give room to the capture of public interestby industry? Can the bargaining aspect of voluntary approaches lead to an efficient outcome? Thediscussion of these issues is preceded by a general presentation of what constitutes voluntaryapproaches and a comparison between VAs and economic instruments.

1.1 Voluntary approaches: a family of environmental policy instruments

Voluntary approaches are one of the three broad categories of environmental policy instrumentswhich have evolved over the past thirty years. It is common to distinguish (Barde, 1995;Convery, 1999):

1. regulatory instruments (e.g., emission standards, product bans), whereby public authoritiesmandate the environmental performance to be achieved, or the technologies to be used, byfirms;

2. economic instruments (e.g., taxes, tradable permits, refund systems), whereby firms orconsumers are given financial incentives to reduce environmental damage;

3. and voluntary instruments, (e.g., voluntary codes, ecolabelling schemes) whereby firmsmake commitments to improve their environmental performance beyond what the lawdemands.

This latter category, called hereafter voluntary approaches, covers a rich variety ofarrangements. This diversity is reflected by an abundant terminology and raises severaldefinitional issues (cf. Box 1).

Four main types of voluntary approaches can be distinguished depending on the parties involved;in increasing importance of the role played by public authorities, they are the following:

1. unilateral commitments made by polluters;


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2. agreements achieved through direct bargaining between polluters and pollutees;

3. environmental agreements negotiated between industry and public authorities;

4. voluntary programmes developed by public authorities (e.g., environmental agencies) to whichindividual firms are invited to participate.

Box 1. Voluntary approaches terminology

Among the many names used to refer to voluntary approaches are voluntary initiatives, voluntary actionplans, voluntary programmes, voluntary codes, voluntary accords, voluntary agreements, voluntaryinstruments, pollution control agreements, environmental agreements, negotiated agreements,nonregulatory agreements, selfregulation, selfregulatory arrangements, coregulation, and covenants. Todate, there is no standard terminology to designate the broad category of voluntary approaches or some ofits types. Different countries may use the same term to describe quite different things. A voluntaryagreement in the Netherlands, for example, refers to a formal, negotiated, legally binding contract betweengovernment and industry, in which all companies are expected to participate. In the USA, on the otherhand, the term voluntary agreement is used to describe a nonbinding, voluntary programme in whichcompanies individually decide whether and when they want to participate (UNEP, 1998). This absence ofcommon terminology is an important obstacle to a common understanding of the nature of voluntaryapproaches and their subdivisions.

Amongst these different terms referring to voluntary approaches, two deserve attention because of thedefinitional controversies they raise: voluntary agreement and voluntary instrument.

The term “voluntary agreement” is a tautology, for by its very nature an agreement between differentparties implies that it is voluntarily signed. By definition each party is free to sign a contract or not.Moreover, the term voluntary agreement covers two different meanings. On the one hand, it designates thebroad category of voluntary instruments. It is used as a substitutive term of voluntary initiatives or voluntaryapproaches. On the other hand, it is used in a more narrow sense to name the environmental agreementsnegotiated between industry and public authorities. It is then used as a synonym of negotiated agreementwhich is only one type of voluntary instrument. Last but not least, the term “voluntary” is questionablewhere the agreement is signed by industry with public authorities. In fact, they may use their coercivepower to pose a threat of introducing a new regulation if industry does not abate pollution.

The controversy raised by the use of the term “voluntary instrument” is that voluntary approaches includeprivate initiatives (e.g., voluntary codes, company environmental management programmes). Since theyare exclusively undertaken and implemented by firms and/or nongovernmental organisations theseinitiatives can scarcely be considered as public policy instruments. Government and environmentalagencies may encourage private initiatives, in particular in recognising and publicising them, but cannotuse them as a public means to achieve environmental goals.

These four types may be defined and illustrated as follows:

Unilateral commitments: Consist of environmental improvement programmes set up by firmsand communicated to their stakeholders (employees, shareholders, clients, etc.). The definition ofthe environmental targets, as well as of the provisions governing compliance, are determined bythe firms themselves. Nevertheless, firms may delegate monitoring and dispute resolution to athird party in order to strengthen the credibility and the environmental effectiveness of theircommitments (Croci & Pesaro, 1996). One example of such a unilateral arrangement is theResponsible Care initiative undertaken by the Canadian Chemical Producers’ Association.Responsible Care was devised in response to a decline in public confidence in the chemical industryand to a threat of more stringent regulations (Franke & Wätzold, 1995). The programmecontains principles and rules designed to improve a firm’s performance in safety andenvironmental protection. Over seventy companies have agreed to it. Each participant mustsubmit its plants to regular verification of compliance, which is carried out by an externalcommittee composed of industry experts and community representatives. The results of thismonitoring are made public.


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Private agreements: Contracts between a firm (or sometimes a group of firms) and those whoare harmed by its emissions (workers, local inhabitants, neighbouring firms, etc.) or theirrepresentatives (community organisations, environmental associations, trade unions, businessassociations). The contract stipulates the undertaking of an environmental managementprogramme and/or the setting of a pollution abatement device. To illustrate, the CanadianAutomotive Workers Union has negotiated cleaner production provisions into collectiveagreements with the motor industry, involving 50 000 workers in 30 plants, as well as suppliersand part manufacturers. The implementation of the agreement has reduced the exposure of bothworkers and the environment to many substances through a process of substitution (TUAC,1998). In another instance, the Swedish Confederation of Professional Employees (TCO) hasdeveloped the “6E model” (Ecology, Emissions, Efficiency, Economy, Energy, Ergonomics).This model provides a framework for plans to improve both the external and workingenvironment. A number of such agreements have been signed with private companies and localgovernments (see Box 11).1 Another example is an agreement between a Volvo plant and aBritish Petroleum refinery near Göteborg in Sweden (Henry, 1994). BP changed its oil supply fora less costly petroleum but with an higher content in sulphur. As a result, the bodywork of theVolvo cars parked next to the refinery were damaged by corrosion. Within the agreement, BPpaid for Volvo to cover its parking lot in order to protect cars against sulphur emissions.

Negotiated agreements: Contracts between the public (local, national, federal or regional)authorities and industry. They contain a target (i.e., a pollution abatement objective) and a timeschedule to achieve it. The public authority commitment generally consists of not introducing anew piece of legislation (e.g., a compulsory environmental standard or an environmental tax)unless the voluntary action fails to meet the agreed target. Negotiated agreements are the keyinstrument of the National Environmental Policy Plan in the Netherlands where they are calledcovenants. Covenants related to the reduction of greenhouse gases’ emissions and other pollutantshave been signed with more than fifty industry sectors including industries dominated by largecompanies in the oil and chemical industries but also sectors dominated by small and mediumsizedenterprises such as textiles, leather, dairy, printing and packaging printers.

Public voluntary programmes: Within this type of voluntary approach participating firmsagree to standards (related to their performance, their technology or their management) whichhave been developed by public bodies such as environmental agencies. The scheme defines theconditions of individual membership, the provisions to be complied with by the firms, themonitoring criteria and the evaluation of the results. Economic benefits in the form of R&Dsubsidies, technical assistance, and reputation (for example by being permitted to use anenvironmental logo) can be provided by the public body. An example of such a nonmandatoryregulation is the EcoManagement and Auditing Scheme (EMAS) implemented within theEuropean Union since 1993. To register under EMAS a firm must establish a companyenvironmental policy; conduct an environmental review of its sites; set and implement anenvironmental improvement programme and an environmental management system; have itspolicy and sites reviewed, and its improvement programme and management system examined.Registered firms are then able to use and display a statement of participation. Another example isprovided by the voluntary programmes set by the US EPA, like Energy Star, Green Lights and33/50.

1 Details can be found on Internet: http://www.tcoinfo.com.


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1.2 Key features of voluntary approaches

The four different types of voluntary approaches can be characterised in considering several othercriteria. The following criteria are of particular importance in the remainder of the report and,therefore, need to be defined here:

Individual/collective voluntary approaches: Voluntary approaches may be developed bysingle firms as well as by coalitions of firms. Take, for example, unilateral commitments. Manylarge firms in OECD countries have developed a company environmental plan where theycommit to go beyond compliance of laws governing waste production and recycling, and energyand material consumption. Similarly, sectorbased programmes to improve firms’ environmentalperformance have been undertaken, such as Responsible Care for the chemical industry. Whethervoluntary approaches are collective or individual is a key distinction, for the former involveinterfirm cooperation whereas the latter do not. This directly influences the costs of voluntaryapproaches, in particular the costs of monitoring and sanctioning noncompliance to limitfreeriding (freeriding occurs when it is in the interest of economic agents not to contribute to anaction because they will benefit from it without paying its costs; cf. Box 10).

Local/global voluntary approaches: Voluntary approaches cover the whole spectrum ofgeographic delimitations. They may take place at a local, national, federal or regional level. Theyare particularly developed at the local level. In Japan, for instance, there exists today about30 000 local negotiated agreements (Imura, 1998). At the other end of the geographic spectrum,voluntary approaches are less developed, but are not negligible in number either. To illustrate, in1989 an agreement was signed between the Municipality of Rotterdam and hundreds firms fromfour different countries to achieve certain reductions in toxic emissions by 2010 (Van Dunné,1993). Other voluntary approaches are used worldwide. One such case is the agreement signedbetween the International Federation of Building and Wood Workers and IKEA. It concernsworking conditions, the natural environment and health and safety for workers at enterprisesthroughout the world that manufacture and supply goods for the Swedish company. It coversalmost one million employees in 70 countries. It is noteworthy that global voluntary approachescan create an environmental policy which is extraterritorial in effect. It is not possible for anational government to require a company in another country to meet its environmentalstandards, but a company can require its suppliers and units located elsewhere to meet thestandards of its home country (Webb & Morrisson, 1999).

Binding/nonbinding agreement: The legal form of voluntary approaches is an importantelement of their success. Agreements are binding for both parties when they include sanctions inthe case of noncompliance and are enforceable through a court’s decision. Binding agreements, asopposed to nonbinding agreements, or gentlemen’s agreements, are more likely to be effective.As far as negotiated agreements are concerned, the contractual obligations usually lie with theindustry; however, there are specific tasks for public authorities too (e.g., setting up a statisticaldata base, facilitating information exchange, coordinating research or reporting) and, as statedabove, public authorities are often committed not to undertake legislative action if and as long asindustry pollution abatement works satisfactorily. Because of legal hurdles, this commitmentusually takes the form of an implicit promise rather than an explicit clause within the contractsigned with industry. For instance, in Germany the constitutional law does not allow thegovernment to sign negotiated agreements. In the Netherlands, on the other hand, negotiatedagreements are legally binding (cf. Box 5). As far as other agreements (private agreements,collective unilateral commitments) are concerned, they can be enforced by the private bodyspecified in the contract (e.g., arbitration committee, ombudsservice), if any, or through litigationin the framework of contract law.

Open/closed access to third parties: As they operate outside the regular legislative process,voluntary approaches are not necessarily transparent and open to all vested interests. In essence,


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the voluntary approaches’ arena is limited to one (in the case of unilateral commitments) or twoparties (in the case of other types). However, the involvement of additional parties is possible.Third parties, like community organisations and green groups, play an increasing role in unilateralcommitments as well as in negotiated agreements. To illustrate, at the start of the ResponsibleCare Programme in Canada, monitoring relied exclusively on selfreporting by individualcompanies. Since 1993, an independent committee in which the local community is representedhas been responsible for monitoring. In the Netherlands, new procedures have been adopted toopen the covenantsetting process to third parties. In addition, the presence of public authoritiesmay also be observed in unilateral commitments and agreements between polluters and pollutees,in particular to ensure contract enforcement and to arbitrate disputes. The involvement ofadditional parties is a key variable for enhancing the environmental effectiveness of voluntaryapproaches. It contributes to limiting the risk of policy capture by industry interests thatvoluntary approaches entail (cf. Section 3).

Targetbased and implementationbased voluntary approaches: Voluntary approaches mayconcern setting pollution abatement objectives and/or the implementation of measures to achievethem (EEA, 1997). Where the environmental objective is set by the party(ies) involved in thevoluntary approach, the voluntary approach is called targetbased. Where the target is set withinthe framework of the regular legislative process by government, and the voluntary approach onlyconsists of selecting and implementing the measures to achieve it, the voluntary approach istermed implementationbased. To illustrate, most Dutch negotiated agreements belong to thissecond type. Indeed, covenants constitute the key instrument of the Netherlands’ environmentalpolicy plan. This plan, which was discussed and adopted by Parliament, sets stringent quantitativepollution abatement targets for over 200 substances. In 1996, 107 covenants were in force. Publicvoluntary programmes are also a typical illustration of implementationbased voluntaryapproaches. In contrast, as far as unilateral commitments and agreements between polluters andpollutees are concerned, the abatement target is generally set by industry itself. The distinctionbetween targetbased and implementationbased approaches is very important as regards thecredibility of voluntary instruments in public opinion. Where the objective is set by polluters, it issuspected of being lower than the target set by government because it only takes the specificinterests of the parties involved into account, not the public interest in general.

Despite the variety of their types and subtypes, all voluntary approaches contain a commonelement: they are nonlegislative commitments to undertake additional efforts in pollutionabatement. In essence, a polluting firm is not required by law to develop or adhere to a voluntaryapproach. As a consequence, in contrast to other instruments, voluntary approaches do not applyto all firms belonging to the same industry, contributing to the same adverse effect, or submittedto the same jurisdiction.

This definition of the legal aspects of voluntary approaches does not imply that theseinstruments are developed without external pressure on polluting firms, including pressure frompublic authorities. Typically, voluntary approaches are initiated in response to consumer andcommunity pressure; competitive pressure; and a threat of a new regulation or tax. Moreover,there are various ways in which these approaches are interlinked with the legal system. Incountries where the legal system is based on common law, for instance, a firm’s membership in avoluntary code may be taken into consideration by a judge to assess a firm’s liability in the case ofaccidents (Webb and Morrisson, 1999). Voluntary approaches generally operate under the shadowof the law.

1.3 The theoretical nature of voluntary approaches

From an economic point of view, there is no substantive definition which covers the whole familyof voluntary approaches. Two economic concepts (see Box 2) merit interest in order to definevoluntary approaches, but at the same time they restrict the number of these instruments. Incircumscribing voluntary approaches to instruments based on private solutions and/or collective


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action, voluntary approaches are limited to collective unilateral commitments, negotiatedagreements and private agreements. Both individual unilateral commitments and public voluntaryprogrammes are excluded by this definition. Such a restriction would be opposed to the aim of thisreport which is to give a comprehensive view of the wide variety of voluntary approaches andtheir worldwide use.

Box 2. Economic concepts to describe voluntary approaches

Two economic concepts may be useful in illustrating the key features of some voluntary approaches:

Private solutions: Regulatory arrangements undertaken by private economic agents, that is without a state’sintervention. According to the welfare economics tradition, government intervention is viewed as the only meansto remedy externalities (i.e., the harmful effects of pollution, where these effects escape the price mechanismbecause they fall on parties outside the market transaction). However, this view has been challenged by someeconomists who pointed out that there may be private alternatives to public intervention, in particular bargainingin transactions of property rights (Coase, 1960) and the organising of clubs (Buchanan, 1965). According to thisframework, public intervention is costly and it may make a bad situation worse when its costs are greater thanany gains that its policy may achieve. Private solutions may then be less costly. The relevant question is tocompare the costs and benefits of each possible solution to market failures such as externalities, no matterwhether this solution is private, public or a mix of both. Agreements between polluters and pollutees andunilateral commitments set by business associations come into this category of private solutions.

Collective action: Collective action takes place in several areas: between firms (collective voluntary approaches),between firms and public authorities (negotiated agreements) or between firms and pollutees (private agreements).Collective action means that economic agents cooperate in order to get a higher gain. The main obstacles tocollective action are twofold. Firstly, freeriding behaviour may occur when individual agents have an interest notto contribute to the action because they will benefit from it without paying its costs. Secondly, cooperationimplies a bargaining between the agents in order to decide how to divide the cooperative gain. An agreementmay not be reached, as each one wants to get the largest part of the pie to the detriment of the others. Theseobstacles have to be overcome for collective unilateral commitments and agreements between industry and publicauthorities or pollutees to be effective. Moreover, legal obstacles (e.g., antitrust law which constrains interfirmcooperation and statutes which forbid the regulatory agency to negotiate with regulated agents in order to limitthe agency’s discretionary power) may also hinder voluntary approaches from taking place.

1.4 Economic instruments and voluntary approaches

The current emphasis on economic instruments and voluntary approaches of environmentalpolicies in OECD countries, and their growing use since the end of the 1980s (cf. Chapter 2)introduces a historical relationship between these instruments. However, these two families havedifferent birthplaces, one was born in literature (cf. Box 3), the other in practice, and this leads toa different perception of their performances.

Born in practice and not in theory, voluntary approaches are very underdeveloped in economicliterature relative to economic instruments. Hundreds of papers in economic reviews deal withtaxes and tradable permits whereas less than a dozen are dedicated to environmental agreements.The lack of economic literature entails a major consequence: there is no readytouse theoreticalapparatus to derive conclusions about the efficiency of voluntary approaches. This is animportant difference to economic instruments where ex ante evaluation, that is to say theinstrument’s efficiency as predicted by theory, is well developed and may so provide usefulguidelines for policymakers.

Because economic instruments are described in textbooks on environmental economics as“perfect” instruments while voluntary approaches are not, there is a subjective bias to considerthe former as a better instrument. Textbooks start by demonstrating that the use of economicinstruments enables public authorities to maximise social welfare, that is to reach a Paretoefficient equilibrium (i.e., a situation which is impossible to change without benefiting at least oneperson without making another person worse off). This first best outcome is achievable given aparticular set of hypotheses. Public authorities are considered as benevolent, omniscient and


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credible: they pursue a public interest goal and not specific objectives such as gaining bureaucraticpower; they are informed about the regulated industry, technology, abatement costs, etc.; thecommitments they make related to their future actions (e.g., applying sanctions fornoncompliance) are credible in the eyes of those who would be affected by them. The absence of afirst best theoretical framework for voluntary approaches should not lead to the conclusion thatthese instruments are generally less worthy than economic instruments. When an imperfect worldis considered from the point of view, for instance, of information sharing, administrative costs orthe public agency’s behaviour, all instruments are imperfect. In order to cast light on the choiceof environmental policy instruments, the conundrum is to compare an imperfect solution within aspecific context with another imperfect solution and sort out which one is better. It is not tocompare a perfect instrument, say a tax, to an imperfect one, say a negotiated agreement. Thecomparison has to be made with the same hypotheses concerning the context of information,costs and behaviour.

Box 3. Economic instruments and theory

Unlike voluntary approaches, economic instruments first appeared in books. Their use by policymakers occurredafter economic scholars had invented them. The seminal idea of environmental taxation stems from A. Pigou. Inhis famous book, The Economics of Welfare, first published in 1920, Pigou defines the concept of externality asa market failure. There is an externality when: “one person A, in the course of rendering some service, forwhich payment is made, to a second person B, incidentally also renders services or disservices to other persons(not producers of like services), of such a sort that payment cannot be extracted from the benefited parties orcompensation enforced on behalf of the injured parties”.

According to Pigou, in the presence of such externalities, the market cannot provide the right price to economicagents and, by not doing so, the market fails to achieve the maximisation of social welfare. As a solution toestablish the right signal to economic agents, he proposed the setting of a subsidy or a tax by a public body.Until the end of the 1980s, this prescription had been largely ignored by policymakers. For a long time theirpreferences had remained on the setting of emission standards although hundreds of economists, deepeningPigou’s seminal work, have theoretically demonstrated, refined, and advocated, the advantages of taxingenvironmental externalities. Nowadays, environmental charges and taxes are implemented in most OECDcountries (OECD, 1994, 1997).

The idea of setting a market of polluting rights is much more recent and its transfer from theory to practice hastaken less time. As proposed by a few economists at the end of the 1950s (Bator, 1958; Coase, 1960), the originof externalities may be explained by the absence of property rights. Elaborating on this idea, a Canadianeconomist, J. Dales, imagined in a book published in 1968 the creating of markets of property rights by publicauthorities in order to cope with environmental externalities. The basic principle of this instrument is to initiallyallocate polluting licences (e.g., the permit to emit one ton of CO2 in the atmosphere), for instance, to thehistorical users of the resource, and to then allow the transactions of the licences on a market. If suppliers andbuyers are numerous and costs of exchange are low, a market price for a licence will emerge. The first attempt toapply this instrument was made in the United States in 1981 in order to regulate the pollution of the Fox river.Today, it is used there in several areas, especially to cope with air emissions like SO2 (OECD, 1999).

Unlike economic instruments, voluntary approaches do not originate from economic theory.However, economic analysis provides tools which cast light on some major issues related to theuse of voluntary approaches, as we will show below.

2. A polluter’s motives to voluntarily abate pollution

Going beyond compliance is counterintuitive because a firm is supposed to make money andabating pollution is costly: its costs include capital resources to change processes or to buyendofthe pipe technologies, and human resources in research and environmental management.These expenditures will increase the production cost and as a result there will be either a decrease


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in demand due to increasing product prices, or a decrease in profit if the firm decides not to raiseits product price. Why then, would a firm decide to voluntarily abate pollution? From aneconomic point of view, a firm’s voluntary abatement can only be expected if the abatementcosts are associated with superior or equal benefits. Therefore, it is necessary to discuss whatbenefits can be derived from going beyond compliance. The following section is aimed at castinglight on this issue. It is based on simple considerations taken from industrial economics.

2.1 Regulatory gains

A commonly expected gain associated with voluntary abatement is avoiding the costs of publicregulations. The government may plan to introduce a new standard or a new tax. In behavingproactively and deciding to reduce its emissions, a firm may expect to preempt public regulation(Maxwell et al., 1998). In 1984 the Responsible Care Programme, for instance, was initiated inCanada by the chemical industry as new regulations were anticipated following accidents which hadoccurred in Canada (Love Canal) and abroad (Bhopal in India). More reactively, a firm mayundertake pollution abatement to answer to an explicit threat to intervene posed by thegovernment. Most of the voluntary approaches in CO2 abatement are a response of firms to athreat to introduce taxes on greenhouse gases.

Box 4. Regulatory gains

Figure 1 represents a firm’s costs and benefits related to pollution abatement depending on the total amount ofemission reduction which is achieved. It is assumed that marginal abatement costs are constant or increasing, forinstance, because of decreasing returns in abatement technology, and that marginal benefits are decreasing, for instance,because of decreasing returns in reputation visàvis consumers. It is supposed that if a public regulation were set,government would have set and enforced an abatement target Qr ( Q°. It is thus supposed that government has acoercive power which enables it to force firms to undertake action entailing a net loss for companies. It is also assumedthat compliance costs are higher where abatement is regulated by government (curve Cr).

In absence of a regulatory threat, a profitmaximising firm will undertake a voluntary initiative to abate emissionsat point Q*, the point where it maximises its net benefit. In the case of a regulatory threat, the level of pollutionabatement that a firm will choose voluntarily depends on the level Qr of the threat. If the threat is perfect, a firmwill abate Qr. Then the single regulatory benefit may only be due to lower compliance costs. This benefit isrepresented in the figure by segment AB. If the threat posed by the government is not perfectly credible, the firmwill abate Qi ( Qr. The regulatory gain due to this lower abatement target is represented by the segment BC.

Figure 1. Avoided Costs of Regulation

Individual

abatementcosts and

benefits

$

Cr

A

B

C

Bi

0 Q* Q° QrQi

Ci

A firm will only opt for a voluntary approach if this will be the costminimising solution. Twocategories of avoided costs can be distinguished. Firstly, a firm may expect to lower the pollution


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abatement costs because the environmental target to be achieved is lower. To illustrate, theFederal Association of German Industry has committed to reducing their energy use and CO2

emissions per unit of output by 20 per cent by 2005 compared to 1990 whereas the target asexpressed in the government regulatory project has been set at 25 to 30 per cent emissionreduction by 2005 in absolute terms (cf. Box 6). The benefit of a lower target implies that theindustry has succeeded in influencing the policy process according to its own interests. Secondly, afirm may also expect to lower the pollution abatement costs if it can achieve the target at lowercompliance costs. The cause for lower compliance costs is that voluntary approaches may leavegreater flexibility to industry at a company or industry level with respect to the decision on howto reach the target than does legislation which prescribes or implies, for instance, the use of acertain technology. This allows industry the freedom to find costeffective solutions adapted to itsspecific situation, taking into account, for instance, previous and already planned investment.These two regulatory gains are graphically illustrated in Box 4.

2.2 Saving inputs, increasing sales and enhancing reputation

Benefits from voluntary abatement are not limited to regulatory gains. An additional pollutionabatement may result in a better use of, and access to, inputs. Such a case is called noregret actionand the classical example is that of energy savings. Environmental improvement of a processmay be associated with a lower consumption of fuel or gas, and, therefore, may result in areduction of energy costs. To illustrate, according to the EPA (1996), the US public voluntaryscheme Green Lights (a programme which provides participants with technical information forthe use of efficient lighting) has resulted in energy savings of about US$100 million per year andparticipants have experienced rates of return of up to 50 per cent. Similarly, a waste reductionprogramme may lead to raw material savings. Cost minimisation of inputs are also relevant forservices. To illustrate, in Canada (Webb & Morrisson, 1999) the adherence to unilateralcommitments in the chemical industry and the forest sector provides a rebate on the annualpremium offered by insurance companies. Most of the potential of noregret actions is based onthe lack of information or knowhow of firms with respect to new clean technologies. Thisexplains why, albeit profitable, these actions may not be undertaken in the absence of voluntaryapproaches. Here, industry associations and environmental agencies are necessary to disseminateand to subsidise information (Stranlund, 1993).

Another expected gain for firms voluntarily abating pollution is provided by productdifferentiation on environmental performances and their signalling to consumers viaadvertisement and labelling. Firms may be rewarded according to different mechanisms. Once theenvironmental performances are known, green consumers can express their willingness to pay forthe environment in purchasing goods. High quality products will then be sold at higher prices. Thisis the case, for instance, in Germany where most of the products labelled with the “Blue Angel”are more expensive than nonlabelled alternative goods. Even if consumers do not want to paymore for greener products, there may still be an advantage of differentiation. At the same priceconsumers opt for greener products and therefore the greener firm is rewarded by an increase in itsmarket share. Finally, as a rule, product differentiation relaxes price competition. Where antitrustlaw is weak, firms may also expect monopoly and cartel rents as a counterpart of their pollutionabatement.

A third benefit which may outweigh the abatement costs is reputation gains visàvis stakeholders.In addition to its shareholders and its clients, a firm’s constituency includes its employees andlocal communities. These stakeholders may exert a strong influence on a firm’s profit. Whenemployees perceive the reputation in environmental care of their company as being low,employee turnover, absenteeism, etc. may be high. Conversely, high reputation may increase theemployees’ motivation and trust towards employers and, as a result, may lead to an increase inlabour productivity. Moreover, better environmental care generally entails an improvement inthe health and safety conditions of employees. Last but not least, improved environmentalreputation may also favour easier recruitment of new qualified staff. Several voluntary approaches


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aim at gaining such a benefit: many companies, such as IBM and Toshiba, have signed anagreement with the Swedish national trade union centre for whitecollar workers to introduce the“6E”, a guide for integrating ecology and the work environment in everyday decisionmaking(TUAC, 1998).

Gaining in reputation visàvis local communities is also crucial for polluting industries such as themining, chemical, or nuclear industries. Low reputation is associated with the Not In My Backyardsyndrome which impedes firms from following market growth in installing new productioncapacities. A plant’s running costs are also affected when a local community organises sitins anddemonstrations which reduce a plant’s accessibility to employees, suppliers, etc. On the otherhand, high reputation visàvis local communities enables firms to obtain more quickly a permit toextend the capacities of their existing plants or to build new ones. Residents who live near plantshave been among the major audiences targeted by the Responsible Care programme undertaken bythe US Chemical Manufacturers Association (Mazurek, 1998b). This association developed thecommunity advisory panel process as a mechanism to promote dialogue between chemical plantmanagers and residents. Community advisory panels typically include a crosssection ofrepresentatives from the community who meet regularly, often monthly, to discuss issues rangingfrom plant expansion, to local education needs, to helping the plant site develop environmentalplans. Most observers agree that these panels are Responsible Care’s greatest achievement. Nineout of ten companies report that improved community relationships provide the greatest benefit.Surveys of plant neighbours, local politicians, and emergency response personnel familiar withResponsible Care were more favourable to the industry than those who were unfamiliar with theprogramme. Community surveys show an improvement in favourability from 44 per cent in 1989to 80 per cent in 1994.

2.3 The collective dimension of abatement costs and benefits

A key feature of the costs and benefits examined above is that they are often characterised by acollective dimension, that is they depend on the number of firms which cooperate in thevoluntary abatement.

Individual abatement costs may decrease when the number of firms grows, for instance, becausethere is a certain level of a given emission to be reduced in order to eliminate its adverse effectson the environment. Thus, the higher the number of participants, the lower the individual effortrequired by each firm, and therefore the lower the individual abatement costs. There may also benetwork savings in abatement technology. This is the case especially in packaging wastemanagement. The costs of transporting waste is high and the packaging waste resource is atomisedand heterogeneous. As a consequence, individual firms and industries have little interest inimplementing their own specific collecting and sorting schemes but more incentive to organisethemselves into a small number of networks. This explains why negotiated agreements betweenindustry and government in waste valorisation are collective in their very nature. In France,voluntary approaches gave birth to three systems: one specialised in packaging waste(EcoEmballage S.A.), another in glass waste (Adelphe), and a third devoted to pharmaceuticalspackaging (Cyclamed).

Regulatory gains are also very often distinguished by a collective dimension (cf. Box 5). If onlyone firm of an industry (or a small number of firms) undertakes voluntary emissions abatement, itis unlikely that this would persuade public authorities not to regulate. Similarly, the reputationgain in public acceptance for implementing new facilities, such as chemical plants or nuclearpower generation utilities, may only be obtained if the whole industry is concerned with theenvironmental management programme.

To sum up, several benefits can be associated with a firm’s voluntary abatement, including thepreemption of regulation, and this explains why firms may want to go beyond compliance of laws.


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Box 5. The voluntary abatement gain depending on the number of participants

Different noteworthy curves related to the relationship between the net individual benefit in pollution abatementand the number of firms involved are shown in Figure 2 below. For simplification, it is considered that each firmi incurs the same abatement costs and benefits.

In Curves 1 and 2, the maximum net benefit occurs when all firms within the industry contribute to pollutionabatement. As a result, there are no incentives to exclude firms from the voluntary approach. Each new entrant iswelcomed by the others. A typical example is that of voluntary approaches which are set in order to avoid agovernment regulation. The higher the number of participants, the higher the probability of successfullypreempting the regulation, and the higher the regulatory gain (the regulatory gain is equal to the probability ofavoiding the public regulation multiplied by the avoided costs). Whether the curve slopes upward or downwardis noteworthy with respect to freeriding. In Curve 2, it is crucial to limit freeriding for the gain is small if not allfirms contribute. Moreover, from a dynamic point of view, the low slope at the beginning of the curve maydiscourage firms from initiating the process. If each firm waits for the size of the coalition to be large enough toenter because the benefit is much higher, nothing will happen. At the extreme, it can be imagined that the curveis flat from i = 1 to n1 and then goes vertically up. This is the case, for instance, of the voluntary codeundertaken by the Institute of Nuclear Power Operators. This institute is a private organisation created by the USnuclear industry. Its unique tasks are to set and to monitor guidelines and performance objectives constrainingtheir members’ individual behaviour visàvis the environment (Rees, 1994). A tacit agreement exists with theNuclear Regulatory Commission to shut down plants of any firm which does not comply with the voluntarycode (this happened in the Peach Bottom reactor case in 1987). In the nuclear industry one black sheep issufficient to destroy the collective reputation gain. In Curve 1, on the contrary, a certain level of freeriding istolerable; therefore the monitoring and sanctioning system can be lighter, that is less costly.

In Curves 3 and 4, there is an economic rationale for firms which undertake pollution abatement to excludeothers from their collective action. As a result, the voluntary approach can only take place if an exclusion devicecan be set. If this not possible because of technological reasons, for instance, there are no entry barriers astechnology is public, or legal reasons, for instance, the antitrust law forbids restricted entry to industryassociations, the collective action cannot be set. To illustrate the decrease in the net benefit with the increasingnumber of firms, reference can be made to product differentiation in environmental performances. If all firms of agiven industry launch a product labelled with equally high environmental performance on the market, nocompetitive advantage will result. Worse than this, if willingness to pay for greener products is zero, the benefitis only provided by an eviction effect and therefore, once the green product has eliminated the nongreen product,there is no benefit at all. This is illustrated by Curve 4. Again, the difference between Curves 3 and 4 is indegree rather than in nature. In the case of Curve 4, the securing of an exclusion device is more crucial. If it isnot perfect, then collective action is very unlikely to take place. In the case of Curve 3, collective action cantolerate an imperfect exclusion system.

Figure 2. Individual benefits in pollution abatement according to the number of firms

1

2

3

4

0 1 2 i m

.

.

.

.

Netindividual Benefits

$


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3. Regulatory capture of voluntary approaches by industry interests

It is often advanced that voluntary approaches would only result in cosmetic effects on theenvironment. This suspicion is related to the prominent role of industry in the process of settingand implementing these instruments. Being the dominant interest group in this process, industry issuspected of using voluntary approaches to capture environmental policy. The following sectionis aimed at analysing to what extent voluntary approaches give room to regulatory capture byindustry interests. It is based on the political economy of regulation, a branch of economics whichstudies how interest groups influence a government’s decisions.

3.1 What is the capture of voluntary approaches by industry?

Since the abatement of emissions is costly, polluting firms have a clear incentive to obstruct theintroduction of a more stringent environmental policy. If they succeed, the regulation is notpassed and they do not pay additional expenses for the environment. The policy is said to havebeen “captured” by industry. More generally, environmental regulation is captured whenregulatory costs are zero for a firm. This includes cases where new legislation has been successfullyobstructed but also cases where it has been passed but has been flawed: either the objective to beachieved set by the law corresponds to a businessasusual pattern (cf. Box 6) or the objective ismore ambitious, but firms know that it will not be enforced. In using this definition, a voluntaryapproach will be considered as being captured by industry when the environmental target set is nomore than the abatement associated with a businessasusual pattern. But to go beyond thisallornothing view of capture, it is also considered that there is a degree of capture when the targetis close to the businessasusual pattern: the closer the target to this pattern, the higher the degreeof capture of a voluntary approach by industry interests.

How may polluting firms obtain the regulator’s consent to make the businessasusual target looklike a real effort for the environment and/or to hide noncompliance with a costly target? Forregulatory capture to be successful, the regulator must have an interest in it.

Voluntary approaches may be attractive for the legislator (or the regulator) which pursues its ownspecific objectives instead of public interest (Hansen, 1999). For instance, policymakers maycollude with industry in the use of voluntary approaches because it speeds up the regulatoryprocess. As a result, public authorities can demonstrate to public opinion that they are able todiligently undertake action and that they have contributed to solving many environmentalproblems during the legislature. Similarly, an environmental agency may collude with industry inthe use of voluntary approaches in order to save its budget resources. Since the mid1980senvironmental agencies have been confronted with an increase in the number of environmentallaws that need to be implemented and monitored. But public finance deficits have resulted in lowerincreases in budgetary resources compared with the rising number of new laws. Voluntaryapproaches provide an opportunity to transfer a part of administrative costs to industry. Aselfreporting clause where polluting firms are committed to providing the regulator withinformation about their progress in compliance may, for instance, be included in a negotiatedagreement with a business association. The money otherwise needed for inspection can be used forother tasks of the agency such as monitoring of other policies.

Time and money savings are just some of the different motives public authorities may have incolluding with industry in voluntary approaches. According to the political economy ofregulation, as for any other policy, “bribes” such as the offer of future employment withinregulated firms, monetary transfers, campaign contributions, political advertising, invitations tosocial events, even the agency’s concern for avoiding conflict are further possible rewards to thelegislator and the environmental regulator.


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Box 6. Businessasusual?The Case of the German CO2 Agreements

As technology evolves and improves, it spontaneously increases the efficiency with which natural resources areused, and therefore reduces the emissions per unit of resource used. As economies develop, and old technology isreplaced by new, there is a corresponding improvement in the environmental performance, which is not due to afirm’s environmental policy per se; it is the automatic consequence of economic development. In undertaking avoluntary approach industry may have an interest to do no more than the normal evolution of technology wouldenable them to do anyway, without additional expenses, but to claim this businessasusual reduction as the resultof special environmental efforts.

Because of market and technological uncertainties the businessasusual scenario is difficult to predict. Theassessment as to whether an environmental target is ambitious enough raises controversial issues. An example isprovided by the voluntary agreement of the Federal Association of German Industry (BDI). This involved thepublication of the Declaration by German Industry and Trade on Global Warming Prevention in March 1995stating their objective to reduce their CO2 emissions or their energy intensity (energy use per unit of output) “byup to 20 per cent” by 2005, with reference to 1987 as base year. The base year was subsequently changed to1990 and the target modified to “by 20 per cent”. Furthermore an independent monitoring system wasestablished (Updated and Extended Declaration by German Industry and Trade on Global Warming Prevention,March 1996) This objective was agreed by 19 industrial and utility associations. In response the FederalGovernment decided not to introduce further legislative measures directed at climate protection.

Although the target seems ambitious, there are a number of reasons for thinking that it actually involves verylittle reduction above what would have happened anyway. 1990 was before the major restructuring of EastGerman industry took place. Largely as a result of this restructuring, CO2 emissions from East German industrydropped by 65 per cent between 1989 and 1995, leading to a substantial overall reduction for Germany as awhole (Jochem & Eichhammer, 1996). As a consequence, the 2005 target had already been fulfilled to 80 percent when it was announced (Jochem & Eichhammer, 1996). This is also confirmed by the official monitoringperformed through the RheinischWestfälisches Institut für Wirtschaftsforschung (RWI, 1997). It should,however, be noted that the pictures are very different in the various industry sectors, some having achievedalmost 100 per cent of their target, others only about 20 per cent.

In addition, from 1970 to 1993, energy efficiency in Germany increased at an annual rate of 1.8 per cent whereasthe declared objective by the BDI corresponds to an annual rate of 1.2 per cent for the period 19872005. Industryargued that this gap does not indicate the absence of additional efforts for energy conservation because marginalgains in energy efficiency are now more difficult to achieve, especially in the industries involved in the voluntaryinitiative. However, another forecasting study (Jochem & Eichhammer, 1996) which carried out a detailedtechnological analysis at the level of the industrial sector has shown that except for the tiles and glass industriesthe target is below what might be expected from businessasusual. The study also reveals considerable difficultiesin monitoring the achievement of the target because of overlaps between the industry associations involved andchanges in the official production statistics.

3.2 The competitive advantage of industry within the environmental policy arena

As viewed by the political economy of regulation, the regulatory process is an arena within whichinterest groups contending or allied with one another try to shift political favours to their benefit.The most powerful groups will be most able to affect a government’s decision, and thereforepublic policies will inevitably be biased towards them.

Generally speaking, industry is considered to be one of the most powerful interest groups becauseof its high incentives to influence, its low organising costs and its high financial resources relativeto other interested parties (cf. Box 7).

As far as environmental policy is concerned, industry benefits from a strong competitiveadvantage in the regulatory arena. In practice, as a rule, there are fewer polluting firms than thereare victims of their emissions. Industry interest groups are therefore smaller than the interestgroups of victims which results in their having higher incentives and lower organisational costs.Moreover, firms may know quite well what alternative pollution control policies will cost them,


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whereas victims of pollution may be considerably less certain of their benefits from the reductionof a particular pollutant from a particular source. Lastly, industry has high financial resourcescompared with those of nongovernmental organisations (green groups, consumer associations).

Box 7. The theory and determinants of regulatory capture

The theory of regulatory capture is inspired by political science literature (Bernstein, 1955) whichsuggests that regulation favours industry at the expense of other interest groups, even though its initialpurpose may have been different. The argument is that coalitions of consumers interest groups are formedto pass regulatory legislation intended to benefit consumers, but that the machinery thus establishedsubsequently becomes captured by industry. Consumer interest groups are assumed to be shortlived becausethey lose potency as the issue loses political salience. Stigler (1971), the pioneer of the economic theoryof regulatory capture, has adopted a more radical view in suggesting that regulations are set and agenciesare created in order to serve the interest of industry through entry restrictions, protective trade barriers,pricefixing, etc. He interprets regulation as a mechanism of wealth distribution to firms in the form of directsubsidies to, or expenditures programme for, public works. According to Stigler, regulation is a commodity.Regulatory favours are exchanged between industry interest groups and policymakers according to the lawof supply and demand. In particular, interest groups, constituting the demand side, choose to influencegovernment at a level where the marginal benefit is equal to the marginal cost. The reward to suppliers,i.e., the government, is political support in terms of votes or campaign contributions, jobs in the politicalafterlife, and so forth. According to Stigler, the regulatory capture by industry can be attributed to therelatively small size of the industry coalition compared to consumer or taxpayer interest groups. Thedevelopment of regulation during the 1970s, in particular the introduction of control in industrial emissionsand the deregulatory experience, led scholars to consider that governments arbitrate amongst competinginterest groups and not always in favour of business, and attempt to predict which interest groups will beinvolved in the regulatory arena and which will gain the favour of public authorities, as follows:

Whether an economic agent enters the regulatory process mainly depends on the size of anduncertainties involved in the stakes and on the costs of organising an interest group. If the economic agentexpects to gain only a small benefit, he has low incentives to undertake lobbying efforts. The size of thestakes is negatively correlated with the size of the interest group: for a given issue, the smaller the numberof members, the higher the per capita stakes. If the effects of a regulation cannot be predicted beforehandwith reasonable accuracy, the gains (or losses) for economic agents cannot be computed and theincentives to contribute to a lobbying effort supporting (or obstructing) the regulatory project is obviouslyreduced. In many circumstances, uncertainty will be greater about some effects of regulation than aboutothers. If benefits are uncertain but costs are known, supporters of the status quo ante will be more stronglyrepresented. The cost of organising an interest group includes all the costs associated with collective actionand multilateral bargaining. The benefit of lobbying is featured with a collective dimension. The group thatsuccessfully obtains a regulation will normally not be able to limit the benefits resulting from theregulation only to members who contributed to the lobbying efforts. This provides the incentive to freeride.The cost of organising is therefore positively correlated with the size of the group, as small groups canovercome freeriding more easily than large ones (i.e., the costs of monitoring and sanctioning a breach ofthe contract are lower). The cost of organising also depends on whether the group is homogeneous or not.The bargaining on the rules to be set in order to share both the costs and the collective gain is lessconflictual when the preferences and production patterns of the parties are similar.

The settingup of an interest group is a necessary, but not a sufficient, condition to win favour frompublic authorities. Lobbying incurs costs in the form of meetings to be attended, arguments to be prepared,information to be collected, experts’ reports to be commissioned and so forth. Moreover, there is also thecost of the rewards to policymakers and civil servants: monetary and nonmonetary bribes, financial supportto political campaigns, promises of future employment, etc. A traditional approach in political economy ofregulation considers that these expenditures in influence directly determine the outcome of the regulatoryprocess. For instance, Becker (1983) assumes that higher expenditures in influence costs raise theprobability of a policy favourable to a particular interest group and unfavourable (at least on the average)to the other interest groups involved.

In terms of pollution abatement, the effect of this competitive advantage of industry over otherinterest groups is that the higher the advantage, the smaller is the gap between the environmentalobjective set or achieved, and the businessasusual pattern. Where industry succeeds in establishinga monopoly to benefit from the favours of the legislator or the agency, the environmentalobjective which will be set or achieved will only reflect a businessasusual pattern. Where green


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groups or groups of those harmed by pollution have only limited influence at their disposal tocounterinfluence industry within the regulatory arena, the environmental target will be onlyslightly above the businessasusual pattern.

From this point of view, voluntary approaches present an important drawback as they provideindustry with a monopoly power within the regulatory arena. In principle, unilateralcommitments and negotiated agreements are not open to third parties. The former are unilateralcontracts only signed by polluting firms and the latter are contracts signed between industry andgovernment. There is no obligation attached to these instruments to involve third parties in theirsetting or their implementation. Where open access to third parties is not provided, the use ofvoluntary approaches increases the likelihood of regulatory capture.

3.3 Safeguards to limit regulatory capture of voluntary approaches by industry interests

A benevolent government must adopt an organisational response to limit collusion betweeninterest groups and those civil servants or legislators who pursue their own specific interests. Interms of general welfare, regulatory capture results in a double loss. Firstly, there is the deadweightloss associated with an imperfect regulation (e.g., the adoption of a policy instrument which leadsto a higher abatement cost to achieve a given target). Secondly, there is the general welfare lossdue to the unproductive use of resources spent on influencing the regulator. The attempt ofprivate agents to capture rents generated by a state’s intervention is rational at the individuallevel but is a waste from the social point of view: “Resources devoted to efforts to curry [thepublic authorities] favour might be used to produce valued goods and services elsewhere in theeconomy, whereas nothing of net value is produced by rentseeking” (Buchanan, 1980). It isimportant to note that a benevolent government can limit regulatory capture but cannotcompletely prevent it. There always remains a degree of capture because of informationasymmetries (cf. Box 8).

Box 8. Regulatory capture and information

When the government contemplates an environmental policy, it needs to spend resources to collect and processinformation in order to formulate the possible alternatives and make a decision. Even after the policy is decided,collecting information is necessary to monitor the compliance of lowerlevel bureaucrats in the agency, on the onehand, and of the firms and individuals at whom the policy is targeted, on the other. A major informationalconstraint is that of asymmetries between the environmental agency and the polluting firm. The agency istypically less informed than the firm about the abatement costs and technology of pollution reduction. Using thelanguage of the principalagent relationship — a theory which examines strategic interaction between economicagents — there is a problem of hidden information, or adverse selection. In order to set an efficient environmentalpolicy, the regulator must know the costs of the polluting firm. However, it is not in the interest of the firm toprovide this information. Instead, since the regulation will negatively affect its revenues, the firm is motivated tooverestimate abatement costs and to underestimate its emissions. Similarly, once the regulation is passed, thefirm is motivated to manipulate its information on compliance costs and achieved emission levels. To limitthese manipulations, the regulator must create an incentive mechanism which gets the firm to reveal trueinformation. Such a mechanism can only work if it provides a firm with a benefit. To illustrate, gains inimprovement of productivity in pollution abatement will be left to the firms and not be taken back by theregulator (be it through an ex post decrease in subsidies or a future increase in charges). As a result, a firm’s rentowing to its information advantage visàvis the regulator can be reduced but can never be totally extracted. Inother terms, the potential for a regulatory capture cannot be completely eliminated.

The degree of regulatory capture depends on whether the agency is benevolent and how it is controlled. If theagency does not act in the public interest but pursues its own specific objectives (e.g., future positions of its staffin the regulated industry), it may collude with the business association. This attempt may be hindered by anupperlevel within the state apparatus, say the Parliament. However, the potential for regulatory capture againcannot be completely eliminated. To illustrate, the Parliament relies on information supplied by an agencywhich has more time, resources and expertise to finetune and monitor environmental policy. The upperlevelmust therefore set a system to provide incentives to the agency not to keep private the information it has aboutthe effects of contemplated and passed environmental legislation on different groups.


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As far as voluntary approaches are concerned, at first blush it might seem easy to limit regulatorycapture by simply having policymakers not support or use these instruments. For instance, insteadof endorsing selfregulation and environmental agreements, the European Commission in its FifthEnvironment Programme of Action could have ignored them and restricted their use throughantitrust policy. However, this view would be misleading since these instruments have interestingproperties (cf. Chapter 3) and furthermore regulatory capture is not limited to voluntaryapproaches. To give an example, emission standards may be captured by industry after a law hasbeen passed. In the absence of third parties involved in the monitoring process, which is a generalpattern for emission standards, there is room for the local agency to collude with firms and hidenoncompliance to the central agency or the Congress. Economic instruments are not safe either.This is particularly the case of subsidies for they are very attractive to industry, but there is alsoempirical evidence with respect to taxes. Several ecotax projects, like the EU CO2 energy tax,have been nipped in the bud by industry obstruction or have been mixed with exemptions tospecific sectors, like energyintensive industries, whose interest groups are amongst the mostpowerful (Skea, 1996).

The potential for capture lies not so much in the choice of environmental policy instruments asin the organisation of the regulatory process. As pointed out by political economy of regulation,capture depends on organisational variables: the costs of interest grouping and the structure ofpolitical and regulatory institutions. Of particular importance are the rules which frame theregulatory process: those which ensure that all vested interests are represented; those whichcontrol the discretionary power of the regulatory agency; those which secure the expertise of theenvironmental agency; those which require the abatement objectives and the schedule for theirachievement to be made explicit; those which mandate ex post public policy evaluation; thosewhich ensure credible systems of sanctions.

To illustrate, the following safeguards usually play a significant role in limiting the capture ofvoluntary approaches by industry interests:

1. Environmental interests are organised in nonprofit organisations and political parties in such away that they can be effective watchdogs visàvis both government and industry.

2. Government and nongovernmental organisations are sufficiently informed concerning theenvironmental performance and potential of individual firms and industry sectors in order tobe able to distinguish between commitments which correspond to genuine abatement effortsand those which follow a businessasusual pattern.

3. Government has a number of organisational levels, e.g. with agencies close enough to industryto understand both the concerns and potential of business, but in turn, under the control of anupper administrative branch, to limit collusion between agencies and industry interests.

As a conclusion, according to the political economy of regulation, voluntary approaches largelygive room to regulatory capture by polluting firms since they reinforce the monopolisation of theregulatory process by industry interests. However, safeguards can be provided by public authoritiesin order to reduce this important drawback.

4. Bargaining in voluntary approaches

Bargaining is prevalent in the use of voluntary approaches. It takes place between firms and publicauthorities in negotiated agreements, between firms and pollutees in private agreements andbetween the members of industry associations in collective approaches. This bargaining dimensionattached to voluntary approaches raises doubts about whether they can lead to an efficient


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outcome. What are the insights provided by economic analysis into this issue? The followingsection is based on law and economics, a branch of literature which covers the setting andenforcement of contracts. The nature and failures of bargaining are presented here, focusing onprivate agreements. The findings, however, can be extended to other voluntary approachesinvolving bargaining.

4.1 Where a pollutee and a polluter negotiate

Suppose that a brewery has just installed its plant to clean returned bottles next to a river. Fromtime to time an upstream foodprocessing factory pollutes the water of the river. The damages forthe brewery amounts to 100 per year in lost profits because cleaned bottles are now contaminatedand can no longer be sold. In order to avoid this loss, the brewery can buy a waterpurifying systemat an annual cost of 60. The food processing factory can also abate the pollution with equipmentwhich involves an annual cost of 30. The brewery will make savings in the cost of purifyingwater. However, it is even more profitable to enter into bargaining with the upstream factory, asfollows:

The brewery can purify water for 60 per year, whereas the factory can stop pollution for 30 peryear. The brewery can propose a deal: pay 30 to the factory if it stops polluting.

But the factory will not be better off than if it did nothing, while the brewery would save 30. Thebrewery should not receive all of the gains from cooperation, but share the gains by paying morethan 30 to the factory.

Thus, the brewery could agree to split the savings: pay 45 per year to the factory which willinstall cleaning equipment. That way each receives half of the 30 gained by cooperating.

This fictitious example of a private agreement (a real one is provided in Box 9) illustrates therationale for bargaining and shows how bargaining may lead to an efficient outcome [see alsoAmacher and Malik (1998) for a case of negotiated agreement]. Indeed, a Pareto equilibrium isachieved as the factory cannot be better off without making the brewery worse off and,reciprocally, the brewery cannot be better off without making the factory worse off. However,the achievement of an efficient outcome by bargaining may be hindered by contracting costs, asshown below.

Box 9. The neighbourhood agreement of Alcoa Aluminium and the Calhoun County Resource Watch

Alcoa is the world’s largest integrated aluminium company. Its production facility in Point Comfort, Texas, has been anongoing discharger to the environment. Habitat degradation from its wastewater directly discharged in Lavaca Bay inthe Gulf of Mexico is one of the significant factors contributing to a decline of the shrimp industry. The CalhounCounty Resource Watch (CCRW) is a nongovernmental organisation led by Diane Wilson, a fourthgenerationshrimper. It has about 100 members and benefits from the support of the whole shrimping community. In March 1996,Alcoa agreed to install a 21acre evaporation pond, an evaporative spray and dustcontrol system at a bauxite refininglake, a system to collect and divert process water and stormwater. These investments to achieve a zero waste waterdischarge in the Lavaca Bay, amount to 3.1 million dollars. In return, Diane Wilson and CCRW agreed not to challengethe terms of Alcoa renewing its water pollution federal permit by administrative or judicial procedures, or to inciteothers to contest Alcoa’s permit application. For Alcoa the agreement resulted in the avoidance of costs inherent inlitigation. Less predictable, but potentially more important are other costs that Alcoa may have avoided by enteringthe agreement. These include the costs of dealing with a citizen leader who is unpredictable and persistent in pressuretactics to force responsive action by local industries. For instance, the company may have feared that if this agreementhad not been reached they might have faced growing pressure to engage in remedial excavation of pollutants — e.g.,those buried on the site.

The negotiation between Alcoa and CCRW was preceded by an environmental study and an engineering study with a150 000 dollars cost for both parties. The bargaining itself took six daylong meetings over an eightmonth period.

Source: Lewis, 1997


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4.2 The effects of contracting costs on bargaining and the potential failure of voluntaryapproaches due to the number of parties and opportunism

Suppose now, in our example, that the brewery and the factory do not know each other. Thenegotiation will take more time and money. Each firm has to collect information on theabatement technology of the other; a contract has to be drawn up with the help of lawyers andsigned; a monitoring procedure has to be set up. Where these contracting costs are high, thefactory and the refinery will not bargain. These costs must be subtracted from the bargainingsurplus in order to compute the net value of collective action. Suppose the costs amount to 35,the net value of the bargain becomes then negative (30 35 = 5) and the least costly solution isthat the brewery will buy its own waterpurifying equipment.

Box 10. The effects of opportunism on contracting costs: conflicts in dividingthe collective surplus and freeriding

Dividing the collective surplus

In collective action, it is in the mutual interest of the parties involved to reach an agreement. They will both bebetter off in achieving an efficient outcome. However, there is also a conflict in the choice between all thepossible efficient outcomes. If the factory and the refinery reach an agreement, they will collectively gain 30 (seeexample in Section 4.1). However, both have an interest in keeping the larger part of it, say 29 and giving oneto the other. All alternative possibilities to divide the surplus of 30 correspond to a Pareto equilibrium.Therefore the choice of one solution over another has no effect on efficiency. However, the choice of one amongstthe possible Pareto equilibria has a wealth effect on the parties involved.

Each party may be so determined to receive the greater part of the potential profits from bargaining that theynever succeed in coming to terms. This conflict about dividing the pie may be hammered out in repeated roundsof negotiation which result in increasing bargaining costs. The resolution of the conflict tends to be morecomplicated and therefore costly in private information (i.e., information which is not known by the otherparties). In our fictitious example, the brewery knows that the factory can stop pollution for a cost of 30 per yearand the factory knows that the brewery can purify water for 60. Suppose now that these costs are only known toone party. This party will have no interest in communicating this information to the other party because it willbe used by the other party to gain a higher share of the collective surplus. If the brewery knows that the pollutionabatement cost of the factory is 30, it knows the minimum offer to make. If the factory knows that the brewerycan purify water for 60, it knows the maximum compensation to ask for. Thus, the interest of each party is tolie. The brewery’s interest is to make the factory believe that it can purify water for less than 60, whereas thefactory’s interest is to make the brewery believe that it can only stop pollution at a cost higher than 30. As aresult, over the course of the negotiations each party will try both to extract the private information of the otherand to hide its own private information. Negotiation may fail or at least take a long time.

Freeriding

The other effect of opportunism is that it increases the risk of freeriding. Suppose that a business associationwithin the framework of a negotiated agreement has committed to achieving a certain level of pollutionreduction; that firms have agreed on a burdensharing rule, say that each firm will bear the same individualabatement expenditures of one; that the benefit of the negotiated agreement is a regulatory collective gain of ten.Each firm has the choice between two strategies: complying with its commitment or not complying. If itcomplies, and if the others also do, it will gain ten minus abatement cost, that is a net benefit of nine. If it doesnot comply, whereas the other firms do, it will gain ten because it does not incur any abatement costs. In doingthis, the firm freerides as it benefits from a gain without contributing to it. If it does not comply, nor do theother firms, its net benefit is zero. If it does comply whereas the others do not, it incurs a loss of one due to itsunrewarded efforts of abatement (it is supposed that there is no regulatory gain if only one firm undertakes anemission reduction). In such a situation, the best action whatever the other firms do is to freeride. As a result, allthe firms of the industry will decide not to comply. The negotiated agreement will fail.

To solve the problem of freeriding, contracting parties have to make their agreement binding. This means that amonitoring system and a sanction in case of noncompliance have to be drawn up. To be dissuasive, thissolution requires that the probability of being caught in the case of noncompliance, multiplied by the penalty, issuperior to the gain in noncompliance. To illustrate, if the sanction is greater than ten and there is one chance inten of being detected, firms in the previous example no longer have any incentive to freeride.

The costs of contracting (also known as transaction costs) include costs incurred for theidentification and the collection of information on the partners, bargaining costs involved during


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the negotiation and the elaboration of the contract, and enforcement costs for the monitoring ofthe parties’ performances and for sanctioning violations of the agreement.

A public policy recommendation prescribed by law and economics (Coase, 1960 and 1988; Cooterand Ulen, 1996) is to undertake action to minimise contracting costs in order to facilitatebargaining. One important way for the government to do this is to define simple and clearproperty rights. It is easier to bargain when legal rights are precisely defined than when they arecomplicated and uncertain. More generally, contracting costs may be decreased by theimprovement of legal rules and public institutions. Encouraging bargaining between interestedparties appears, thus, as an alternative form of public policy to traditional governmentintervention on price and on quantity of polluting emissions.

Contracting costs explain why private agreements are not frequently used as a form of voluntaryapproach. From the above framework it can be deduced that the most appropriate context tokeep costs of contracting between polluters and pollutees low is that of a single pollution concern,limited to a small area, opposing only few and familiar parties. However, most environmentaldamage involves several polluting factors, and involves a large number of emitters and recipientswho have no community links.

Because of contracting costs, the large number of parties and the economic agents’ opportunism(i.e., their willingness to get the largest part of the pie to the detriment to the others) are severeobstacles to voluntary approaches.

The presence in the bargaining process of numerous polluters and pollutees increases the costs toresearch information related to the impact caused by each polluter, to the amount of theirspecific emissions, and to the damages that are perceived by each pollutee; the costs to set and runan association to organise the negotiation; the costs of monitoring the individual commitments ofeach party. Generally, transaction costs rise steeply; the formula for the number of links requiredto join all members of a set of n is suggestive in this connection: n(n1)/2.

Opportunism increases the costs of bargaining and the costs of enforcement because it raises therisk of disputes to divide the collective surplus, and of freeriding (cf. Box 10).

As a conclusion, what matters according to law and economics is whether the costs of reaching anagreement do not exceed the value created by this agreement. These contracting costs mainlydepend on the number of parties and their level of opportunism. This solution to the issue ofbargaining efficiency may seem very pragmatic and dependent on circumstantial factors. From ageneral perspective, only two opposing views can be considered. According to the Hobbesiantradition, bargaining is rarely effective. The rule of thumb is that parties will conflict rather thanagree. The natural cupidity of people would impede them to agree upon sharing a cooperativegain; a third, stronger party, the State, is necessary to secure collective action. On the contrary,according to the Cosean approach, there is room for bargaining and the State must above all setrules and institutions minimising obstacles to bargaining. The rule of thumb is that the State tendsto overregulate; it intervenes even when this is not economically necessary.

5. Conclusions: main lessons from theory

Although voluntary approaches have not been described in economic literature, economic analysisprovides a few insights into their rationale and potential. A firm’s voluntary abatement may leadto both an improvement of the environment and a benefit in terms of savings in inputs, increasedsales or lower compliance costs to achieve the environmental target. However, firms may seekregulatory preemption to avoid the cost of a more stringent target. This risk of regulatorycapture is high because voluntary approaches reinforce the competitive advantage of industry in


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the environmental policy arena over other interested parties, in particular those harmed bypollution. Nevertheless, safeguards can be implemented by public authorities, such as securing thepresence of third parties or appropriate controls by environmental agencies. Where voluntaryapproaches involve bargaining and cooperation, public authorities may also play a role in reducingthe contracting costs of parties, e.g., setting an arrangement to limit the risk of freeriding.

To sum up, whether the advantages of voluntary approaches outweigh their drawbacks or not verymuch depends on institutional factors, in particular public authorities’ motivation and behaviour.This explains why the use of voluntary approaches and their performances may differsignificantly from one country to another, as is shown in Chapter 2.


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Chapter 2. Empirical Evidence of the Use ofVoluntary Approaches in OECD Countries

1. Introduction

Environmental agreements between industry and government first appeared in OECD countriesduring the 1960s and the early 1970s. Two examples may help illustrate the reasons for theirinitial adoption and rapid expansion.

In Japan the first agreement of this sort was signed in 1964 between the city of Yokohama and anelectric power company, Electric Source Development Corporation (Imura, 1998a). Thecompany planned to build a new coalfired power station but faced strong opposition by localresidents. At that time, national emission standards were very lax and local governments had nolegal power to limit public utilities’ emissions. Hence, the mayor of Yokohama took anunprecedented initiative when he organised an independent committee of experts to carry out anenvironmental impact assessment. A detailed prescription for pollution control measures wasworked out by the committee and was then made public. In order to gain the support of the localresidents (with the aim of avoiding future operation disruptions) the company agreed in a contractwith the local government to comply with these measures. Due to this initial success and the lackof legal alternatives at the national level, this negotiated solution was soon applied by otherJapanese local authorities.

In France, voluntary approaches were the first policy instrument ever used by the Ministry of theEnvironment. Following the creation of the Ministry in January 1971, a negotiated agreement(“accord de branche”) was signed seven months later with the cement industry. The industrycommitted to achieve more stringent standards than those required by the 1961 law on airemissions. Achievement of the final target was scheduled in several steps in order to give moreflexibility to the firm’s investment, which also received a subsidy covering up to 10 per cent of itsoutlay. For its part, the Ministry of the Environment granted relief from sanction procedures tofirms not complying with 1961 standards. Nine similar contracts were signed during the period19721977 in sectors such as pulp and paper, sugar refining, and foodprocessing.

Since the beginning of the 1990s, the use of voluntary approaches has been in sharp increase inmost OECD countries. The numbers of VAs in force are impressive in Japan — with more than30 000 local VAs inventoried — and in the European Union — with more than 300 VAs —, andtheir use is already significant in the US, with 42 initiatives in force.

This increase is mainly due to the favourable attitude of both industry and public authoritiestowards these instruments. Industry believes that voluntary approaches in environmental policyhelp reduce both compliance and enforcement costs and can provide business with additionalflexibility and motivation to tailor approaches to their specific needs. VAs are believed to beflexible instruments which can encourage companies to respond to environmental demands. Theycan help promote partnerships with public authorities, allow for quicker and smootherachievement of environmental objectives and reduce the administrative burden. Implemented


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wisely, they have the important feature of achieving change without forcing the early retirementof capital stock and commensurate loss in economy and jobs.

For public authorities, the main argument for the use of voluntary approaches as a means ofregulatory reform has been that it fosters participation of the private sector. Indeed, manypolicymakers believe that additional environmental improvement can only be achieved at areasonable cost if firms adopt a more proactive attitude. Voluntary approaches have theadvantage of leaving important responsibility to firms and to be conceivable only in a frameworkof publicprivate partnership. However, public authorities also find other advantages when usingvoluntary approaches. Firstly, VAs enable more rapid action compared to traditional instruments,as there are fewer formal requirements for their design and implementation. Secondly, for somelevels of government (especially at the local level) VAs may sometimes be the only way of takingenvironmental action, when those authorities officially lack any legal basis for action. Finally,VAs have proven to be a more feasible option than, for example, taxes whenever industryopposition to more traditional instruments is particularly strong. The scepticism of otherstakeholders such as trade unions and environmental NGOs (mainly due to their lack oftransparency and provisions for enforcement) has not yet diminished the impetus for VAs.Finally other stakeholders, in particular environmental NGOs and trade unions are willing to playa proactive role in VAs, either as a partner or as originators of VAs, in order to ensure a properachievement of their own requirements and objectives (Box 11).

Box 11. Voluntary Initiatives of Trade Unions and NGOs

Trade unions and environmental NGOs are increasingly active as stakeholders in the process of voluntaryapproaches, in particular by promoting their own voluntary initiatives. Two interesting cases illustrate this.

In 1992, the TCO (the Swedish Confederation of Professional Employees, grouping 1.2 million members)initiated the “6E model” (Ecology, Emissions, Efficiency, Economy, Energy, Ergonomics) designed as asystematic method for companies to implement management practices which protect both the working and theexternal environment; the model became fully operational in 1997. Companies which agree to participate in thescheme must undergo an environmental review; if the review is successful, the company is allowed to use the 6Elabel. The 6E model comprises 15 steps (including implementation and followup) and support tools likecomputer models, checklists and training material. In 1999, 28 companies were participating in the 6E model(25 of which are furniture manufacturers).

In November 1997 the Rainforest Action Network (RAN), a USbased environmental NGO, signed amemorandum of understanding with Mitsubishi Corporation (Mitsubishi Motor Sales of America andMitsubishi Electric America). According to this MOU, Mitsubishi agrees to implement three programmes: 1) a“wood products procurement programme” whereby Mitsubishi is committed to reducing its use of paper,packaging and other wood products, in particular to ban the use of paperbased products made of primary orthreatened forest wood; 2) a “forest community support programme”, designed “to actively restore and preserveancient forests and support the indigenous and traditional communities who inhabit them...”, and 3) theimplementation of an “ecological accounting” process. In reciprocity, RAN will cease consumers boycotts ofMitsubishi products and publicise Mitsubishi’s efforts throughout its constituencies and with other stakeholders.

The review that follows mainly covers unilateral commitments, negotiated agreements and publicvoluntary programmes. The fourth type of initiative, private agreements, are not very widelyreported or documented. Several examples do exist, though, namely in Japan whereapproximately 2 000 agreements at the local level have been signed between residents’associations and companies. In other OECD countries, the examples reported mainly concerncontracts between workers’ organisations and firms on health and safety conditions.

In contrast, unilateral commitments by industry have been reported in most OECD countries.However, the total number surveyed by UNEP (1998) does not exceed ninety.2. Similarly, the use

2Note that this figure only takes account of unilateral commitments made by coalitions of firms. Commitmentsmade by individual firms are not included, although their number is probably more important.


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of negotiated agreements is pervasive in the OECD, although countries use them with differentintensities. The greatest use of negotiated agreements is made in Japan (approximately30 000 agreements) and Europe (more than 300 agreements), while their use in the United Statesremains marginal (two agreements).

Finally, public voluntary programmes are mostly used in the US, where they were first introduced,and 30 initiatives are in force at present. However, a growing number of these arrangements hasbeen signed in Europe in recent years.

This chapter provides an insight into the widespread adoption of VAs in OECD Membercountries. It proposes an overview of the use of VAs in Europe, Japan and the United States andother OECD Member states. As regards VA types, the focus is on negotiated agreements, publicvoluntary programmes and unilateral commitments, as advanced above. For the EU, it is based ona series of inventories and surveys that have been ordered inter alia by the European Commissionand the OECD (CEC, 1996a; EEA, 1997; IEA/OECD, 1996; Börkey et Glachant, 1997;ÖkoInstitut, 1998). For Japan and the US, the basic inputs come from surveys especiallyconducted for this report (Imura, 1998a+b; Mazurek, 1998a+b). For the other OECD countriesthe material was obtained from answers to a questionnaire circulated by the OECD.

2. The diversity of voluntary approaches in the European Union3

2.1 Types of approaches

The idea of moving towards regulatory reform via an increased use of voluntary approaches andmarketbased instruments is prevalent in most Member states of the European Union (EU). Theidea is also supported by the European Commission, which expressed its positive attitude towardsthese instruments in the 5th Environmental Plan of Action (1992). The overall objective of thisplan is to set policy making in the EU within a sustainable framework of economic and socialdevelopment: “In order to bring about substantial changes in current trends and practices and toinvolve all sectors of society, in a spirit of shared responsibility, a broader mix of instrumentsneeds to be developed and applied. Environmental policy will rest on four main sets ofinstruments: regulatory instruments, marketbased instruments (including economic and fiscalinstruments and voluntary agreements), horizontal supporting instruments (research, information,education, etc.) and financial support mechanisms”. A more recent Communication by theCommission (CEC, 1996b) concludes that environmental agreements “can offer costeffectivesolutions when implementing environmental objectives and can bring about effective measures inadvance of and in supplement to legislation”.

Although all Member states appear to apply voluntary approaches, some of them show sometradition in their use, e.g. Germany and France, while they constitute a much more recentphenomenon in others. An inventory of VAs by the European Commission (CEC, 1996) surveyedmore than 300 negotiated agreements in force at that time. In addition, a few unilateral

3This chapter provides a synthesis of the existing literature on the use of voluntary approaches in the EU. Its aimis to portray the use of voluntary approaches and to identify both the common elements and the contrasts in theiradoption by different EU member states. It relies mainly on four studies: a quantitative and qualitative inventoryof voluntary agreements in the European Union (EU) by the Directorate General for Industry (DGIII) of theEuropean Commission (CEC, 1996a), a study on the efficiency of six agreements by the European EnvironmentAgency (EEA), the Communication of the European Commission on environmental agreements (CEC, 1996b),a study by IEA/OECD on voluntary approaches in the field of energy efficiency (1996) and a study on thediversity of voluntary approaches by ADEME (the French Environmental Agency) and the French Ministry ofthe Environment (Börkey & Glachant, 1997). In addition, several national studies and reports are drawn upon[e.g., Croci & Pesaro (1996) for Italy, Rennings et al. (1996) for Germany].


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commitments (mostly initiatives in the framework of the Responsible Care programme of thechemical industry) and a small number of public voluntary programmes should be included for amore accurate account.

2.2 Negotiated agreements: the European model of voluntary approaches

Number and scope

Negotiated agreements are the most numerous type in the EU, encountered in almost the wholerange of Member states. However, the global figure of 300 negotiated agreements (NAs) in theEU hides a very uneven distribution (Figure 3).4 Two countries (Germany and the Netherlands)account for twothirds of these agreements.

Nevertheless, the survey shows that all Member states have been making an increasing use of NAssince the beginning of the 1990s. The EU figures of new NAs have considerably risen from six peryear in 1981, to over 45 in 1995.

Figure 3. Number of negotiated agreements in the EU Member states

Austr

ia

Belg

ium

Denm

ark

Fin

land

Fra

nce

Germ

any

Gre

ece

Irela

nd

Italy

Luxem

burg

Neth

erlands

Port

ugal(

1)

Spain

Sw

eden

United K

ingdom

0

20

40

60

80

100

120

Num

ber

of

NA

s

(1) The CEC (1996a) study includes the Portuguese agreements, which we classify as public voluntary programmes(see 2.2).Source: CEC, 1996a.

Industry and Energy are by far the most important sectors of economic activity where NAs are inuse (Table 1). All Member states use them to abate industrial pollution, and eight of them to dealwith emissions from the energy sector.

4The total number of negotiated agreements is probably even larger, given that the CEC inventory is notexhaustive, e.g. eleven agreements have been inventoried in Italy, while Croci & Pesaro (1996) found at least 24there.


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Table 1. Negotiated agreements by sector of economic activity

Member State Agriculture Energy Industry Transport Tourism NumberAustria ✘ ✘ 20Belgium ✘ ✘ 6Denmark ✘ ✘ ✘ 16Finland ✘ 2France ✘ ✘ 8Germany ✘ ✘ 93Greece ✘ ✘ ✘ 7Italy ✘ 11Ireland ✘ 1Luxemburg ✘ ✘ 5Netherlands ✘ ✘ ✘ 107Portugal ✘ ✘ 10Spain ✘ 6Sweden ✘ ✘ ✘ 11United Kingdom ✘ 9Total 312

Notes: "Transport" sector refers to the transportation of freight and people.Changes that affect the transport industry (i.e. vehicle manufacturing, recycling, petrochemical production) are reflected under "industry"sector."Energy" refers to activities by any firm that derives its main revenues from supply, distribution or sale of energy."Agriculture" is defined as activities at the farm level. Thus, the agrochemical, farm packaging and forest products sectors are not included.Tourism is defined as related economic activities (e.g. hotel services).Source: EEA, 1997.

Furthermore, a large number of negotiated agreements so far initiated in Member states are foundin the most polluting industrial sectors (metals and metal finishing, chemicals, energy). Thesurvey by CEC (1996a) suggests that almost onethird of NAs were concluded with the chemicalindustry. Five other sectors represent around 10 per cent each (Figure 4). The percentage numbersin Figure 4 are slightly misleading though, owing to double counting.

Figure 4. Main industry sectors for the use of negotiated agreements

0% 5% 10% 15% 20% 25% 30%

chemical industry

manufacture of food products

metals and metals finishing

products

manufacture of non-mineral

products (ceramics and

manufacture of rubber and

plastic products

electricity, gas and water

supply

28%

12%

11%

10%

10%

10%

Source: CEC, 1996a.


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Table 2 shows that negotiated agreements are used for all types of pollution. All Member statesuse NAs for waste management. This is due, to a great extent, to the proliferation of agreementsfor household waste management and battery recycling. Climate change and ozone depletion aretwo other environmental concerns where policies throughout Member states make use of NAs.These initiatives are tightly linked to the international agreements on those themes: theMontreal Protocol for the phaseout of CFCs, and the Berlin Climate Change Convention.Agreements on the themes of water and air pollution as well as soil quality are moreheterogeneous, and relate to various industries and many different pollutants.

Table 2. The types of environmental areas covered by NAs

Member State Climate Water Waste Air Soil Ozone Number of change pollution management pollution quality depletion NAs

Austria ✘ ✘ ✘ 20Belgium ✘ ✘ ✘ ✘ ✘ 6Denmark ✘ ✘ ✘ ✘ ✘ ✘ 16Finland ✘ ✘ 2France ✘ ✘ ✘ ✘ 8Germany ✘ ✘ ✘ ✘ ✘ 93Greece ✘ ✘ ✘ ✘ ✘ 7Ireland ✘ ✘ 1Italy ✘ 11Luxemburg ✘ ✘ 5Netherlands ✘ ✘ ✘ ✘ ✘ ✘ 107Portugal ✘ ✘ ✘ 10Spain ✘ ✘ ✘ ✘ 6Sweden ✘ ✘ ✘ ✘ 11United Kingdom ✘ ✘ ✘ 9Total 312

Source: EEA, 1997

The ÖkoInstitut study (1998) confirms this picture. From a sample of seven EU Member states,most agreements were found to deal either with waste or climate change (Figure 5). Governments’preference for NAs in these two cases seem to be linked to different causes, however. Theyappear to be the preferred instrument for waste management in most countries, given thetechnological uncertainty that prevailed when these problems were first addressed. In fact, publicauthorities needed close industry cooperation in order to define realistic policy objectives. Incontrast, in the case of agreements on climate change, a main reason for the use of NAs lies intheir greater acceptance by industries, as compared to environmental taxes. Governments usethem as a lesser evil in terms of the distortion of international trade, in a context where auniform means for reducing greenhouse gas emissions is yet to be defined at the internationallevel. However, Figure 5 also documents the fact that NAs are used in all areas of environmentalconcern, with equal shares for water, air, ozone and health.

Negotiated agreements may be legally binding or nonbinding, depending on whether executivebranches of government are empowered by national constitutions to sign such agreements withorganised interests.

In Germany, for example, the Constitution does not allow the government to sign NAs, and theseremain therefore nonbinding, despite the fact that public authorities participate in targetsdefinition and subsequently recognise the agreement (informally, for example in a pressconference). Furthermore, a study by ÖkoInstitut shows that binding agreements are theexception rather than the rule in the European Union (Figure 6).


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Figure 5. Environmental focus of agreements in a sample of seven EU Member states

number of agreements

0 10 20 30 40 50 60 70 80

waste

water

climate

health

air

soil

ozone

multi-issue

others

Source: Öko-Institut, 1998.

Figure 6: Share of legally binding and non-binding agreementsin a sample of 7 EU Member States

Belgium binding21%

non-binding58%

unknown21%

Denmark

unknown13%

binding15%

non-binding

72%

France

unknown23%

binding19%

non-binding

58%

Germany

non-binding

97%

binding2%

unknown1%

Italy

non-binding100%

binding0%

unknown0%

Netherlands

binding90%

non-binding

10%

unknown0%

United Kingdom

unknown20%

non-binding

80%

binding0%

Poland

non-binding18%

unknown18%

binding64%

USA

unknown14%

non-binding48%

binding38%

Source: ÖkoInstitut, 1998.


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Box 12. The Dutch model of negotiated agreements

Negotiated agreements for pollution abatement are called “covenants” in the Netherlands. They constitute thekey instrument of Dutch environmental policy, which was defined by the NEPP (the National EnvironmentalPolicy Plan) in 1989 and the NEPP Plus in 1990. These plans set stringent quantitative pollution abatementtargets for over 200 substances, meant to bring the national economy towards sustainability. A centralconviction in the NEPP is that these ambitious pollution abatement targets can only be reached if industryaccepts taking a greater share of responsibility in the development and in the implementation of pollutionabatement measures. This is why the “target group approach” (another term to designate “covenants”) withpriority sectors of industry is considered to be crucial for achieving the targets. As of 1996, 107 covenants werein force in the Netherlands, covering all major polluting industries (printing and packaging printers, base metals,chemicals, dairy, metal products and electronics, textiles, meat industry, paper and paper products, leather,rubber and plastic products, brick and roofing tiles, concrete and cement products, and other mineral products).

Covenants have the status of a contract under civil law. In fact a covenant stands for two contracts. Firstly, adeclaration of intent is signed by the Government and a branch association. This contract has no legal value, butit serves as a framework for the second type of contract, namely a series of agreements between the governmentand individual firms willing to join the covenant scheme. These individual contracts may imply firms’ liabilityin a civil court.

Furthermore, covenants are tightly linked to the permit system, which defines detailed emission standards foreach industrial site to be able to operate. This system is administered and monitored by local public bodies.Covenants are linked to this system, as their pollution abatement targets are eventually integrated into thepermit requirements.

The procedure of devising of covenant is as follows:

First, a declaration of intent on the pollution abatement targets for 1995, 2000 and 2010 is agreed uponfollowing a consultation process between public bodies (national or regional) and a branch organisation ofindustry. These targets, also called the Integrated Environmental Target Plan (IETP), must be consistent withthe general targets of the NEPP.

Second, each firm has to draft a Company Environmental Plan, if the sector is considered to be heterogeneous(large firms and diversity in production technologies), or a standardised Company Environmental Plan is draftedat branch level, if the sector is considered to be homogeneous. The Company Environmental Plans indicate thepollution abatement targets, their time schedule and the measures for their implementation. They are drafted incooperation with the permit authorities, who evaluate and eventually approve the plans which are subsequentlyintegrated into the permit requirements and revised every four years.

As a consequence, individual monitoring and sanctioning of firms in the covenant scheme is executed via thepermit system. Firms whose Company Environmental Plans are repeatedly rejected by the permit authoritieswill then be subject to stricter requirements.

In April 1993, the association of chemical industries signed such an agreement with several public bodies: theMinistries of the Environment, of Economic Affairs and of Transport, and several local and regional authorities(provinces, municipalities and water agencies).

The agreement is consistent with the NEPP and its general pollution abatement targets set at the national level.It set quantified emission reduction targets for the years 1995, 2000 and 2010 in relation to six environmentalobjectives: greenhouse effect, acidification, diffusion of toxic substances, eutrophication, waste disposal and othernuisances (odour and noise). These targets are considered to be comparatively stringent in the European context(ERM, 1996).

As the chemical industry is considered to be a heterogeneous industry (there are both large firms andheterogeneous production technologies) firms have to draft company environmental plans.

The covenant with the chemical industry is one of the pioneering agreements, which faced considerable pressureat the time of negotiations between the public bodies and the branch association. This was due to the fact thatthis agreement was intended to serve as a model for future ones, and also a result of the government’sunwillingness to sign unless at least 50 per cent of the industry was covered in the agreement.

Since then, the covenant is considered a success story by the Dutch Ministry of the Environment. Firstly, theparticipation rate of chemical firms in the agreement is of 91 per cent (114 out of 125 firms participate in thecovenant and drew up a Company Environmental Plan). Secondly, the permit authorities evaluated and agreed to108 of these plans. Thirdly, the great majority of pollution abatement targets for the year 2000 are expected to bemet without difficulty. Nevertheless, the targets for 14 out of 62 substances covered by the covenant will bedifficult to reach due to the lack of adequate abatement technology. In this connection, a major problem is posedby the abatement of NOx emissions from combustion processes (Börkey & Glachant, 1997; EEA, 1997).


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Characteristics and context

The only Member state where agreements are systematically binding is the Netherlands. In thatcountry, where binding contracts with branch associations are not possible, enforceability isachieved by means of an individual contract with each individual firm joining the agreement(Box 12). The pollution abatement objective is generally a collective target, set for the branch asa whole, although some agreements have been signed with only one firm, whenever they accountfor a significant part of the sector. The German agreement on the reduction of greenhouse gases(GHG) sets branch objectives for 14 industry sectors and an aggregate reduction target for thewhole of industry of 20 per cent (Box 13). The French agreement on the reduction of GHG in thealuminium sector is an agreement with just one firm. Signatories to the agreement are theMinistry of the Environment and the company Péchiney, accounting on its own for more than70 per cent of primary and secondary aluminium production in France (Box 13). In contrast withthe Dutch covenants, German and French public authorities commit not to introduce newlegislation (e.g. a compulsory environmental standard or an environmental tax) unless thevoluntary action fails to meet the agreed target.

While most European agreements are made at the national level, some agreements in Italy,France and Germany are also signed by regional authorities and industries. For instance, inGermany a series of agreements have recently been signed at the State (Land) level, e.g. theEnvironment Pact Bavaria was signed in 1995 by the Bavarian State Government and theAssociation of Bavarian Industry.

The diversity of negotiated agreements

Although the 300 NAs in the EU share some key characteristics — they are negotiated betweenpublic authorities and industry and for the most part define collective pollution abatement targetsfor branches of industry — different patterns exist with respect to the scope and theimplementation of agreements.

Difference in scope

It is only in the Netherlands that NAs constitute the key instrument for environmental policy,and have therefore become prevalent (Box 12). A total of 13 industry sectors have concluded orare about to sign an agreement, and amongst them can be found the most polluting industries: thechemical industry, the primary metals industry, the cement industry and the pulp and paperindustry (Börkey & Glachant, 1997).

Figure 7. NA targets in Germany and the Netherlands

Germany

product related47%

production process

27%

other processes

19%

combination

7%

Netherlands

production

process58%

combination6% product related

22%

other

processes14%

Germany

product related47%

production process

27%

other processes

19%

combination

7%

Netherlands

production process

58%

combination

6% product related22%

other processes

14%

Source: ÖkoInstitut, 1998.


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In contrast, most of the other Member states substitute NAs for traditional instruments for arather limited range of environmental policy areas. The use of NAs is concentrated in specificareas such as CFC phaseout, waste management, and reduction of GHG emissions. In the particularcase of Germany, many NAs are also devoted to the phaseout of certain substances in detergentsor paints. This situation is illustrated in Figure 7. For the two Member states where the largestnumber of VAs are found, we find that most agreements in the Netherlands are aimed at regulatingproduction processes, whereas a majority of agreements in Germany deal with the regulation ofproducts.

Box 13. The German and French agreements on GHG emissions reduction

• The German agreement on the reduction of GHG emissions

This agreement was signed in 1995 and amended in 1996. Industry’s commitments are at two levels: atindustry level via a declaration of five federations representing the whole of industry, and at branch level via thecommitments of 19 branch associations, each setting a specific target for the reduction of CO2 emissions.

The 1996 commitment at industry level sets a reduction target of 20 per cent of specific energy consumption bythe year 2005 (base year 1990). Branch targets vary from 30 to –15 per cent of GHG emissions, either inabsolute (volume) or in specific terms. For example, the potassium industry’s target is of –25 per cent involume, the cement industry commits to a reduction of 20 per cent in specific terms and the chemical industryaims at –30 per cent of specific reduction. The signatories account for more than 70 per cent of industrial energyconsumption. The monitoring of these targets is performed by an independent institution, theRheinischWestfälisches Wirtschaftsinstitut (RWI).

Subsequent to these commitments, the Federal Government announced that it would refrain from introducingtwo new pieces of legislation (an ordinance on the use of waste heat and one on energy audits) and hascommitted itself in a press conference to make the necessary efforts so that the industry commitments will betaken into account at the European level.

Since the first commitments were published in 1995, criticism as to the ambitiousness of targets has beenintense. The DIW (Kohlhaas & Praetorius, 1995) states that the reduction target initially announced by theFederal Government was more ambitious: the initial target was of 25 to –30 per cent of CO2 emissions inabsolute terms by the year 2005. Another criticism is linked to the coverage of the agreement. Industry’scommitment only covers about 70 per cent of industrial energy consumption, while alternative regulatorymeasures (energytaxes or the ordinance on waste heat) would have covered 100 per cent. Finally, the targetsappear to be modest when compared to past technological reduction trends. From 1970 to 1993, energyefficiency has improved by an annual rate of 1.8 per cent, while the agreement sets an average rate of 1.2 per centfor the period 19872005 (Jochem & Eichhammer, 1996).

• The French agreement on GHG emissions with the aluminium industry

The agreement on greenhouse gas emissions with the French aluminium industry was signed in mid1996.Parties to the agreement are the Ministry of the Environment and Péchiney, the largest aluminium company inFrance accounting for over 70 per cent of primary and secondary aluminium production in the country.

In the agreement, Péchiney commits to reduce its specific energy consumption (energy consumption per unit of output)by 19 per cent in terms of CO2 emissions by the year 2000 (base year is 1990) and to cut specific CF4 emissions (CF4has a very high warming potential, one ton of CF4 is equivalent to 5 100 tons of CO2) by 73 per cent.

Taking into account the increase in output that is projected by the company up to the year 2000 (30 per cent),the specific reduction targets will result in an increase of total CO2 emissions of 2 per cent and a decrease of63 per cent in total CF4 emissions. The total reduction of CO2 equivalent substances will therefore be 34 percent.

This agreement fits into the French policy for CO2 abatement in energyintensive industries. It is aimed at excludingthose industries from the application of fiscal instruments by negotiating industryspecific reduction targets. To date,four further agreements have been signed with the glass, the plaster, the cement and the steel industries. They setcollective targets and are signed with the respective branch organisations.


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A further contrast between the situations in Germany and the Netherlands lies in the object ofnegotiation. While in Germany negotiations mainly focus on the ambitiousness of the target, thisis not subject to negotiation in the Netherlands, where the targets are given, and established withina democratic process involving Parliament. What is being negotiated in the Dutch NAs are themeans and the timetable to achieve these targets. For example, negotiations leading to the Dutchagreement with the chemical industry concerned, to a great extent, the possibility of pollutionbubbles at plant level; whereas the agreement with the base metal industry involved negotiationson the timetable of emission reductions.

This may explain the contrasting situation in the two countries. Given that NAs in theNetherlands are based on stronger legal foundations, their use on a larger scale withinenvironmental policy appears less controversial than in Germany, where the lack of concertationand dialogue for target definition is heavily criticised by environmental groups.

An additional explanation for the difference in scope between the Dutch NAs and those in otherMember states seems to lie in a different approach towards implementation. While in mostMember states NAs provide for collective liability rules, the Dutch agreements allow for individualfirms’ liability through the use of a policy mix. It is therefore worth examining this difference inmore detail.

Different liability rules: collective vs. individual liability

Several NAs not only set collective targets, but also hold industry “collectively” liable for theirimplementation. Typically, there is no explicit sanction included in the NA, but in the case of thefailure of the agreement, public authority will issue new legislation. This means that in the case offailure firms will be collectively sanctioned, independently of individual pollution abatementefforts. In this framework, the NA provides a collective benefit: avoiding new legislation, withoutsanctions for individual noncompliance. Therefore, in this setting, freeriding becomes a majorconcern.

As Germany accounts for approximately 50 per cent of this class of NAs in the EU, wecharacterise this type of agreement as the “G model” elsewhere in this report.

Examples are the German agreement on the reduction of GHG emissions and the Frenchagreement on endoflife vehicles (ELVs). In the German agreement industry committed to areduction target of 20 per cent for the year 2000 (base year is 1990), each of the 14 brancheshaving set a specific target. Should the agreements fail to reach branch targets, the Governmentwould introduce new legislation on mandatory energy audits and an ordinance on waste heat(Box 13). The case of the French agreement on ELVs is of particular interest, because it showsthat a threat at the national level is not always necessary to induce an agreement (Aggeri &Hatchuel, 1996; Glachant & Whiston, 1996). Instead, it was the preparation for an ordinance onELVs undertaken in 1992 by the German Ministry of the Environment that constituted thebackground threat to the French industry. French car manufacturers feared that the Germanordinance might have a dominant influence on environmental policy on ELVs at the EU level.They therefore committed to an agreement with the French Ministry of the Environment inorder to preempt EU regulation and influence its possible content.

Other NAs include not only collective targets, but also individual firms’ commitments andmonitoring provisions. This allows for individual firm liability and sanctions in case ofnoncompliance, which is usually achieved through a policy mix as we will see below.

The main example of this class of NAs is given by the Dutch covenants (Box 12), whereindividual liability is secured by linking the agreements to the permit system. Under theagreement, firms have to draft environmental plans for each of their plants (describingenvironmental targets and the measures for their implementation). These plans should be


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approved and reviewed by the local permit authorities, which provide a regular monitoring ofcompanies’ pollution abatement efforts. Should a company environmental plan be definitelyrejected, a subsequent tightening of permit requirements is programmed as means of sanction. Asthis particular form of NAs is exclusively found in the Netherlands, we will term it the “D model”for future reference.

The only other example of NAs with an individual liability rule is in Denmark. In 1992, theDanish government adopted a framework for negotiated agreements which provides for thepossibility of individual liability rules. Contrary to the Netherlands, the scheme has not attractedmany applications. Only one agreement on car battery recycling was signed in 1993. The reasonseems to be that unlike the Dutch agreements, the Danish framework does seek individual liabilitythrough the means of a policy mix, but assigns the monitoring and enforcement responsibility tothe branch association. Professional associations are reluctant to play this role because it isincompatible with their role as a service provider for their members (CEC, 1996a).

Conclusion

Two main variants of NAs have been identified in Europe: the D and the G model. Both involveagreements between a public body and a branch organisation of industry, setting collectivepollution abatement targets and timetables to achieve them.

Nevertheless, they differ considerably in content. As regards the Dmodel, monitoring andsanctions at individual firm level are included (in the framework of the permit system). Incontrast, monitoring and sanctions remain collective in the G model, which implies a weakerability to enforce the collective target under this class of NAs.

The empirical evidence above shows that in the Netherlands, where the Dmodel is applied,negotiated agreements constitute the key element of environmental policy, covering virtually allareas of environmental concern. In contrast, the use of the G model of NAs is ratherconcentrated on particular areas of environmental concern, such as the phaseout of certainsubstances (e.g. CFCs or phosphates in detergents) and GHG emissions reduction.

2.3 Public voluntary programmes

Number and scope

At present no conclusive information is available on the exact number of public voluntaryprogrammes in the European Union. However, their total number is unlikely to exceed 20. Themost wellknown programmes are those adopted at the European level, such as EMAS(EcoManagement and Auditing Scheme), dealing with the certification of environmentalmanagement practices, and the European Ecolabelling Scheme.


Public voluntary programmes are designed unilaterally by public authorities. They are conceivedas takeitorleaveit programmes, representing one item on a menu of regulations firms may choosefrom. In most cases, public voluntary programmes include a precise set of targets and monitoringprovisions.


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Box 14. The European Ecolabelling Scheme

The EU ecolabel award scheme has been set up to label products with reduced adverse environmental impact. Itis a voluntary scheme, and manufacturers can choose whether or not to apply for the ecolabel. The scheme isbased on Council Regulation (EEC) N°880/92 of 23 March 1992. It excludes food, drink and pharmaceuticalsfrom the scheme’s scope. The label is only awarded to products meeting the environmental criteria that havebeen defined previously for the relevant product group. These criteria have been prepared by the Commission(involving extensive stakeholder consultations) in recent years.

Ecological criteria for washing machines, dishwashers, tissue paper, soil improvers, detergents, paints andvarnishes, light bulbs, refrigerators, bedlinen and teeshirts, bed mattresses, had already been published. Furtherproduct groups are under consideration. Manufacturers or importers wishing to make their application forecolabelling must direct it to the competent body in the Member state where their product is manufactured orwhere it was first marketed or imported from a third country. A fee for the use of the ecolabel, calculated as apercentage of the annual volume of sales of the ecolabelled product is charged (0.15 per cent). The label is validfor three years from the date of adoption of the criteria.

However, problems with the diffusion of the EU ecolabel scheme have occurred on some product groups due tolow industry participation. The main reason was that in some cases the Commission did not pay enoughattention to the composition of the particular market. Eco-label does not work in markets characterised byoligopoly.

Their main characteristics are best illustrated using the two examples already mentioned. Theimplementation of EMAS started in 1993. In order to register under EMAS firms must satisfy anumber of requirements: a) establish a company environmental policy; b) conduct anenvironmental review of their sites; c) set up and implement an environmental improvementprogramme and an environmental management system; d) have their policy and sites reviewed,and e) have their improvement programme and management system examined by independentconsultants.

Registered firms are then able to use and display a statement (and logo) of participation (Biondi etal., 1996). Similar participation requirements apply not only to the other examples quoted above,like the European Ecolabelling scheme (Box 14), but also to Member states’ experiences withecolabels at the national level, such as the Blue Angel in Germany.

While these programmes involve no sanctions for firms that do not participate, other publicvoluntary programmes are linked to background regulation. For example, the Danish scheme ongreenhouse gas (GHG) emissions is linked to a tax on CO2 emissions (Box 15). In this case,energyintensive firms have the choice between being subject to the CO2 tax or joining a voluntaryscheme on CO2 abatement and being (partly) exempted from the tax.

All the examples above illustrate a central characteristic of voluntary programmes: they are itemsfrom a menu of different regulations firms may choose from. The choice is either between avoluntary scheme and another instrument or between a voluntary scheme and the status quo. Inthe former case the programmes are intended to facilitate the transition towards new regulationand avoiding a possible loss of competitiveness for the firms. In the latter case, the aim is toprovide incentives for going beyond existing regulation and eventually inducing technological ororganisational innovation. Voluntary programmes are thus conceived as a complement to otherpolicy instruments.


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Box 15. The Danish scheme on GHG emissions reduction

This scheme is strongly linked to the national CO2 tax system introduced in 1996 for industry. The overallobjective of the scheme is to contribute to a reduction of 4 per cent in CO2 and SO2 emissions by the year 2000,while avoiding an excessive burden on energyintensive industries. It is aimed at exempting a “small fraction ofvery exposed industries” while keeping the tax towards the large body of firms. Two types of companies areeligible to join the voluntary scheme:

• The first type is industries with heavy processes. 35 specific heavy industry processes are listed according toEU criteria. Participating firms benefit from a flat tax of 3 DKK/ton of CO2, compared to 5 DKK/ton for therest of heavy industry in the first year. This tax rate is gradually increased to 25 DKK/ton in the year 2000.The tax rebate increases to 22 DKK/ton by the year 2000.

• The second type of firm agreement is defined by the ratio of energy tax liability over value added. When itexceeds 3 per cent firms are eligible for the scheme. The tax rebate for light processes is about 30 per cent.The tax rebate increases gradually and reaches 22 DKK/ton of CO2 by the year of 2000. Firms having signedthe agreement pay 68 DKK/ton of CO2 and firms outside the agreement scheme for light processes pay a taxof 90 DKK/ton of CO2.

Before they become signatories to the scheme, eligible firms must present a letter of intent to document theirwill to enter the scheme. The firm then has to pay independent consultants to perform an energy audit.According to criteria of profitability, heavy industry has then to commit to undertake all CO2 reductioninvestments with payback periods of less than four years that have been identified in the audit. Other eligiblefirms must commit to all investments with payback periods of less than six years. Further commitments are tofollow guidelines for the purchase of new technology, to appoint an energy manager, to train staff and to reportprogress. Some financial support is available under the form of investment grants. Subsidies can cover up to30 per cent of the initial outlay for energysaving projects, with payback periods of at least two years. Progress inthe implementation of investments is monitored. Those companies failing to meet their commitments becomesubject to the full amount of the CO2 tax, and must retroactively reimburse the tax reduction obtained under thevoluntary scheme. By the end of 1996, 81 agreements were signed and the number of agreements signed reached236 by the end of 1998.

Source: Ministry of Finance, 1995; Krarup & Kraemer, 1996; Enevoldsen & Brendstrup, 1997.

2.4 Unilateral commitments

Number and scope

In the European Union the number of unilateral commitments is limited: an inventory ofunilateral commitments by UNEP (1998) surveyed 27 commitments in the EU (Figure 8). Thisglobal figure includes both those concluded at the national level (by national industryorganisations) and at the European level (set up by European industry organisations).

It is also worth noting that most of these commitments correspond to the chemical industryunder the Responsible Care programme. With 14 national chemical industry organisationsparticipating, this programme accounts for more than 50 per cent of total commitments in theEU. This programme is undoubtedly the most important unilateral commitment worldwide, with40 out of 88 surveyed initiatives related to this programme at the international level. This highrate of participation is due to the fact that Responsible Care has been adopted by theInternational Council of Chemical Associations (ICCA) and recommended for implementation atthe national level.


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Figure 8. Unilateral commitments in the EU and in the rest of the world

sector of economic activity

num

ber

of

com

mit

men

ts

05

1015202530354045

chem

ical

indust

ry

ener

gy

min

ing

and

met

als

oth

erin

dust

ry

touri

sman

dtr

avel

oth

erse

rvic

es

cro

ss-

sect

ori

al

EU

International andextra-EU

Source: UNEP, 1998

Other sectors with a significant number of commitments are the energy sector and crosssectorialinitiatives. For example at the national level the UK petrol industry included a code of safepractice in its mission statement; at the European level electric utilities through their associationsUNIPEDE and EURELECTRIC initiated a programme for good environmental practice called“Energy Wisdom Programme” (Box 16).

It is noteworthy that some commitments are not linked to a particular geographical area as theyare set at the international level. For example, the metals and mining industry founded anorganisation (ICME, International Council for Metals and the Environment), grouping majormining and transformation companies all over the world, and issued an environmental charter(Bomsel et al., 1997).

Box 16. EURELECTRICUNIPEDE’S Energy Wisdom Programme

UNIPEDE (Union of International Producers and Distributors of Electrical Energy) is the association of EuropeanElectricity Supply Industry and its worldwide affiliates and associates, and operates as a centre of strategicexpertise. EURELECTRIC (European Grouping of the Electricity Supply Industry) is the association of theEuropean Union Electricity Supply Industry representing it in public affairs, in particular in relation with the EUinstitutions. In 1998 these associations initiated the Energy Wisdom Programme that is intended to provide aplatform on which electricity companies can demonstrate their proactive attitude towards sustainabledevelopment and towards contributing to the Kyoto protocol.

The programme is open to all member companies. It works as follows: in a process of consultation withUNIPEDE-EURELECTRIC participating companies establish a catalogue of abatement measures that theyintend to undertake in the future. The company then formally commits to those targets in a memorandum ofunderstanding and the environmental measures are communicated to the media and the public. Subsequently,progress is monitored in a formalised reporting procedure and a third party (the European CommissionEnvironmental Group or a specialised certification company) certificates the progress. All the data from thecompanies and projects are gathered in a database and used in an annual report by UNIPEDE-EURELECTRIC.


Typically, industry initiatives set qualitative rather than quantitative pollution abatement targets(they mostly take the form of codes of conduct, charters or guidelines) and in general they makeno provisions for monitoring, reporting or sanctions. Assessing the environmental effectiveness


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of such approaches is, therefore, difficult. This and the fact that public authorities are completelyabsent from these programmes is the reason for their general lack of credibility in the public eye.

Many initiatives are therefore perceived as primarily aimed at communicating no regretspollution abatement measures towards public opinion and policy makers. Examples are thepreviously cited initiative of the mining industry, ICME, or the Responsible Care programme.

As a matter of fact, most of these initiatives are issued by industries that are under particularpublic scrutiny for their environmental performances. The UNEP (1998) survey shows thatworldwide 44 commitments are in the chemical industry, nine in the energy sector (petroleum andelectricity) and four in the mining and metal industry. An exception to this rule is the travel andtourism sector where twelve commitments have been initiated.

However, a certain degree of diversity is found as regards their design. This diversity seems to beclosely linked to the importance of factors such as pressure from local communities, consumers,employees, stockholders or even a threat of new regulation. While many commitments are simplestatements of good intention, with no provisions for monitoring and sanctions, some gosomewhat beyond (Box 17). An example for such a case is the chemical industry’s ResponsibleCare Programme. Its explicit aim is to improve the deplorable public image of the industry inorder to maintain its franchise to operate. Over the years the provisions for monitoring andsanctions in the programme have been strengthened in order to render the initiative more crediblein the public eye. These provisions now include the participation of third parties in monitoringprocedures and the possibility of excluding deviators from the professional association.

Box 17. Comparison of the French and the Canadian chemical industry's Responsible Careprogrammes

The Responsible Care Programme was born in Canada in 1984 and since then has spread to over 30 countriesworldwide. Its aim is to accelerate environmental improvements in the chemical industry. The context of itscreation was marked by a series of major accidents: Seveso in Italy, Bhopal in India, Love Canal in Canada. It isan international initiative promoting the adoption of rules for sound environmental management practiceconcerning the limitation of nuisances and communication with local communities. The implementation of thesegeneral principles in a detailed action programme is undertaken by national professional associations. Thecontents and the implementation of the Responsible Care Programme therefore vary between countries.

In Canada, the Responsible Care Programme is characterised by relatively ambitious targets and strict controlprocedures. This is the result of the pressure the industry was confronted with in the beginning of the 1980s: thethreat of new legislation, consumer boycotts of certain products, local pressure on operations. In 1986 theprogramme was improved by the definition of six codes of practice, recommended by a group of independentconsultants to the branch association. Whereas in the beginning monitoring relied exclusively on selfreporting,it has been performed by third parties since 1993. Each plant is assessed by a group of four persons, two ofwhom are members of the industry (but independent from the plant) and two are nonindustrialists (one from thelocal community). The assessment is then based on interviews with employees, suppliers, clients and residents.Companies not complying with the codes can be excluded from the branch association, although this sanctionhas yet to be applied. Additional legal sanctions are possible in court. Although the commitments are notlegally binding, they may have a negative impact on the verdict in a court case motivated by an environmentalnuisance (Webb, 1998).

In France the Responsible Care Programme is implemented under the name of “Engagement de progrès”. It hascurrently 360 signatories accounting for 90 per cent of the industry’s turnover. The French charter was adoptedin 1990 in a context very different to the Canadian case: no major accidents had occurred recently and no threat ofnew legislation existed at that time (as new regulation had only recently been introduced for the chemicalindustry). In the absence of the threat of additional regulation, the incentive for the French industry to takedecisive steps was thus much weaker. The content and the implementation of the French charter are thereforevery different to the Canadian one. It is less ambitious as regards the targets (the codes of practice are notmandatory, but only recommended for implementation), monitoring is based on selfreporting and the onlysanction is the exclusion from the branch association (codes of conduct have no influence on French courtdecisions). These elements suggest that the French “Engagement de progrès” is unlikely to have much impacton firms’ environmental performance, which seems to be confirmed by recent monitoring data. This points tothe central role of pressure from authorities and public opinion (Börkey & Glachant, 1997).


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Nevertheless, it should be kept in mind that unilateral commitments setting provisions formonitoring and sanctions, such as the Canadian Responsible Care programme of the chemicalindustry, constitute an exception rather than the rule. As already pointed out, most of theseinitiatives are conceived in the perspective of industry lobbying aimed at communicating noregrets pollution abatement measures to authorities and public opinion.

3. The diversity of voluntary approaches in Japan5


Two different types of voluntary approaches are in operation in Japan. The first is an approachwhere local governments and municipalities negotiate agreements with individual industrial plants.These are named “pollution control agreements” and have been intensively used since the firstagreement was concluded in 1964 between the city of Yokohama and an electric power company.With more than 30 000 agreements, they are by and large the most popular type of approach inJapan. They are playing a most significant role in regulating industries at the local level, wherethey have replaced traditional regulation in many cases. Their main difference with the EuropeanNAs lies in their local character and the absence of a collective dimension as agreements aresigned with individual industrial plants.

The second type of VA used in Japan are unilateral commitments by industrial organisations.These “voluntary action plans”, as they are called in Japan, constitute a more recentdevelopment which started in the mid1990s. To date, almost 140 industry organisations havemade such commitments towards multiple issues. Both of these approaches are presented in moredetail below.

3.2 Negotiated agreements

Number and scope

The total number of local negotiated agreements in Japan increased from 2 000 in 1971 to morethan 30 000 agreements 25 years later. The annual rate of newly concluded agreements is about2 000, e.g. in 1996, 1 913 new agreements were signed, while 630 expired.

At the start in the 1960s and 1970s most agreements aimed at controlling pollution frommanufacturing factories and electric power plants, but more recently they also extended to theservice sector, where more than 30 per cent of agreements have been concluded (Table 3).

A second change over the years concerns the types of environmental nuisances that are tackledvia Pollution Control Agreements. While at first only polluting activities from industry wereconcerned, today a whole range of environmental issues not covered by law, such as thepreservation of green spaces, tree planting or the use of pesticides in golf courses, are included inthe negotiated agreements (Table 4). The requirements concerning emissions are more stringentthan those in the laws enforced at the national level. Requirements may concern emissionstandards, the use of best available technologies, reporting standards or the definition of anemergency plan. Also, many agreements go further than tackling environmental quality insofar asthey also determine liability rules in the case of a spill-over. In general the company responsible

5This part relies to a great extent on Imura, 1998a and 1998b.


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for the spill-over will then have to compensate the victims for damages, according to the rules setin the agreement.


Historically, Japanese local agreements emerged in the context of growing industrial pollution dueto the concentration of activities in certain areas and the particular legal setting preventing localgovernments from issuing their own environmental regulations, more adapted to local conditions.Indeed, national environmental regulation in the 1960s was very inadequate as far as certainhighly industrialised areas were concerned. At the same time, local authorities were not fullyentitled to issue their own regulation going beyond the scope of national legislation. In effect,once an environmental matter is regulated at the national level, the law precludes localgovernments from imposing stricter regulation over the same matter (unless this possibility isexplicitly mentioned in the law involved). Thus, now and then, the principal means for localauthorities to tackle local environmental conditions are direct negotiations with the plants (Box18).

Table 3. Number of pollution control agreements by industry sector in 1996

Number of Number of Number of Total numberSectors agreements agreements agreements of agreements

concluded from concluded from expired from in effectOct. 1994 to Oct. 1995 to Oct. 1995 toSept. 1995 Sept. 1996 Sept. 1996

Total 1990 1,945 611 30,961Agriculture 75 114 53 2,006Mining 27 42 15 448

Construction 148 97 53 886Food 125 133 41 2,185Clothing and textile 37 31 22 726Lumber, wooden products 47 81 21 891Paper and pulp 31 25 5 734Chemical 95 103 30 1,849Petroleum and coal products 39 33 2 733Rubber and leather 7 14 4 275Cement and ceramics 101 96 23 1,361Iron & steel 45 44 7 919Non-ferrous metals 49 46 5 768Metals 151 103 43 2,844

Machinery 156 152 26 3,423Electricity and other utilities 17 32 7 430Golf courses 100 15 1,238Industrial waste disposal 840(*) 180 19 948Others (services, etc.) 521 218 8,289

(*) Total of “Golf courses,” “Industrial waste disposal” and “Others (services, etc.)”Source: Imura, 1998a.

Nowadays, however, negotiated agreements are preferred not only when it is legally impossible toissue local regulation, but also when this would be possible (e.g. in the absence of national law).The reason lies in the institutional requirement on local ordinances, which must be approved bythe local legislature. In contrast, negotiated agreements are exempted from such a procedure, sousing NAs appears subject to less institutional obstacles, and constitutes a faster way for localauthorities to establish environmental requirements.

Public parties to these agreements are in most cases prefectoral governors or mayors ofmunicipalities, but a growing number of agreements also involve the participation of NGOs. In1988 about 13 per cent (222) of the agreements concluded during that year involved an NGO anda company and therefore fall in the category of thirdparty agreements. In addition, an additional


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10 per cent of the agreements between local authorities and companies involve the participationof citizen associations either as a thirdparty to the agreement or as witnesses.

Table 4: Local negotiated agreements by content

Number of agreements Number of agreements Content concluded from expired from

Oct. 1996 to Sept. 1997 Oct. 1996 to Sept. 1997

Total 1,913 630Pollution control in general 1,347 224Materials and fuels to be used 254 42Air pollution 592 112Water pollution 981 241Noise 721 165

Vibration 527 80Offensive odors 476 126Industrial waste 708 88Other pollution 276 58Greening 698 373Sanctions for non-compliance 1,508 271Suspension of operation and damage compensation 779 135Applying responsibility for compensation under the non-fault pollution act 278 25Special inspection / surveillance 1,047 133

Note: Agreements can fall into several categoriesSource: Imura, 1998a

Box 18. The Yokohama Environmental Agreement

In 1964, the Electric Source Development Corporation planned to build a new coalfired power station at Isogo in theCity of Yokohama. This decision was strongly opposed by local residents who feared a deterioration of their livingconditions due to the additional pollution that the plant would cause in a region already heavily exposed to pollutionproblems. The socialist mayor of Yokohama organised an independent interdisciplinary team of experts to prepare apresiting survey. A detailed prescription for pollution control measures was worked out by this team, which was thenmade public. In parallel, the National Council, which is empowered to examine the development of new electric powerplants, expressed its fear of seeing environmental conditions worsen with the new power plant. In its working party’spreliminary examination, the Ministry of Health and Welfare (MHW) expressed that the risks of siting the power plantin Yokohama was likely to worsen public health in a region where “Yokohama Asthma” was already notorious in thepostwar era. For the approval of the power plant the MHW stipulated two conditions: the agreement of the localgovernment for pollution control measures, and the implementation of maximum pollution control measures under thecontrol of MHW in the plant.

The mayor thus found himself in a delicate political situation. On the one hand, he had committed himself strongly tostrict environmental pollutioncontrol during his election campaign, when competing with a conservative candidate.When the plan for the new power station was disclosed by the national government, a citywide residents’organisation protested against the proposals. On the other hand, the coal industry had been in serious decline for thepast several years, which meant that the power plant was an important issue for the coal miners and their labour union,who were strong supporters of the socialist party. Leaders of the coal miners’ union as well as socialist partyheadquarters had requested Yokohama’s support in securing the siting of the new coalfired power station. The Mayorof Yokohama was thus in a dilemma, unable to force pollutioncontrol measures upon the power plant due to a lack ofadministrative authority and unable to simply refuse the permit for its siting in Yokohama for economic reasons.

In fact, neither the MHW nor local government had direct legal power regarding electric power stations. Despite the1962 law on air emissions, electric power stations were still neither under the jurisdiction of the MHW nor that of thelocal government, but instead only subject to control by the Ministry of International Trade and Industry (MITI). Inrespect of the particular situation in Yokohama, the MITI put pressure on the electric company to comply with thedetailed conditions worked out by the expert committee of the City of Yokohama, which it did. In order to formalise thearrangement, the Mayor of Yokohama requested the electric company to sign the document of an agreement for thecontrol of pollution with the City of Yokohama.

This was the first case of an environmental pollution agreement between local government and an electric company. Itwas also the first occasion in which the MITI interceded with an electric company. The MITI had decided to play therole of mediator between both parties and thus persuaded the electric company to sign the agreement in question. Thedocument of the agreement was also made public. Since then, pollution control procedures by means of local agreementshave been institutionalised as a matter of course by local governments and the industries concerned.

Source: Michio Hashimoto: “Administrative Guidance” in Environmental Policy in Japan (eds. H. Weidner and S.Tsuru, Sigma, 1988)


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Although these written agreements are not legally binding, industry’s compliance is extremelyhigh. The reason for this situation is to be found in the link with the local permit system. Localgovernments, in charge of permits for new facilities and production expansions, generally makepermit granting conditional to the signature of an environmental agreement. Sometimes the saleof public land is also made conditional to the signature of an environmental agreement. In theseagreements, public authorities are thus implicitly trading their administrative goodwill for acompanies’ improved environmental performance. This constitutes a major difference withEuropean NAs, where the threat comes under the form of alternative regulation.

Monitoring is mostly based on selfreporting by companies, but local authorities can verify thereports while conducting inspections linked to national laws or local ordinances.

The Japanese negotiated agreements at the local level can thus be said to be intensely linked to aparticular institutional setting. In a context of severe environmental problems at the local level,their emergence was mainly due to the lack of regulatory powers at this level. Theirenvironmental effectiveness relies on the pressure that local authorities can exert on companiesvia the permitting system. As a result, the initial inability of local governments to adapt nationalenvironmental regulation to local conditions was circumvented and eventually allowedenvironmental standards to be strongly differentiated between regions.

Table 5. Sectors with unilateral commitments for the environment (Japan)

1. Mining (Japan Mining Industry Association)2. Limestone mining industry (Limestone Association of Japan)3. Coal (Japan Coal Association)4. Construction (Japan Federation of Construction Contractors, others)5. Housing (Japan Federation of Housing Organisations)6. Sugar Refining (Japan Sugar Refiners' Association)7. Beer Brewing (Brewers Association of Japan)8. Paper manufacturing (Federation of Paper Manufacturers in Japan)9. Chemical (Japan Chemical Industry Association)10. Pharmaceutical (Federation of Pharmaceutical Manufacturers' Associations of Japan, Japan Pharmaceutical

Manufacturers Association)11. Petroleum (Petroleum Association of Japan)12. Rubber (The Japan Rubber Manufacturers Association)13. Flat Glass (Flat Glass Association of Japan)14. Cement (Cement Association of Japan)15. Steel (Japan Iron and Steel Federation)16. Aluminium (Japan Aluminium Federation)17. Brass (Japan Brass Makers Association)18. Electric Cable (Japan Electric Wire and Cable Makers' Association)19. Industrial Machinery (The Japan Society of Industrial Machinery Manufacturers)20. Electronics (Electronic Industries Association of Japan, others)21. Electric Machinery (Japan Electrical Manufacturers' Association)22. Automobile (Japan Automobile Manufacturers Association)23. Automobile Parts (Japan Auto Parts Industries Association)24. Rolling Stock (Japan Association of Rolling Stock Industries)25. Shipbuilding (The Shipbuilders' Association of Japan)26. Optical Instruments (Japan Optical Industry Association, others)27. Foreign Trade (Japan Foreign Trade Council)28. Department Store (Japan Department Stores Association)29. Chain Stores (Japan Chain Stores Association)30. NonLife Insurance (The Marine and Fire Insurance Association of Japan)31. Real Estate (The Real Estate Companies Association in Japan)32. Railway (Japan NonGovernment Railways Association)33. Shipping (Japanese Shipowners' Association)34. Transportation (Japan Trucking Association)35. Electric Power (Federation of Electric Power Companies)36. Gas (Japan Gas Association)37. Aviation (ThreeAirlines Liaison Committee on Environmental Problems)38. Other (East Japan Railway Co.)

Source: Imura, 1998b


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Number and scope

Unilateral commitments by industrial organisations are a very recent phenomenon in Japan,which started with the Responsible Care Initiative, implemented by the Japan Chemical IndustryAssociation (JCIA) in 1995. This initiative is very similar to the Responsible Care Programmes inother developed countries (Box 17). The main unilateral commitment, however, was undertakenby the federation of Japanese industries, Keidanren. A voluntary action plan, integrating sectoralcommitments of 37 branches, was launched in 1997 together with the 137 industry organisationsgrouped in Keidanren. One year later, all major branches of industry, ranging from manufacturingand energy to distribution, transportation, finance and construction, had drafted their ownvoluntary action plans (Table 5).

An example of the scope of these unilateral commitments is given in Box 19 for the steelindustry. Four major environmental objectives are included: measures to deal with global warming,waste disposal measures, introduction of environmental management systems and environmentalconservation in overseas business activities. However, the targets are highly variable and specificto industry branch characteristics. For example, the electric power sector committed itself to areduction target for CO2 emissions of 20 per cent per unit of output for the year 2010, while thecement industry’s commitment is only a general pledge for a reduction without any quantifiedtarget. The coverage of industry is relatively comprehensive. For instance, the 37 industrybranches represent more than 80 per cent of industrial energy consumption in Japan.

Box 19. Keidanren Voluntary Action Plan The Case of the Steel Industry(Japan Iron and Steel Federation)Measures to cope with global warmingTargets• Promote energysaving in production process (reduce energy consumption in 2010 by about 10 per cent as compared with 1990).• In coordination with regional community, make use of plastic waste and unused energy (down equivalent of about 3 per cent).• Supply of highgrade steel which will make it possible to save energy when using steel material. (down similarly about 4 per cent in

society as a whole.)• Contribute to energy conservation through international technological cooperation.Measures• Wider dissemination of existing energysaving technology; promotion of practical application and popularisation of revolutionary

technology.• Use of plastic waste at steel mills through cooperation of state and regional community and use of used and unused energy in regional

community.• Development and dissemination of highfunction steel (high tension steel plate, electromagnetic steel plate, etc.)• Cooperation in energyconservation measures of joint implementation activity, etc.Waste Disposal MeasuresTargets• The volume of final disposal of byproducts (slag, dust, sludge) generated in the steel manufacturing process will be reduced in 2010

by 75 per cent from 1990, and will aim for 99 per cent recycling for use as resource. (actual percentage in 1990 was 95 per cent).• Target of 75 per cent will be set for steel can recycling in 2000 and an even higher rate will be aimed for.Measures• Promote infactory recycling of byproducts and, in coordination with users and the administrative authorities, expand the present ways

of using byproducts, and promote development of new uses. Conduct activities to educate consumers and continue economic supportof municipalities, etc.

Environmental Management• With a view to conforming to the ISO 14000 series, the establishment of inhouse setup and the acquisition of certification will be

positively promoted.Additional Commitments• Will push Life Cycle Assessment.• Environmental conservation will be pushed through physical flow measures.• Forest resources will be protected by popularising steel houses.• Energysaving and resourceconservation will be conducted in offices.• Greenery will be planted in factory compounds and neighbouring areas.

Source: Imura, 1998a


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Although voluntary action plans constitute unilateral commitments by industry, they have beenshaped to a great extent by interactions with public authorities. In fact, three pieces ofenvironmental policy have influenced the Keidanren voluntary initiative and in particular thoseparts concerning climate change. First of all, a major regulatory threat came from the Law for thePromotion of Measures to Cope with Global Warming. This law was elaborated by theEnvironment Agency and requested prefectures to prepare regional plans for GHG abatementmeasures. Further to the agreement reached at COP3 in Kyoto, it was submitted to the Diet inApril 1998 and approved in October of the same year. The second piece of environmental policyis a response to the Global Warming Law project by MITI (Ministry of Industry and InternationalTrade), traditionally responsible for energy conservation measures in industry. In order to preventthe Global Warming Law from extending to industry, MITI proposed a reform of the EnergyConservation Law instead. The reformed draft law requires each factory or business facility toelaborate energy conservation plans and to communicate them to MITI. The third relevant pieceis the Basic Environmental Law, enacted in 1993. It advocated the use of voluntary and economicinstruments considering that regulatory measures alone were no longer sufficient for theachievement of environmental policy concerning global issues in particular.

Table 6. CO2 abatement targets for selected industry organisations in Japan

Sector TargetElectric Power (Federation ofElectric Power Companies)

1 Efforts will be made to reduce in 2010 the CO2 emission per unit of output in theelectric power industry as a whole by about 20 per cent as compared to the 1990actual. As a result, although the electric power output in 2010 is expected toincrease by 1.5 over 1990, the amount of CO2 emissions will be kept down to anincrease of about 1.2.

Gas (Japan Gas Association) 2 In 2010, energy efficiency will be raised by 15 per cent over 1990 in themanufacturing/distribution stages and the consumption stage. (The CO2 reductionwill be equivalent to about 3 300 000 tons in terms of carbon.)

Cement(Cement Association ofJapan)

3 The industry average unit requirement for total fuel in 1990 was 2 940 kJ per1 kg of cement clinkers. (2 720 kJ per 1 kg of cement by the year 2005 hasalready been set as a target by the German Cement Industry.) The industryaverage for the amount of electricity used was 95.4 kWh per 1 kg of cement. Bothof these figures are below the levels for other advanced countries.4 The Association does not indicate specific target values, but will strive to reduceenergy consumption as much as possible.

Paper manufacturing(Federation of PaperManufacturers in Japan)

5 Intend to reduce the unit requirement of energy purchased to 10 per cent of the1990 level by the year 2010.6 Strive to support planting operations inside and outside Japan to expand ownedor managed tree planting areas to 550 000 ha by the year 2010.

Chemical(Japan Chemical IndustryAssociation)

7 Efforts will be made to reduce the energy input per unit of output in 2010 to90 per cent that of 1990.

Aviation(ThreeAirlines LiaisonCommittee on EnvironmentalProblems)

8 By 2010, CO2 emission per transport unit (passenger seatsdistance) will bereduced by 10 per cent from the 1990 level.

Source: Imura, 1998b

Keidanren reacted to this by initiating voluntary action plans aimed at preventing stricterregulation. This also explains why the commitments on CO2 abatement have been recognised bypublic authorities who officially consider them as the means for achieving the Japanese Kyotoprotocol targets. They therefore bear some similarities to the German and French agreements on


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CO2 abatement, and on these grounds, could possibly be classified as negotiated agreements due totheir strong link to public policy.

As seen in Table 6, the nature of the targets on the abatement of CO2 varies greatly from onesector to the other. While the steel industry sets a quantitative target in absolute terms, the paperindustry sets such a target but in specific terms (i.e. a reduction per unit of production). Thecement industry sets no quantified targets, but a qualitative commitment to seek a reduction ofenergy consumption.

Although the action plans have no legal basis, MITI may request industries to report on theimplementation of their voluntary action plans in order to enforce the Energy Conservation Law.Monitoring therefore falls within the traditional method of administrative guidance by MITI.

As is the case with most voluntary approaches, no explicit provisions for sanctions were made inthe voluntary action plans.

3.4 Conclusions

Negotiated agreements are playing a prominent role in Japanese environmental policy. At thelocal level, they represent one of the main policy instruments for pollution control in lieu oftraditional regulation. As in the US and Europe, unilateral commitments are mainly in thechemical industry, where the Responsible Care Programme is applied. However, a recent industryinitiative has now developed on waste recycling and CO2 emissions. Finally, and despite thelimited information available on the subject, it is worth noting that public voluntary programmesare also gaining wider adoption in Japan. Many Japanese companies have obtained certificationaccording to ISO 14000 and ecolabels have been used for several years now.

4. The diversity of voluntary approaches in the United States6


In the United States, 42 voluntary approaches have been developed since 1988 by the USEnvironmental Protection Agency (EPA) and industrial trade organisations. Most VAs are publicvoluntary programmes (31) and unilateral commitments by industry organisations (nine). TheEPA, either independently or in tandem with other federal agencies, administers 33 of the42 initiatives surveyed (Table 7).

Only two examples of negotiated agreements were found in the US and they appear to be veryrecent developments. However, the information available refers only to the experience at theFederal level, and hence does not include other possible initiatives at state level.

In contrast to the European or Japanese experience, VAs in the United States are primarily usedto enhance the scope and efficacy of existing laws on air, water, waste and toxic emissions. Theyare therefore mainly perceived as complements to the legislation in place.

6This part is largely based upon Mazurek, 1998a, Mazurek, 1998b and Davies & Mazurek, 1997.


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Table 7. VA categories at the Federal level in the United States

PUBLIC VOLUNTARY UNILATERAL NEGOTIATEDClimate Change Action Plan Pollution Prevention

1. AgStar Program (1993) 1. 33/50 (1991) 1. Responsible Care (1988) 1. Project XL (1995)2. Climate Wise (1993) 2. Design for the Environment (1991) 2. Responsible Distribution Process

(1991)2. Common Sense Initiative (1994)

3. Chlorofluorocarbon Substitutes (post1993)

3. Environmental Accounting Project(1992)

3. Responsible Recycling Code

4. Coalbed Methane OutreachProgram (1994)

4. Environmental Leadership Program(1994)

4. Responsible Carrier (1994)

5. Commuter Choice (post1993) 5. Green Chemistry (1992) 5. Coatings Care (1996)6. Energy Star Buildings (1994) 6. Indoor Environments Program

(1995)6. Encouraging EnvironmentalExcellence (1992)

7. Energy Star Homes (1995) 7. Pesticide Environmental StewardshipProgram (1993)

7. Sustainable Forestry Initiative (1995)

8. Energy Star Office Equipment (1993) 8. Waste Minimization National Plan(1994)

8. Strategies for Today’s EnvironmentalPartnership (1990)

9. Energy Star Transformer Program(1995)

9. Water Alliances for VoluntaryEfficiency (WAVE) (1992)

9. Great Printer’s Project (1992)

10. Environmental StewardshipInitiative (1997)

10. Voluntary Standards Network(1993)

12. Green Lights (1991)12. HFC23 Reductions (post1993)13. Landfill Methane OutreachProgram (1994)14. Natural Gas Star (1993, 1995)15. Ruminant Livestock MethaneEfficiency Program (1993)16. Seasonal Gas Use for the Controlof Nitrous Oxide (post1993)17. State and Local Climate ChangeOutreach Program (1993)18. Transportation Partners (1995)19. The US Initiative on JointImplementation (1993)20. Voluntary Aluminium IndustrialPartnership (1995)21. WasteWise (1992)

Source: Mazurek, 1998a.

4.2 Negotiated agreements

Number and scope

It is only since the middle of the 1990s that EPA initiated two negotiated agreements, theCommon Sense Initiative (CSI, 1994) and project XL (1995). While the Common SenseInitiative targets groups of companies, XL is directed at individual firms. The six industry sectorsparticipating in CSI are auto manufacturing, computers and electronics, iron and steel, metalfinishing and plating, petroleum refining, and printing (Table 8). Project XL has sevenparticipating companies, mostly from the chemical and computer sectors (Table 9).

Both agreements are aimed at large companies. Four out of seven companies participating in theXL project employ over 500 workers; three of them (Intel, Merck, Weyerhaeuser) are very largecorporations and another one operates plants in four states (HADCO). However, two sectorsparticipating in CSI, printing and metal finishing, target small firms with less than 20 workers.

As indicated below, these initiatives are very different from the European or Japanese agreements.Both are an attempt by EPA to reform environmental regulation, and were devised in response tocomplaints from the business community regarding the growing detail and complexity of federalpollution laws (Pedersen, 1995).


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As can be seen in Table 10, the 44 CSI pilot projects primarily represent efforts to incrementallyimprove US laws and regulations. Twentythree projects address regulations directly, seven seek toreduce record keeping and reporting and six address the permit process.

Table 8. Common Sense Initiative projects

Project CategoryMETAL FINISHING SECTOR

Regulatory information inventory team Recordkeeping and reportingChrome emission pollution prevention technology pilot Environmental technologyMetal finishing 2000 RegulationNational resource center for metal finishing RegulationCompliance leadership through enforcement, auditing, and negotiation Compliance and enforcementEnvironmentally responsible site transition RegulationPublic treatment facility flexibility, training, and incentives RegulationMetal finishing wastewater sludge project RegulationStrategic research plan Environmental technologyMetal finishing guidance manual Compliance and enforcementNear zero discharge demonstration project Environmental technologyTier 4 facility enforcement project Compliance and enforcementStrategic outcomes workgroup RegulationAccess to capital Environmental technologyRegulatory assessment of metals products Regulation

PETROLEUM REFININGEquipment leaks project RegulationOne stop reporting Recordkeeping and reporting

PRINTING SECTORNew York City education project Pollution preventionMultimedia flexible permit project Permits

AUTOMOTIVE SECTORAutomotive assembly plant database RegulationAlternative regulatory system principles and process RegulationLouisvilleFord community project RegulationTools and policies statement for Life Cycle management Pollution prevention, regulationIdentify and document supply chains for automotive assembly plants Pollution prevention, regulationLife Cycle inventory document Pollution prevention, regulationRegulatory initiative projectVOC/Area metric Regulation

COMPUTER AND ELECTRONICS SECTORNational conference on electronic product recovery/recycling Pollution preventionResidential collection pilots for endoflife equipment Pollution preventionBarriers to cathode ray tube (CRT) recycling RegulationConsensus document to create more flexible system RegulationTest components of a more flexible system RegulationReporting and public access to information Recordkeeping and reportingEmergency Response Reporting Recordkeeping and reportingBarriers to closed loop recycling Regulation

IRON AND STEEL SECTORBrownfields Not applicableAlternative compliance strategy Permits, enforcement, complianceInnovative technology web site Environmental technologyIdentification of barriers to use of innovative technology RegulationMultimedia permitting Permits, pollution preventionIdentify permit issues PermitsCommunity involvement Pollution preventionConsolidated multimedia reporting Recordkeeping and reportingSpent pickle liquor workshop RegulationRedevelopment Compliance, enforcement, regulationImproved compliance Compliance, enforcement, regulation

Source: Scientific Consulting Group (SCG), 1997, Review of the Common Sense Initiative. Gaithersburg, Maryland: SCG.


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Table 9. Project XL participants

Company/Product Project AgreementBerry Corp./juice company Comprehensive plan to replace all permits and eliminate costs associated

with permit preparation.HADCO/printed wiring boardmanufacturer

Remove wastewater sludge from regulation under the ResourceConservation and Recovery Act.

Weyerhaeuser/paper manufacturer Reduce effluent, water use, solid waste generation in exchange for the abilityto consolidate reporting requirements and waive government review ofroutine production modifications.

Merck/pharmaceuticals Lifetime caps on criteria pollutants in exchange for waiver of governmentreview of routine production modifications.

Osi specialties/chemical manufacturer Install pollution controls in advance of when they are required in exchangefor EPA deferral on new organic emissions regulations.

Intel Corporation/semiconductormanufacturer

Adopt facilitywide operating plan for air, water, and waste. Adopt emissionscaps below federal legal requirements in exchange for government waiver ofroutine production modification permit review.

Vandenburg Air Force Base Waiver of air permitting review. In exchange, military facility will usecompliance savings to upgrade and retrofit emissions controls.

Source: US Environmental Protection Agency. 1998c. Project XL home page. Office of Reinvention. Available at:http://199.223.29.233.xl_home.

Table 10. CSI goals for projects currently underway

Among the current CSI projects:1. 23 address existing regulations2. 20 promote pollution prevention3. 7 seek to reduce record keeping and reporting4. 9 address compliance and enforcement5. 6 address permit obtention6. 9 attempt to stimulate new environmental technology


Negotiations between firms and public authorities in project XL and CSI concentrate on twoaspects: the environmental target to be met by companies and regulatory relief granted by EPA toparticipating firms. To this extent, these initiatives are similar to negotiated agreements inEurope or Japan. However, a major difference lies in their scope: while NAs substitute fortraditional regulation in Europe and in Japan, the US initiatives are more designed to complementit. Their ultimate objective is not to provide a substitute for traditional regulation, but to improveupon it.

The aim of these initiatives is to trade in simplified regulation against improved environmentalperformance (Box 20). The CSI project has the following goals:

1. Reduce duplicative reporting requirements.

2. Streamline the permits process.

3. Improve community involvement in environmental decisionmaking.

4. Find incentives for, and eliminate barriers to, pollution prevention.


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Box 20. Intel's XL agreement

The first major company to sign an agreement within the XL programme was the microchip manufacturer Intel.The final project agreement was signed in November 1996 by the EPA and mainly provides a novel air permitfor Intel in exchange for the improved environmental performance of the firm.

Intel's particular interest in negotiating new permits for its newest semiconductor manufacturing plant nearPhoenix, Arizona (where the newest Pentium microprocessor is manufactured) stems from the fact that itscompetitive edge crucially depends on its ability to put new products on the market as quickly as possible. Thelengthy regulatory process involved for any change in the production process is therefore a major competitiveobstacle for Intel. For instance, regulations stipulate that all production changes entailing an effect on air or wateremissions call for a new permit or formal review. Some managers posit that production delays may cost Intel amillion dollars in lost revenue per day.

One of the major elements within Intel's XL agreement therefore consists in relieving Intel from certain basicpermit provisions in the Clean Air Act Amendments (CAAA), which requires manufacturers to notify regulators,and in some cases seek their approval for routine process changes. Permit notification and review processes mayimpose delays of weeks, months or even years. Thus, the agreement contains a separate, fully enforceable 5yearpermit that approves, in advance, routine production changes on the Phoenix site which may have an impact onair emissions (under a traditional permit, an Intel facility would be required to file up to 28 permit notificationsper year).

In exchange, Intel commits to a set of plantwide emission limits, or caps, for conventional and hazardousemissions. The caps are more stringent than those required by federal law. Under the permit, Intel may alsoconstruct a second facility to produce microprocessors two generations ahead of the current products, providedthat combined emissions from both facilities remain below levels specified in the XL air permit.

In addition to the air permit, the agreement contains provisions for a permit from the municipality regulatingwater treatment issues, and a set of performance features primarily directed at local concerns. For instance, Intelagreed to donate computers to schools and libraries in the municipality, to increase the setback from anymanufacturing building to the closest residential property to 1 000 feet, from the usual requirement of 56 feet,and finally to recycle large volumes of solid hazardous waste from the production site.

Source: Boyd et al., 1998.

For example, the Iron and Steel subcommittee of CSI seeks to develop a multimedia permittingprocess which covers air, water, and waste for a steel minimill. Such permits may reduceadministrative costs for the mill and improve environmental managers’ understanding of themultiple and integrated environmental effects of the production facility. The Computers andElectronics subcommittee seeks to completely redesign the current reporting process with a“Combined Uniform Report for the Environment (CURE)”. CURE is designed to provide firmswith a streamlined and consolidated reporting process that eliminates filling out lengthy, andsometimes overlapping forms. As a result of the new procedure, forms would be reportedelectronically to regulators, and data would also be partially available to the public. This target isvery similar to the Dutch negotiated agreements, where a simplification of permits and reportingis also sought as a counterpart for industry’s improved environmental performance. However,contrary to the US initiative, the Dutch agreement tightens simultaneously the permits ofcompanies which have not joined the agreement.

In principle CSI and XL should lead to legallybinding agreements, since they provide firms withrelief from existing laws and regulations. In practice, however, only XL has led to legallybindingportions in its agreements and the corresponding set of sanctions such as compliance actions andfines. In fact, the implementation of Project XL and CSI is hampered because Congress has notgiven EPA the authority to provide firms with relief from existing regulations and laws. Theconsequences are twofold.

First, the lack of regulatory flexibility has led to suboptimal outcomes, with projects notdeveloping their full potential for regulatory and organisational innovations. For example, EPA


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cannot authorise companies to reduce abatement costs via plantlevel pollutant trades. The lack ofregulatory flexibility is the main explanation for the relatively low participation rates to ProjectXL. Until now, only seven companies have joined the initiative (Table 9).

The second problem is procedural and particularly relevant in the case of CSI. When the agencyor trade associations fail to obtain legal authority, they can only act by achieving some degree ofconsensus. This situation gives each participant a potential veto power and leads to large,sometimes intractable transaction costs. This mainly explains CSI failure to attract a significantnumber of projects. In 1996, procedural problems contributed to EPA's dismissal of two CSIparticipants, perceived as obstructionist. Procedural problems first slowed CSI’s progress, and thencaused defection by petroleum companies in 1996 and by automobile manufacturers in 1997.

As a result, four years after EPA implemented CSI, none of the initiative’s efforts have translatedinto regulatory change. Instead, CSI has largely resulted in 44 demonstration projects (Table 10)that would have been possible under current law and regulations. One exception is a sectorwideagreement adopted by the metals finishing industry in October 1997. The agreement containsindustrywide goals for full compliance, improved economic payback, and prevention of soil watercontamination. It includes enforcement sanctions on firms that fail to meet sectoral goals, andalso a comprehensive action plan for stakeholders, including state and local regulators, interestedorganisations and individuals.

4.3 Public voluntary programmes

Number and scope

Public voluntary programmes account for the majority of VAs in the US. They are administeredby the Environmental Protection Agency (EPA).

The environmental focus of EPA voluntary programmes is primarily on meeting the goals of theClinton Administration’s 1993 Climate Change Action Plan (CCAP) or to adopt voluntary goalsestablished under the Pollution Prevention Act of 1990.

Figure 9. Number of firms participating in EPA's voluntary programmes, 19912000

400

1 944

4 489

13 055

6 695 6 882

3 275

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

1991 1992 1993 1994 1995 1996 2000*

Note: * Projected. Source: Mazurek, 1998a


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Participation in public voluntary programmes has steadily risen since the introduction of the33/50 programme (Box 21) in 1991 (Figure 9). In 1996, about 7 000 corporations, smallbusinesses, local governments and nongovernmental organisations participated in public voluntaryand in negotiated programmes, according to the agency’s most recent estimates (US EPA,1998b). By and large, EPA’s voluntary climate change programmes have the largest number ofparticipants. In 1996, the Green Lights programme alone accounted for 2 338 participants. Morethan 500 organisations participated in the various Energy Star programmes (US EPA, 1996c).

US voluntary programmes target individual companies in roughly nine major US sectors fromextraction (mining) to manufacturing (chemicals electronics and computers) (Table 11). Unlikethe European context, no national public scheme specifically seeks to reduce packaging waste.However, EPA’s WasteWise programme encourages more than 400 organisations from35 different business sectors to reduce waste generation and improve recycling.

Table 11. US Sectors participating in public voluntary programmes

Sector Voluntary AgreementAgriculture AgStar

The Ruminant Livestock Methane ProgramPesticide Environmental Stewardship Program

All Manufacturing(Standard Industrial Codes 2039)

33/50Climate WiseWasteWiseEnvironmental Accounting ProjectEnvironmental Leadership ProgramGreen LightsIndoor Environments ProgramWasteWise

Mining Coalbed Methane Outreach ProgramEnergy Energy Star Transformer Program

Natural Gas Star ProgramWasteWiseLandfill Methane Outreach Program

Transport Transportation PartnersWasteWise

Services Green LightsWater Alliances for Voluntary Efficiency (WAVE)WasteWise

ConstructionIndustrial, Commercial, andResidential Buildings

Energy Star BuildingsGreen LightsIndoor Environments ProgramEnergy Star Residential ProgramsGreen LightsIndoor Environments Program

Hazardous Waste Generators,Haulers,Landfill

Landfill Methane Outreach ProgramWaste Minimization National PlanWasteWise

Source: Mazurek, 1998a

Like the WasteWise programme, several US public voluntary programmes target more than onesector (e.g., Energy Star, Green Lights and Climate Wise). For example, Energy Star programmesinclude agreements with construction, electronics, office equipment and energy firms. Otherstarget individual sectors or industries. Examples include: the Voluntary Aluminium Industrial


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Partnership (primary aluminium), Water Alliances for Voluntary efficiency (hotels), and theCoalbed Methane Outreach programme (coal mining).

In total, of the 31 voluntary programmes that EPA administers, 14 target the manufacturing andenergy sectors, where chemical manufacturers and distributors are in the greatest number, followedby electronics and computer manufacturers.

Box 21. The case of the 33/50 Programme

EPA's 33/50 Programme is a voluntary pollution prevention initiative that began in the late 1980s. It was aresponse to the increased focus on pollution reduction and sought voluntary cooperation from industrial firms tosignificantly reduce toxic chemical releases and transfers primarily through source reduction. The monitoring ofparticipating firms’ releases and of programme progress is based on EPA’s Toxic Release Inventory (TRI).Reporting to this inventory is mandatory for all firms, independently of their participation to the 33/50Programme. Out of a larger set of toxic releases listed in the TRI, the programme monitored the emissions of17 toxic chemicals, selected for their high release levels and toxicity. During 1988, 1.49 billion pounds of the17 target chemicals were either released into the environment onsite or transferred offsite to waste managementfacilities. Combined they comprised about onefourth of the total TRI releases and transfers in 1988.

EPA formally announced the 33/50 Programme in February 1991. The programme had three goals: first, anoverall emission reduction of 33 per cent for the 17 substances by 1992. Second, an overall reduction of 50 percent by 1995. Third, to demonstrate that voluntary programmes could achieve targeted reductions faster thanEPA’s traditional regulatory approach alone.

EPA contacted 8 000 companies and encouraged them to join the programme. Ultimately some 1 300 firmsparticipated. Releases and transfers reported by these companies represented 63 per cent of 1988 total releases andtransfers of 33/50 targeted chemicals and 15 per cent of all TRI emissions.

The programme was designed to recognise a company’s participation when it submitted to EPA in writing itsintention to participate and pledged a corporatewide numerical reduction commitment for any of the 17 targetchemicals through 1995. There were no fixed requirements and companies committed to whatever reductionswere appropriate for them. Some companies focused their goals on all 33/50 chemicals, while others focusedonly on a few of them, while still others promised to reduce all TRI releases, going beyond the programme’sobjectives.

Participants in the 33/50 Programme received support from EPA in several forms. EPA organised regionalpollution prevention workshops and conferences. The conferences brought together representatives from industry,government, academia and public interest groups. They sought to foster an exchange of information on varyingperspectives of pollution prevention. The conferences also promoted collaborative action and partnerships amongparticipants. Further, they showcased companies that were successful at achieving pollution reductions andpublicised them in EPA’s media relations, documents and newsletters.

Additional support came in the form of technical assistance to 33/50 Programme participants. Information wasdisseminated on emerging pollutionprevention technologies for TRI chemicals. In addition, the agency providedindustry specific guidance, reference manuals, bibliographic reports, and videos covering topics from genericpollution prevention to detailed instructions on setting up waste reduction programmes for specific industries,processes, or materials. Finally, the programme also referred companies to training courses offered by states andprivate sources.

EPA reports that all three of the 33/50 goals have been fulfilled. The programme’s interim goal of a 33 per centreduction in the 17 target chemicals was achieved one year ahead of schedule and exceeded it by over100 million pounds. The programmes ultimate goal of 50 per cent reduction in target chemicals was alsoachieved a year earlier than planned. Altogether, releases and transfers were reduced by 51 per cent between 1988and 1994. They represent nearly twice the programme's initial target of 385 million pounds.

Source: Davies & Mazurek, 1997, and Arora & Cason, 1995


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EPA's voluntary programmes are concluded between the agency and an individual firm. Thevoluntary climate change programmes (Green Lights, Energy Star) primarily provide participantswith technical information in order to promote energy conservation. The Green Lightsprogramme, for example, assists companies in defining company spaces where conversion ofconventional lights towards low energy equipment is economically feasible. In return, companiescommit to convert at least 90 per cent (within 5 years) of the spaces that have been identified assuch.

The 33/50 programme set an overall target for 17 toxic substances: 33 per cent reduction ofemissions by 1992 and 50 per cent by 1995 (from 1988 levels). Each company is not required tomeet these targets individually, however, but must define some numerical reduction (Box 21).

Other prevention programmes (Design for the Environment, Green Chemistry) are designed topromote the development of cleaner products and industrial processes. All participants in suchprogrammes are rewarded by EPA's efforts to publicise companies’ achievements in media,documents and newsletters.

For most initiatives, participants sign nonbinding letters of agreement such as a Memorandum ofUnderstanding (MOU), which imposes no sanctions for programme withdrawal. Failure to meetthe MOU terms means that the company can no longer claim the benefits of participation, whichare typically public recognition. The threshold for participation in 33/50 was even lower:potential participants were simply required to send EPA a letter indicating their willingness to cutemissions for the 17 targeted chemicals, leaving it open to firms to decide the percentagereduction involved.

The environmental performances of public voluntary programmes are primarily monitoredthrough annual selfreporting by firms. In addition, EPA measures progress in terms of overallpollution reduction goals. For example, progress under the 33/50 programme was measuredthrough the mandatory selfreporting requirement to the toxics release inventory (TRI), whichfirms have to report to independently of their participation in the voluntary programme. GreenLights participants report on how many square feet of conventional lighting are converted intoefficient bulbs. Based on these data, EPA extrapolates pollution reduction from energy savings.

The foregoing discussion suggests that for firms, the motivations are essentially linked to publicrecognition. The positive public perception induced by participation in a voluntary programmemay indirectly reduce the possibility of higher abatement or reporting costs that would otherwisearise from new and more stringent regulation.

Overall, the EPA seems to use voluntary programmes mainly to extend the scope of existinglaws. They thus appear as a complement to traditional regulation, and appear as a soft means forachieving incremental environmental improvements.


Number and scope

Fewer in number than voluntary programmes, unilateral commitments nevertheless involve asignificant number of participating companies. More than 2 000 have joined the nine initiativessurveyed in the US. For example, all 190 members of the Chemicals Manufacturers Association(CMA) participate in the Responsible Care programme. In addition, 42 nonmember companies


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have adopted the initiative (Mazurek, 1998b), as have the 167 members of the American Forestand Paper Association (AFPA) (AFPA, 1998). Similarly, all 300 American Petroleum Institutemember companies participate in the “Responsible Carrier” programme (AWO, 1998); whereasall 400 National Paints and Coating Association members have a unilateral commitment entitled“Coatings Care”, and about 335 firms participate in the “Responsible Distribution Process”,administered by the National Association of Chemical distributors.

Unilateral commitments mainly target a single sector, in contrast with EPA programmes, whichare mostly aimed at multiple branches. The majority of US unilateral commitments lie within thechemical industry and branches with at least some proximity to it (paints and coatings, chemicalsdistribution, petrochemical industry etc.). Only one initiative lies outside the manufacturingsector, and falls under extraction activities: the Sustainable Forestry Initiative.


As for EPA’s public voluntary programmes, unilateral commitments mostly take the form ofletters of understanding which are nonbinding in character. But in contrast to EPA programmes,which are primarily designed to reduce pollution, unilateral strategies are designed to improve theindustry’s public image, via voluntary adoption management codes. Similarly to the ResponsibleCare programme in Canada (Box 16), the US initiative contains six management practice codesthat range from pollution prevention to product stewardship. CMA provides its members withgeneral guidance documents that explain how companies can adopt the codes. Firms are expectedto fully implement the codes by 1999. Thus, targets remain mostly qualitative in nature.

However, the form of targets that can be formulated in the framework of unilateral commitmentsin the United States is constrained by antitrust laws. According to Kappas (1997) it is only withinnarrowly defined limits that antitrust law in the US recognises the right of industry associations todevelop and enforce selfregulatory codes. Responsible Care’s design reflects a rational decision onbehalf of CMA and its members to develop institutions that minimise the potential for antitrustauthorities to view the initiative as a restraint on trade. Consequently, CMA developed codes thatminimise the potential for discriminatory or exclusionary behaviour on behalf of membercompanies. Primarily, CMA refrained from the use of codes that would require companies toemploy specific management strategies, actions, or outcomes. CMA’s ability to use such methodswould have made Responsible Care considerably less ambiguous and more transparent.Uncertainties regarding the legality of unilateral commitments therefore have the added effect oflimiting the effectiveness of monitoring and enforcement.

As in the Canadian Responsible Care programme, monitoring is based on annual selfreporting,although participants can elect to obtain independent, thirdparty verification. However, since1997, only ten out of CMA’s 190 members have chosen to include thirdparty reviews (ChemicalWeek, 1997b). CMA members are not required to disclose results to the public or to othercompanies.

For Responsible Care in Canada and the US (but not in France), participation in the programme isa prerequisite for trade association membership; this seems to be the case for most US unilateralcommitments by a branch association. Companies make an ethical pledge to meet the programmegoals, and the only sanction is the threat of dismissal from the trade organisation.

Evidence of dismissal to date comes from only two cases: the American Forest and PaperAssociation and the Institute of National Power Operators (INPO). The Forest and Paper tradeorganisation dismissed 15 of its 167 members due to their failure to comply with the SustainableForestry Initiative in 1996, and suspended another company in 1997 (AFPA, 1998). TheInstitute of National Power Operators excluded one of its members for persisting in notrespecting the security guidelines and management practices in its nuclear operations (Rees,1994). Responsible Care participants that fail to implement management practice codes, or make


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adequate progress towards programme goals, are subject to a sequence of actions, commencingwith letters of inquiry and terminating with dismissal. There is no evidence that CMA has everused the threat of dismissal. The trade association prefers to provide information and technicalassistance to laggards, rather than punishing them with expulsion (Ember 1992).

As the examples above suggest, unilateral commitments in the United States primarily provideparticipants with information subsidies, technical assistance, and/or public recognition. Publicrecognition may be provided through awards, press announcements, or the use of logos (e.g.,participants to the Responsible Care programme are allowed to use a specific logo). Publicrecognition was also the primary motivation when the Responsible Care programme was initiated.It is premised on the presumption that rising abatement costs are partially a function of negativepublic perception. Most chemical manufacturers became aware of this fact after the accidentaltoxic release in 1986 in a Union Carbide subsidiary plant in Bhopal. A 1989 survey commissionedby CMA found that the chemical industry ranked only above the tobacco industry among tenindustries studied in terms of their public image. Chemical industry executives agreed that unlesssomething was done to improve public opinion, firms would be increasingly unable to build andoperate new plants in the United States. Chemical company executives also considered thepossibility that negative public opinion would lead to more stringent regulation, and in turn tohigher operating and abatement costs. Another central motivation was to improve communityrelations. For example, the first Responsible Care code to be implemented was the CommunityAwareness & Emergency Response (CAER). The CAER code is designed to encourage chemicalfacilities to work with local residents to develop emergency response plans in the event of achemical disaster. As part of its provisions, the CAER programme requires plants to establishcitizen advisory panels (CAPs).

Compared to unilateral commitments in Europe and Japan, US initiatives make a greater efforttowards achieving credibility. Many of them make provisions for thirdparty verification orsanctions under the form of dismissal from the industry organisation. But when it comes to targetformulation, US initiatives suffer from the same weaknesses as their European counterparts — they are mostly qualitative in nature and leave lots of room for interpretation at the time ofimplementation. Nevertheless, it has to be borne in mind that the scope for industry associationsaction in this regard is to a considerable extent constrained by US antitrust law.

4.5 Conclusion

Compared to Europe and Japan, there are only a few voluntary approaches in force in the US.Most of these are public voluntary programmes and unilateral commitments by industry. Recentlytwo negotiated agreements have been initiated, although with only little success.

The reason for the limited success of negotiated agreements mainly lies in the institutionalcontext. The limited discretionary powers of EPA and the very adversarial tradition inenvironmental policymaking in the US do not allow for sufficient incentives to be offered byvoluntary approaches. In contrast to the cases of Europe and Japan, the EPA can neither issue acredible threat of regulation nor promise regulatory relief to motivate firms to participate. It isnot surprising then to find negotiated agreements and public voluntary programmes in the US usedmostly as complements to existing regulation.


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5. Other OECD Member countries7

To date, less data is available from other OECD Member countries on their use of voluntaryapproaches in environmental policy, although Australia, Canada, the Czech Republic, the Republicof Korea, Hungary, Mexico, Norway, Switzerland and Turkey all report the use of voluntaryapproaches to some extent. For example, Switzerland has implemented eight negotiatedagreements, mainly for the phaseout of toxic products and waste. The Czech Republic hasinitiated three negotiated agreements in the chemical and in the steel industry, while Mexicocurrently has 14 negotiated agreements in force (partly signed by individual companies, partly byindustry organisations) for the improvement of air quality. As far as the use of voluntaryprogrammes is concerned, all of these countries report that sometimes substantial numbers ofcompanies seek certification according to ISO 14000 or similar programmes. For example,120 Korean companies have received the Environmentally Friendly Company certificate since1995. Hungary initiated a public voluntary scheme for the evaluation of environmentalperformance. In this programme, companies joining the programme will receive public supportfor the evaluation of their environmental impacts. Unilateral commitments, however, seem to berather scarce in these countries. Among these OECD Member countries, Canada is certainly theone where voluntary approaches have achieved the most significant role in environmentalpolicymaking. In that country almost 100 VAs are used in the industry sector today, 30 of whichare unilateral commitments, two public voluntary schemes and 63 negotiated agreements. Sectorscovered are as diverse as manufacturing industries, mining, agriculture and services. The emphasis,however, similarly to Europe, Japan and the United States, is on the chemical industry, packagingand energy issues.

Table 12. Use of VAs in other OECD countries(not including environmental management certification initiatives)

Country Number of VAsAustralia 4 agreements on waste recyclingCanada 30 unilateral commitments

2 public voluntary schemes63 negotiated agreements

Republic of Korea n.a.Czech Republic 3 negotiated agreementsHungary 4 framework agreementsMexico 14 negotiated agreementsNorway 11 negotiated agreementsSwitzerland 8 negotiated agreements

1 public voluntary programmeTurkey 4 negotiated agreements

Source: OECD, 1998

Among the examples reviewed, some key features are presented below:

Australia

The Australian and New Zealand Industry Waste Reduction Agreements are of interest becausethey constitute an international negotiated agreement. In fact, the Australian and New ZealandEnvironment and Conservation Council (ANZECC) negotiated waste reduction targets with fourindustries: newsprint (involving pulp and paper producers and publishers), paper packaging, steel

7This section is mainly based upon the responses from Member countries to the OECD questionnaire (1998).


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can (involving steel producers and can makers) and producers of HDEP (High densitypolyethylene). One target is to increase recycling.

Canada

In Canada, VAs play an important role. Unilateral commitments, public voluntary schemes andnegotiated agreements are all implemented, covering a wide variety of sectors and areas(Tables 13 and 14).

Table 13. Sectors covered by VAs in Canada (1998)

Agriculture 6Manufacturing 4_ Pulp and Paper 6_ Automobile 3_ Consumer products 6_ Petroleum 8Chemicals 23Mining 6Reduction of Energy (inc. electricity) 17Transport 8Packaging 10Services 4Others 1_ Resources 7_ Services 3_ Construction 3_ Biodiversity 1_ Non-Chemical Waste 2_ Energy 3

Table 14. Areas of application of VAs in Canada (1998)

Water 17Air 34Waste 32Soil 20Noise 0Extraction of natural resources 14Biodiversity 6Wildlife/habitat 12Non-specific (or very broad in scope) 9

In 1998, 30 unilateral commitments were in place, the most wellknown of which is ResponsibleCare (see also Box 17).

Like other countries, Canada is relying on VAs to fulfil its obligations in the framework of theclimate change protocol (as far as industrial greenhouse gas emissions are concerned). Two publicvoluntary schemes constitute an important component of Canadian policy in this area: theCanadian Industry Programme for Energy Conservation (CIPEC) and the Voluntary Challengeand Registration programme (VCR). Neither of the programmes requires firms to reach specific


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targets. In fact, both are primarily performance reporting systems, rather than target focused.CIPEC is a voluntary initiative for promoting and monitoring energy efficiency enhancementsthroughout the Canadian manufacturing and mining industries. It was established in 1975 followingthe oil shock, and today it is run by the Canadian Ministry of Natural Resources. The programmeis supported by 21 Task Force Groups that establish targets for energy efficiency enhancementsper unit of output and compile the statistics from individual companies. To date more than3 000 companies, representing 8590 per cent of the manufacturing and mining activity inCanada, have joined the programme. Public visibility of the programme is, however, low.

VCR was established in 1995 as a key element of Canada’s National Action Programme onClimate Change. Its purpose is to encourage private and public sector organisations to limit theirnet greenhouse gas emissions voluntarily. In 1997, VCR went from being a governmentprogramme to a publicprivate partnership, with twothirds of its funding coming from the privatesector and one third from federal and provincial governments. VCR members are required toreport regularly and to quantify their emissions in a base year. A “Champion” level of reportingsystem is meant to provide further incentives for performance. To date the 700 companies whichhave joined the programme produce more than 70 per cent of Canada’s business and industrialgreenhouse gas emissions.

In 1998, 63 negotiated agreements were in force. For instance, the National Packaging Protocolwas signed with the perspective of government regulation being introduced if the target were notmet. The objective of the Canadian Automotive Manufacturing Pollution Prevention Project isto improve the environmental performance of car manufacturers beyond existing regulations.

Czech Republic

The Czechnegotiated agreement with the association of oil industries aims at improving theenvironmental quality of fuels (namely the reduction of their content of aromatics,benzeneolefins and sulphur). The original aspect of this initiative is that it is driven by theadhesion of the Czech Republic to the European Union in the foreseeable future. As the EuropeanCommission has initiated the Auto Oil Programme which sets uniform standards for fuel qualitythroughout the Union, the Czech initiative sets similar standards in order to bring the nationalindustry towards conformity with EU standards.

Norway

In Norway, all three types of VAs analysed in this report (unilateral commitments, publicvoluntary schemes and negotiated agreements) are operating, but the majority of VAs arenegotiated agreements (NAs). One NA was signed with the aluminium industry in June 1997 forthe reduction of CO2. This NA is justified by the fact that greenhouse gases of the Norwegianaluminium industry are subject to no regulation nor to the CO2 tax. Interestingly, in this case, theNA acts as a substitute of (non) existent policy measures. However, a system of tradable permitsfor greenhouse gases is presently envisaged in Norway. Should such a system be implemented,there would be no more room for NAs. The majority of NAs apply to the waste sector (nineNAs), in particular packaging waste (five NAs). These agreements are signed between the Ministryof Environment and business/industry organisations. Industries must report annually to the StatePollution Control Authority. These agreements are based on no specific legal status, but operatein the context of other existing policy instruments such as regulations and taxes. In the case ofnoncompliance, the Government will probably impose a unilateral regulation or a tax onpackaging. These NAs have proved to be quite effective: for instance, 80 per cent recycling ofcorrugated board, 60 per cent for beverage cartons, 95 per cent collection and recycling of leadbatteries.


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Switzerland

The Swiss Energy 2000 programme is a public voluntary scheme at the federal level aiming atimproving energy efficiency in cooperation with industry, as well as with regional and localadministrations. For example, one of its most successful initiatives is directed at municipalitieswho can apply for an “Energy Town” label if they prove to have developed an advanced energypolicy in their jurisdiction. The town of Mendrisio, for instance, has initiated a major test oflightweight electric vehicles, while the town of Burgdorf has developed a policy towards becominga town dedicated to pedestrians and cyclists. Various industries also participate in the scheme: thecement industry and the electricity supply sector are only two examples. In this same context, anegotiated agreement with industry provides for a 10 per cent reduction of CO2 emissions by theyear 2010 (1990 baseline). If this objective is not achieved, a tax on CO2 would be applied. This isan interesting example of a NA driven by the threat of a government intervention (in this case, atax).

6. Conclusion

Although not all countries replied to the OECD survey questionnaire, the responses receivedindicate that the use of VAs in OECD countries is on the increase. Clearly, a number and a varietyof VAs operate in North America (Canada, United States), Europe and Japan. Yet eachgeographical area has developed its own pattern of VAs. The US use predominantly publicvoluntary programmes, while negotiated agreements dominate in Europe and Japan. However, thenational patterns in these geographical areas are quite different.

Japan uses negotiated agreements at the local level between, for example, a municipality and anindividual firm. Initially they were introduced to compensate for the lack of sufficiently stringentnational regulation as far as local conditions were concerned, along with the institutionalimpossibility for local authorities to issue more stringent regulation. Today they are mainlypreferred as fewer institutional obstacles are attached to this instrument: NAs need not beapproved by the local legislature. Enforcement is provided through the local powers on thepermitting of new facilities and production expansion.

Although the institutional diversity of different Member states in the European Union has led tosome differences in approaches to negotiated agreements, the great majority of these arenegotiated at the national level between the regulator and a coalition of firms, mostly representedby a branch organisation. They have been developed in the context of a regulatory reformseeking for improved efficiency of environmental policy. Enforcement is provided through thethreat of new legislation should the negotiated agreement fail to reach its targets.

In the US, a different type of VA is most commonly found: public voluntary programmes. Theseare set unilaterally by the Environmental Protection Agency and take the form of takeitorleaveitoptions offered to firms. They are signed between the EPA and an individual company, but noprovisions for enforcement are made. As companies’ incentives to join the programmes aremainly driven by public image considerations, it can be said that the US public voluntaryprogrammes are complementary to existing regulation, and their target is to produce incrementalenvironmental improvements.

The common feature of these national patterns is that they are a response to the growing weight,cost and inflexibility of traditional regulation but also to its “command” character. All of themare therefore seeking improved industry cooperation. However, the different institutional andeconomic contexts lead to distinct national patterns.


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For instance, Japanese local authorities sought closer industry cooperation in order to resolvelocal pollution problems. The lack of legislative power on environmental matters at the locallevel led local authorities to imagine different ways of regulating industry emissions. Localgovernment powers regarding the permit system for new facilities and production capacityexpansions are used to put pressure on companies, leading them to pollution control efforts thatgo beyond legal requirements at the national level.

In Europe, as we have seen from the examples, many initiatives are in the field of waste recyclingand climate change. They illustrate two different reasons why authorities make use of VAs linkedto the technological and economical context. The first is uncertainty posed by newenvironmental issues. Waste management, and in particular recycling, provides an example of acase where the technological/organisational possibilities were largely unknown to authorities, butalso to industry, when the regulator first became aware of the need to take policy action in thisarea. In order to draft realistic regulations, public authorities needed to cooperate with industry togather sufficient information on technological possibilities. The second reason is illustrated byVAs on climate change. While effective international agreements on the reduction of CO2

emissions are still lacking, no individual country wants to engage in unilateral action fearing thatit might adversely affect its industry’s competitive situation. In this context, voluntaryapproaches serve as a means of undertaking action while avoiding this drawback to some extent.Legislative powers at the national level are used to put pressure on firms in order to go beyondexisting regulations. Regulatory agencies threaten to issue more stringent regulations in the caseof firms not coming to an agreement.

In the US the particular institutional situation led to the predominance of public voluntaryprogrammes set as takeitorleaveit options for companies. No background threat of regulation isused in order to spur industry’s participation in the programmes. In fact, the regulatory agency,EPA, is held at arms length by Congress and therefore lacks sufficient credibility to issue threatsof new regulation.

Differences are also linked to the administrative level where agreements are negotiated. While theproblem of local pollution led authorities to engage in agreements with individual companies inJapan, the necessity of solving environmental problems at the national level led to agreementswith coalitions of firms in Europe. It is obvious that transaction costs may become a problemhere. While they can be expected to be relatively low in a local context where authorities havepreexisting contacts with companies, they would be an important additional burden at the nationallevel.


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Chapter 3. Towards an evaluation of voluntary approaches

What can be expected from voluntary approaches? This chapter reviews available information onthe assessment of VAs. The evaluation of voluntary approaches is hindered by the newness of theapproaches and the fact that they have been created by practitioners. Whereas the latter affectsthe availability of theoretical results on their performances, the former constrains empiricalinvestigation. However, there is an increasing literature on negotiated agreements in Europe (e.g.Börkey and Glachant, 1997, 1999; COWI, 1997; EEA, 1997; Liefferink et al., 1997; ÖkoInstitut,1998; Rennings et al., 1997) and on public voluntary programmes in the USA (e.g. Arora andCason, 1996; Davies et al., 1997; Khanna and Damon, 1998; Mazurek, 1998) which allows for apreliminary evaluation of these two types of approaches.

The first section provides a brief review of some methodological issues, followed by two sectionswhich attempt to evaluate negotiated agreements and public voluntary programmes. The fourthsection presents the admittedly limited evidence available to date on the performance ofunilateral commitments. Finally, the last section concludes and identifies the main research gapson the efficiency and effectiveness of VAs.

1. Some methodological principles for evaluating voluntary approaches

1.1 The evaluation criteria

The evaluation of voluntary approaches presented in this section is based on seven criteria,established by the OECD (1997).

1.2 Environmental effectiveness

By definition, the prime goal of any environmental policy instrument is to improveenvironmental conditions. Therefore, environmental effectiveness has to be the first criterion ona checklist for VA evaluation. In the case of VAs, it is useful to distinguish two aspects: the aimsof the environmental targets that are set in the initial commitments (i.e. the ex anteenvironmental effectiveness) and the degree of goal attainment (i.e. the ex post environmentaleffectiveness). The main interest of this characterisation lies in the fact that the underlyingmechanisms affecting the two dimensions are different. The aims of VA targets are threatened byregulatory capture, whereas goal attainment may be weakened by the fact that voluntarycommitments are usually nonbinding.

Environmental impacts are usually measured in physical terms (e.g. emission reductions).Although a conversion into monetary terms is also possible and in some cases desirable, thisusually poses a much more complex task, in terms of data availability, controversial theoreticalassumptions and subsequent calculations necessary to translate emission reductions into monetarymeasures of social benefits.


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One key difficulty in assessing these impacts is to disentangle the effects stemming from the VAsfrom other factors, such as structural changes in the industry or autonomous improvements inproduction technology. A prerequisite to assess genuine environmental impacts thus lies in thecharacterisation of the businessasusual (BAU) pattern, namely, to address what would havehappened had the VA not been implemented.

Furthermore, as far as voluntary approaches are concerned, comparing their impact with the BAUscenario may not be sufficient. VAs are often used in combination with other environmentalpolicy instruments (e.g. traditional regulatory measures or subsidies). In this regard, voluntaryapproaches are just one component of a policy mix. To evaluate the environmental effectivenessof VAs, it is hence necessary to isolate the impact of the voluntary approach from other parallelpolicy measures.

1.3 Economic efficiency

This criterion refers to the level of economic costs incurred to achieve a given environmentalpolicy target, usually referred to as “abatement costs”. These include the direct cost of changingpolluters’ behaviour. From this perspective, it is sometimes argued that VAs would be intrinsicallyeconomically efficient as firms would participate only in costeffective VAs. There are howeverno a priori arguments to support this view.

1.4 Administration and compliance costs

Account must also be taken of the organisational costs necessary for devising and implementingthe policy. They are typically incurred by the public administration and regulatory agencies, andconcern resources devoted to monitoring, enforcement, etc. Nevertheless, quite often part ofthese costs are borne by the regulated agents, as is the case whenever monitoring is based on selfreporting. Some VAs (e.g. negotiated agreements) frequently transfer the responsibility forimplementing the voluntary commitments to industry, and by doing so, they transfer theadministrative burden to firms. From a welfare economics point of view, transfers are neutral.Therefore, the key question becomes whether firms are more efficient at carrying out these tasksthan the regulatory agencies which previously had responsibility for them.

1.5 Competitiveness implications

VAs are often suspected of providing firms with the opportunity to develop anticompetitivebehaviour leading potentially to collusion in domestic markets and/or erecting nontariff barriersto trade in international markets. This suspicion is particularly relevant visàvis collectivevoluntary approaches, i.e. the approaches which associate a group of firms or a sector.

1.6 Soft effects

Soft effects mainly refer to behavioural changes that stem from a policy instrument. They aredifficult to measure because their impact is only observed in the longterm and quite often theyturn out to be diffuse. Nevertheless, ultimately they can be quite important, particularly for VAs.Many VAs aim primarily at increasing the environmental awareness of the industry, rather thanshortterm environmental impacts. When entering into a voluntary scheme, the motivation offirms may be partly based on their desire to signal to consumer and/or citizens their improvedenvironmental performance. They expect such signals to generate reputation gains leading tolongterm benefits to the industry. As an illustration, one key motivation for the chemicalindustry in developing Responsible Care was undoubtedly to restore a public image seriously


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damaged by events such as the Bhopal incident. Codes of conduct, lists of good practices,multistakeholders participation are but a few of these soft effects provided by VAs.

1.7 Innovation and learning effects

The impact of environmental policy on innovation becomes increasingly important in a contextwhere innovative clean technologies and reduction at the source are viewed as the alternative to“endofpipe” pollution abatement solutions which have been implemented for the last few decadesand are starting to face decreasing returns. It is important to stress that innovation not onlyrefers to radical new inventions, but also to daytoday incremental improvements andlearningbydoing, which may also add up to significant cost reductions and emission reductions.Moreover, diffusion of innovation is a crucial step in the innovative process. This is particularlytrue because technologies used to abate pollution have often been developed elsewhere to solveother problems. VAs are frequently interesting forums for information and experience sharingbetween firms, thus promoting the diffusion of all types of innovation.

1.8 Viability and feasibility

This criterion refers to the political and social acceptance of voluntary approaches. One bigpolitical threat for VAs is that they may lack credibility in the eyes of public opinion and NGOs(Lévêque, 1997). It also refers to the existence of various institutional obstacles which mightimpede the implementation of voluntary approaches (e.g. lack of discretionary power of theregulator).

1.9 Types of evidence

In evaluating voluntary approaches, three types of evidence can be drawn upon (OECD, 1997):theoretical arguments, ex ante analysis and ex post evaluation.

Theoretical arguments are statements on the efficiency of policy instruments derived fromtheoretical economic models. These models formalise firms assumed to be profit maximisingagents in a nonambiguous policy setting which constrains their behaviour. It follows that theirresults depend on the simplifying assumptions on which the model is based. By nature, theoreticalmodels picture a simplified world in comparison with the fuzzy and moving reality we observe.This calls for caution in the interpretation and use of this kind of argument. Moreover,theoretical models do not always deliver unambiguous results; and even when they do, it shouldalso be borne in mind that theoretical statements are valid only if their underlying hypotheses andconditions hold. For instance, emission taxes are more costefficient than commandandcontrolsolutions if the firms’ pollution abatement costs are different, and if information asymmetryarises between the regulator and the regulated agents on pollution abatement costs. Whether theseconditions hold is a matter of context. Any theoretical result has its own domain of validity, so itis crucial to check whether the conditions that guarantee such validity hold in each practicaldomain of application.

Ex ante assessments are usually very closely linked with theoretical evidence since they arebased by theoretical predictive models. They consist of ex ante quantifications of the potentialcosts and benefits of a particular policy option based on data about the relevant environmentalproblems and economic context. Among them, we can classify all sorts of simulation andforecasting studies.

Ex post evidence. Ex post evaluation consists of assessing the costs and benefits of a policyoption in practice once it has been implemented. The fact that results are observed ex post hasobvious advantages: it is not necessary to rely on simplifying assumptions, unlike the case with


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theoretical models; and assessments are based on direct observation (rather than behaviouralassumptions) of agents’ reactions to policy. However, this method presents other methodologicaldifficulties, especially the “disentanglement problem” we referred to above (Section 1.1).

The evaluation of any environmental policy instrument is usually constrained by the limitedevidence available, as has recently been argued regarding economic instruments (OECD, 1997).Even so, information availability for evaluation is particularly low for VAs for specific reasons.First of all, as already discussed, VAs are typically policy instruments where practice has precededtheory, as shown by the fact that VAs were not invented in economic textbooks, but bypractitioners. It follows that theoretical analysis, and thus theoretical evidence on theperformance of VAs, are still rare. This also restricts the availability of simulation or forecastingstudies based on predictive models provided by theory. As far as ex post evaluation is concerned,the main difficulty lies in the recency of these approaches (the vast majority of existing VAs arestill in progress) but also in weak monitoring and measuring.

Nevertheless, a small but rapidly growing literature, especially in Europe and in the US, on thesevoluntary approaches is now available, and allows a preliminary attempt at an evaluation exercise(e.g. Arora and Cason, 1996; Börkey et al., 1999; EEA, 1997; Mazurek, 1998; ÖkoInstitut, 1998;Rennings et al., 1997).

2. Evaluating negotiated agreements


To date, virtually no complete ex post evaluation of environmental effectiveness of negotiatedagreements has been carried out. In this context, complete ex post evaluation means thatenvironmental outcomes of the agreement are compared with a businessasusual trend. To ourknowledge, the only good example is part of the study of the European Environment Agency(EEA, 1997). It provided interesting results on the Dutch covenant with the chemical industry.This covenant was signed in 1993 and set 61 quantitative targets for different pollutants for theyears 1994, 1995, 2000 and 2010. Using a very “rough” method (extrapolation of past emissionsto characterise the BAU trend), they studied the achievements in 1995 (i.e. three years after thestarting date of the covenant). It showed that environmental improvements were achieved for allexcept four pollutants. More interestingly, environmental effectiveness could be claimed for 33of the 61 pollutants covered.

Nevertheless, other types of evidence exist on both how ambitious are the environmental targetsset in the agreements (i.e. the ex ante environmental effectiveness) and the degree of goalattainment. Available empirical evidence and theoretical arguments are considered in the twofollowing subsections.

How ambitious are the targets?

Environmental targets fixed in negotiated agreements are suspected of not being stringent enough.The reason for this suspicion lies in the fact that negotiated agreements give a central role toindustry in the goalsetting process compared to other policy approaches (see Section 1.3. inChapter 1). In comparison with the traditional regulatory/legislative process, the NA targetsettingprocess usually leaves out of the political arena two major actors: non industrial stakeholders(green groups, consumer associations, etc.) and the legislative branch of the government8.

8As far as the involvement of Parliament is concerned, the only exception is the case of the Netherlands where


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Moreover, the fact the firms voluntarily commit may suggest that NA pollution abatementrequirements are less demanding.

What do the data tell us in this regard? Some studies tend to confirm the suspicions voiced above.The targets of the German CO2 Agreements have been assessed by several research institutes(DIW, 1995; Jochem & Eichhammer, 1996). The results presented in Box 6 (Section 3.1) suggestthat targets are even lower than the BAU trend. Again in Germany, the German Expert Councilfor Environmental Issues (Rat von Sachverstandigen für Umweltfragen) also criticised thecommitment of German car manufacturers to improving average fuel efficiency. They stated thatthe target of reducing fuel consumption by 25 per cent in 15 years roughly corresponded to theexpected spontaneous improvement (reported by Scherp, 1996). Börkey et al. (1999) alsochallenged the extent of environmental ambition of the French NA dealing with phosphates indetergents by comparing trends in the use of phosphates in different European countries.

But another study shows more optimistic results. The targets set in the Dutch covenant with thechemical industry have been assessed as very ambitious according to a study by ERM (1996). Thislatter study does not necessarily contradict the former. The covenant with the chemical industryis in fact a socalled implementationbased negotiated agreement where targets are set outside theNA process. In fact, all Dutch covenants mainly include targets that are directly derived for thequantitative targets of the National Environmental Policy Plan (NEPP) and the NEPP Plus(published in 1989 and 1990 respectively). NEPP and NEPP+ targets were adopted by Parliamentand were de facto not negotiable by industry when devising the covenants. In the Netherlands,negotiated agreements may also be used to implement targets set in EU Directives. For instance,the quantitative targets on SO2 and NOx emissions by Large Combustion Plants set in theDirective 88/609/EEC were included in a covenant with the association of electricity producers(SEP) and the four major electricity producers (Scherp, 1996). These “implementation NAs” arefar from being just a Dutch speciality. A study commissioned by the European EnvironmentalAgency (1997), also found examples of such implementation NAs in Portugal, Sweden andDenmark. Hence a first general conclusion about NA environmental impacts can be drawn: thesuspicion of poor environmental effectiveness is simply not justified in the case ofimplementationbased negotiated agreements.

In the case of other negotiated agreements, even though available results seem to confirm thatregulatory capture by industry may negatively affect environmental targets in some cases, it hasto be borne in mind that data availability is still very limited in this area. In addition, we can relyon qualitative analytical arguments. As has already been mentioned, the suspicion is rooted in therole industry plays in the targetsetting process. In this regard, two points deserve further attentionhere.

First of all, target ambitiousness will ultimately reflect the relative bargaining power of the publicauthority and of the industry. In this respect, one crucial point is that negotiated agreements areusually concluded under the regulator’s threat to implement another policy solution. Theoreticalworks (Segerson and Micelli, 1997; Schmelzer, 1997) have clearly established that the level ofambition of NA targets is positively correlated to the degree of credibility of the regulator’sthreat and to the environmental stringency of the threat. In many cases, empirical evidencewould suggest that credibility is ensured. In a research currently in progress, the study of16 European negotiated agreements suggests that the threat was fully credible for about 80 percent of the cases (Hansen, 1998). But the study also shows that the substance of the regulatorythreat is generally very vague to firms. To sum up, firms are certain that something would happenif they failed to agree with the public authority, but they do not know precisely what.Consequently, even though there is room for some environmental improvement due to thepresence of a threat, the fact that it is highly uncertain can have a limiting effect on the level ofambition of NA environmental targets.

the Parliament enjoys a veto power on every new negotiated agreement.


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Lastly, the grounds for suspicion are reduced in the case of local agreements such as the JapanesePollution Control Agreements, or the US Project XL agreements. Both cases concernenvironmental commitments for particular facilities that appear to be tightly linked with nationalregulatory obligations. Their logic is to go beyond national standards taking into account localcircumstances. As an illustration, Table 15 compares the INTEL's XL commitments with twobaselines — the federal requirements and the air permit INTEL was subject to in 1994 — andshows that the agreement commitments go clearly beyond preexisting regulations.

Table 15. The INTEL's XL commitments (atmospheric emissions)

Pollutant

(tons/per year)

Federalrequirements for

minor sources

1994 plant air permit Project XL site permit

Carbon Monoxide <100 59 49

Nitrogen Oxide <100 53 49

Sulfur Dioxide <250 10 5

Particulate Matter10 <70 7.8 5

Total Volatile OrganicCompounds

<100 25 40

Hazardous Air Pollutants(HAPs)a

<25 aggregate; 10 forany individual HAP

5.5 10 Total Organic

10 Total Inorganica Hazardous Air Pollutants.

Source: U.S. Environmental Protection Agency (1996e).

The degree of goal attainment — NA implementation concerns

Once NA targets are set, additional concerns remain industry’s willingness to comply with them.These concerns stem from the fact that NA commitments are usually nonbinding, in the sensethat they cannot be enforced by court action. Notable exceptions are the Dutch covenants (seeBox 22),9, the US project XL, and negotiated agreements dealing with packaging recycling inFrance and Germany, which are backed by a liability system (established in decrees) in case the NAfails to meet its targets. In Denmark, Article 10 of the 1991 Environmental Protection Actcontains a specific provision for the creation of binding agreements. It is noteworthy that thisprovision has only been invoked in one Danish agreement to date (1996 agreement on leadbatteries). This suggests that industry is reluctant to enter into binding programmes. To makeagreements binding is often impeded by institutional obstacles. In the case of collectiveagreement, the signing industrial party is usually an industrial association which cannot makebinding commitments on behalf of its members. In France, institutional obstacles usually concernpublic authorities. A case of negotiated agreement with P.U.K. (now Péchiney), settled by theConseil d’Etat in 1985, pointed out the illegality of binding contracts. The Court stated that anauthority cannot act via a contract when empowered to act via regulatory or policy means.

Does empirical evidence support this suspicion visàvis negotiated agreements? Once again,drawing a general conclusion is difficult. Several studies have attempted to assess this aspect for18 agreements (EEA, 1997; ÖkoInstitut, 1997; Börkey et al., 1999; Rennings et al., 1996).Results are only conclusive in six cases: the previously mentioned Dutch covenant with thechemical industry, a Portuguese agreement with the pulp and paper industry (EEA, 1997;ÖkoInstitut, 1997), the Dutch covenant with the base metal industry, the French agreement on

9However, in practice, there has never been an example where parties solved their problem through Courtintervention in the Netherlands.10


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the use of phosphates in detergents (Börkey et al., 1999), the German agreement for phasing outthe use of CFCs, and the French and German agreements promoting packaging waste recycling(Rennings et al., 1996). In all these cases, environmental results are globally positive: mosttargets have been reached. Failure cases are usually related to unexpected economic difficulties inthe concerned sectors (e.g. the Dutch covenant with the base metal industry). But it is also worthnoting that only two of these agreements were nonbinding (the German CFCs agreements and theFrench agreement on detergents). The sample is thus not very representative.

In addition, another meaningful finding of these studies is that lack of information made itimpossible to assess the degree of goal attainment in 12 cases out of 18. This primarily stemsfrom the fact that the negotiated agreements are frequently too recent to be properly assessed.This being said, other evaluation problems stem from the drawbacks of negotiated agreements:

1. Targets and monitoring results may be expressed in rather ambiguous terms, and hence maketheir assessment difficult. For instance, targets may be expressed in terms of percentagereductions of unspecified quantities (emission levels when the agreement was established)whereas reporting data are expressed in absolute terms.

2. Monitoring data are simply not available because either they have not been produced (e.g. theFrench agreement on car recycling) or they are strictly confidential.

3. No interim targets are set, hence interim goal attainment evaluation is plainly impossible.

This clearly weakens the credibility of some NAs. More generally, this reflects the lack ofopenness of many NAs (see §2.7 below). This feature may have adverse effects on NAenvironmental effectiveness: firms’ motives to comply with targets are partly related to pressuresfrom outside parties, e.g. public opinion, NGOs and diverse stakeholders.


Cost variables are more difficult to identify than environmental outcomes. It is therefore notsurprising to note the almost absolute lack of empirical evidence on economic efficiency. As aconsequence we have to rely on analytical arguments.

As regards economic efficiency, the pros and cons of NAs suggest that NAs can be more costefficient than commandandcontrol approaches, but less efficient than economic instruments.

One key lesson from economic theory is that economic efficiency depends on how the pollutionabatement efforts are allocated among the different pollution sources (allocative efficiency ineconomists’ parlance). In practice, this requires the differentiation of pollution abatement targetsfor the different sources according to their cost performances. Practically, cost minimisationrequires that sources with high pollution abatement costs are given lower targets than low costsources. Does such a cost effective differentiation occur in negotiated agreements?

In principle, NAs provide some room for differentiation of firms’ targets since they only settargets at branch level. Empirical evidence and analytical arguments suggest, however, thatopportunity is only partly exploited by firms. We need to distinguish between the branch leveland the firm level.

At the branch level, the problem occurs once the agreement is signed. The firms must agree todivide between them the pollution abatement efforts necessary to reach the overall target. Firmsare very likely to adopt a rule of equal burden sharing based on uniform standards rather thandifferentiating firms’ targets. The reason lies in the fact that differentiation would lead toallocating higher targets to firms with low costs. These “losers” are thus unwilling to accept theefficient allocation. In this regard, NAs are as inefficient as commandandcontrol approaches.


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The only case where low cost firms may accept differentiation is when they receivecompensation from other firms. This may happen in agreements covering several pollutantswhere some firms accept an increase in their efforts to abate certain pollutants in exchange forreduced efforts on others. The Dutch covenant for the base metal industry provides an exampleof this (Box 21). According to Börkey et al. (1999), firm’s targets were differentiated accordingto their cost performances, through the use of a BATNEEC concept (Best Available TechnologyNot Entailing Excessive Costs). In this particular case, differentiation seems to have beendetermined by the strong involvement of regulators at the implementation stage rather than byinterfirm bargaining. In any event, pollutant exchanges are unlikely to occur, primarily becausemultipurpose NAs are not very widespread.

Box 22. An assessment of the allocative efficiency of the Dutch covenantwith the base metal industry (Börkey et al., 1999)

The Dutch covenant with the base metal industry was signed in 1992 between the branch association SBM, theMinistry for the Environment, the provincial authorities and the water boards. This constitutes a multiissue(socalled integrated) covenant covering a wide range of pollutants. Quantitative sectoral targets are set for years1995, 2000 and 2010. A recent study (Börkey et al., 1999) looked at the way the sectoral targets were translatedinto firmlevel commitments (i.e., the socalled burden sharing process). Based on a sample of seven companies,the study shows a strong differentiation of individual firm’s achievements for certain pollutants. As anillustration, consider the figure below on SO 2 target differentiation. Each firm’s abatement in 1995 is representedby a bar. Firms 3 and 7 exceeded the targets while achievements by the rest of the firms mostly appear lessstringent than the sectoral target of the covenant (indicated by the horizontal dashed lines).

SO2

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7entreprises

sectoral target for 1995

Source: Companies environmental plans - FO-Industrie, 1997

This differentiation is cost efficient because it reflects differences in individual firm’s marginal abatement costs. Inthis case, marginal costs are very different since the base metal industry covers steel, aluminium and leadproducers.

At the firm level, NAs allow for the creation of pollution “bubbles”, which enable firms to freelyallocate pollution efforts among their facilities. Such internal trading undoubtedly generatesefficiency gains. However, some negotiated agreements limit the possibility for pollutant tradeswithin the firm. As an illustration, the provision of the Dutch covenant with the chemicalindustry explicitly restricts pollutant trades between facilities producing the same product (Börkey& Glachant, 1997). This provision has been made by industry in order to avoid competitiondistortions between firms: internal trading could have led to cross subsidisation of differentproducts. Another interesting example in this regard is the US Project XL which leads toplantwide air emissions caps, since the XL permit replaces some individual air emissions limitswith aggregate ones. EPA also hoped that Project XL participants would seek to conductfacilitylevel pollutant trades across different media. However, participants have not sought todevelop such projects because EPA lacks authority under the current system of statutes to


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authorise crossmedia pollutant trades. However, this “bubble” approach is not exclusive to VAs,and can be implemented through other policy instruments.

NAs may also save pollution abatement costs by allowing extra flexibility regarding the timeschedule for reaching policy targets. Negotiated agreements frequently fix only final targets,leaving the firm free to select its compliance trajectory. This allows for a more costeffectiveadjustment of pollution abatement to investment cycles. Besides, at the implementation stage,renegotiation of target deadlines may occur. The case of Hoogovens is noteworthy here.Hoogovens is the largest Dutch steel producer and as such is involved in the covenant with thebase metal industry. The firm was authorised to postpone to 2010 some targets originally set for2005, after it was proved that major changes in its largest Dutch facility would introduce newproduction technology with much lower pollution levels (based on cyclone converter furnaces)which would be available between 20052010.

2.3 Administrative and compliance costs

It is frequently argued that the use of negotiated agreements may save administrative costs. Doesempirical evidence tend to support this assumption?

Some indicative data from the Netherlands provide an order of magnitude of the costs incurred bythe public administration (Baron, 1995, quoted by Scherp, 1996). The annual budget for DutchLongTerm Agreements on energy efficiency, including costs of technical assistance, monitoringand investment subsidy programmes reached 140 million Guilders in 1994 (US$70 million). As of1995, the scheme covered between 85 per cent and 95 per cent of industrial primary energyconsumption through agreements with 23 industry associations and 600 companies. This suggeststhat administrative costs for running NA programmes are far from being negligible.

In the case of negotiated agreements, administrative costs are partly transferred from publicbodies to private firms and branch organisations. Monitoring tasks and enforcement performed bypublic bodies in traditional regulation are often transferred to industry associations and theirmember firms. The question is thus whether this transfer lowers administrative and compliancecosts. In other words, are firms more efficient in administrative and monitoring tasks than publicbodies? The answer is probably in the affirmative. First, monitoring costs are reduced becausefirms are better informed about pollution abatement activities than the regulator. Second, costsare reduced because NA monitoring and reporting requirements are frequently much less onerousthan those of traditional regulation.

Some negotiated agreements explicitly aim at reducing the administrative burden. This is oftenthe case of negotiated agreements that are a complement to existing traditional regulations, suchas Project XL. As an illustration, INTEL’s main motive to join Project XL was to reduce itscompliance costs related to air permits (see Box 23). The same is true for Dutch environmentalcovenants. One key advantage for firms entering into covenants is to replace their existingoperating permits by a simpler permit including the covenant commitments. However, theINTEL example suggests that although NAs may help reduce some administrative costs, they mayalso entail additional transaction costs in reaching the agreement between the parties. EPA wasoptimistic as to the number of participants in XL since they hoped to admit at least50 companies. Since 1996, only seven projects have been implemented, which suggests thatcompanies’ estimates of the benefits of XL in terms of reduced administrative burden have turnedout to be quite low.

It is difficult, then, to reach a general conclusion on savings in administrative and compliancecosts. On the one hand, VAs are likely to reduce implementation, monitoring and enforcementcosts, but on the other hand, they may generate other types of costs, i.e. transaction bargainingcosts, both at the negotiation and implementation stage, needed to reach consensus between firmsand the regulator, but also among firms, and possibly with third parties.


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Box 23. Administrative and compliance costs of the INTEL's Project XL (Mazurek, 1998a)

Project XL is an exercise in casebycase regulation, with negotiations between EPA and the regulated firmdriving the outcome but subject to stakeholder approval.

Under this programme, Intel obtained a special fiveyear air permit that automatically approved chemical andequipment changes, thus avoiding high administrative and compliance requirements of the standard permittingsystem.

Negotiations for the entire XL project, including enforceable air permit provisions, took over nine months,100 official meetings, and dozens of informal conversations. As required by EPA, Intel assembled 23 officialrepresentatives from ten different government agencies and from the local community to negotiate the XL projectagreement. At least five Intel employees devoted from 40 to 60 days each on the negotiation.

In addition to official participants, at least four nonlocal environmental groups filed detailed technical objectionsto the air permitting portion of the XL agreement, the most visible and controversial element of the agreement.

Local participants agreed to provide Intel with relief from air permitting requirements in exchange for a set ofbinding and voluntary environmental commitments. The local community supported the plan. However,130 nonlocal environmental organisations and individuals signed a petition in protest against the agreement. Ithas been suggested that national environmental groups rejected the Intel XL plan because they had not beeninvited to participate in the formal, sixmonth negotiation process. EPA reasoned that only parties directlyaffected by the project outcome should participate in the bargaining.

All this evidence indicates that while the prime goal of Project XL was to reduce compliance costs by reducingthe frequency of air permit changes, the bargaining process eventually appeared to be quite cumbersome, andentailed quite significant bargaining and transaction costs.

2.4 Competition concerns

As far as collective negotiated agreements are concerned, they are suspected of promotingcollusive behaviour among the firms involved, which may lead to competition distortions. Therationale behind this suspicion is that a collective agreement creates an arena where firms canagree on anticompetitive rules. According to Scherp (1996), the most serious problems that mayarise could be:

1. denying market access to certain firms (e.g. non domestic firms) or forbidding thirdpartyaccess to systems. As an illustration, DSD (the German monopolistic organisation in charge ofreaching the recycling targets established under the packaging waste recycling NA) is undercontinuous scrutiny by both the Bundeskartelamt (the German office for cartels) and theEuropean Commission. The suspicion arises from the fact that DSD monopolises demand forrecoverable materials and restricts competition for collection and recovery services. DSD hasrecently committed to a set of rules limiting potential adverse effects on competition (ECcommunication 97/C 100/04).

2. collectively setting a price, i.e. if an agreement were to imply that charges or prices are fixedwithin the branch. As an illustration, the case of VOTOB is noteworthy. VOTOB is a Dutchindustry association representing six companies offering bulk liquid tank storage facilities totheir customers. In 1989, VOTOB entered a covenant with the Dutch government, acceptingimportant reductions in firms’ emissions of Volatile Organic Compounds (VOCs). To financetheir efforts, firms jointly decided to ask their clients to pay an environmental surcharge, andagreed on a uniform surcharge which would appear on a separate invoice. The EuropeanCommission finally rejected this provision (Gyselen, 1996).

3. phasing out a product. It might be problematic when market competition for a particularproduct disappears (or is reduced it to a substantial degree).


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All in all, the risk for collusion undoubtedly exists, but no evidence is available to date to judge itslevel. According to Dekeyser (1998), the number of negotiated agreements considered by the unitof the European Commission in charge of competition issues is increasing every year. In 1997,about 20 cases were considered. But, because NAs are so recent, only a few cases were settledwhich prevents even a preliminary assessment on the extent of the problem.

Such potential adverse effects on competition may have an international dimension sincedomestic firms are more likely to collude at the expense of foreign firms. But, here again,evidence is lacking to allow further analysis.

2.5 Dynamic effects, innovation

Despite the lack of evidence, it can be argued that NAs are unlikely to provide firms with strongincentives to innovate. This is mainly due to the fact that they rarely set technologyforcingtargets, i.e. targets sufficiently high to force firms to innovate in order to be able to comply(Ashford, 1997). Negotiated agreement may however lead participating firms to anticipateregulatory requirements by developing innovative technologies. Also, VAs may promoteimproved diffusion of innovation, which is more closely related to soft effects, analysed below.

2.6 Soft effects, diffusion of information

Softeffects are those behavioural changes due to an increase of environmental awareness inbusiness or to information dissemination. They are very difficult to measure but they are likely tobe very significant. Environmental awarenessraising within a given industry is part of the statedgoals of the majority of NAs.

As regards diffusion of information on pollution abatement techniques, NAs create a forum wherefirms can exchange information, and hence leads to collective learning. For instance, in theframework of the French agreement on endoflife vehicles (ELVs), many technical workshopswere organised on the different techniques for dismantling and scrapping ELVs (Aggeri &Hatchuel, 1997). Cooperative pilot schemes were implemented with the participation of severalcar manufacturers and scrapyards. This illustrates that NAs may have very significant impacts oninnovation diffusion.


As far as the political and social acceptance of NAs is concerned, the problem arises from threemain factors:

1. NAs are policy solutions agreed by industry, which can give rise to the interpretation that NAenvironmental commitments are just “cosmetic”.

2. In comparison with the traditional regulatory/legislative process, NAs leave nonindustrialinterest groups and the legislative branch of the government out of the policy process.

3. NAs frequently lack transparency visàvis outside parties through ambiguous targets, weakmonitoring, etc.

As for the social acceptance of NAs, little can be said except that negotiated agreements areclearly threatened by their lack of credibility in the eyes of public opinion. In this regard, a fewagreements have tried to establish safeguards. For instance, XL commitments are subject tostakeholder approval. The example of the INTEL’s XL commitments suggests, however, that theinvolvement of environmental interest groups and local associations leads to an increase in


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transaction costs (see Box 23). In Japan, citizen’s participation in local pollution controlagreements is still low but increasing (see Table 16). In 1990, 339 agreements were evenconcluded directly between the firms and citizen associations. However, this figure needs to beseen in the context of the total number of agreements (30 000).

Table 16. Citizens' participation in Japanese pollution control agreements

Type of agreements 1982 1985 1988 1990Number of agreements concluded between localgovernments and firms With citizens participating as one of the parties concerned With citizens participating as witnesses

13

47

43

40

51

87

80

110Number of agreements citizens independently concludedwith firms 222 205 214 339

Source: Environment Agency, Imura, 1998b

Institutional obstacles may also hinder the use of negotiated agreements. In the USA, theimplementation of Project XL and CSI (Common Sense Initiative) is impeded because Congressdid not give EPA the authority to provide firms with relief from existing laws and regulations.The legality of these NAs thus remains unclear. In Europe, these institutional frictions betweenthe legislative and executive parts are less frequent since Parliaments are traditionally lessinvolved in the actual devising of environmental laws than in the US. The case of the Netherlandsis noteworthy: the Parliament enjoys the right to veto each new agreement, although this righthas never been exercised to date. Another source of difficulty lies in antitrust legislation whichmight constrain the development of collective negotiated agreements.

2.8 Preliminary conclusions

A stylised "profile" of the performance of negotiated agreements

The preceding evaluation evidence allows a series of strengths and weaknesses of negotiatedagreements to be identified. On the weaknesses side, the environmental effectiveness of NAsremains largely unproved. This conclusion stems from the little empirical evidence available,which is supported by analytical arguments. It highlights a preliminary list of problems whichpotentially limit NA environmental outcomes. First, with respect to goal ambitiousness, theevidence points to the central role of industry in the targetsetting process, the scope forfreeriding, and the uncertainty over regulatory threats. Second, at the implementation stage, NAsseem to perform poorly due to nonenforceable commitments, poor monitoring and lack oftransparency. However, certain agreements have established safeguards which may efficientlyprevent such shortcomings. We will come back to this point later.

Additional weaknesses of NAs are related to their lack of credibility visàvis public opinion. In thecase of collective agreements, potential competition distortions are also of concern.

On the strengths side, the general claim of NA’s good performance on economic efficiencyappears to be confirmed. Nevertheless, it should be noted that in NAs established at the industrybranch level, burden sharing between firms appears mostly driven by equity considerations, at theexpense of costefficiency considerations. Furthermore, NAs do not rely on price mechanisms toinduce pollution abatement at the firm level and thus do not appear to be as costeffective aseconomic instruments. However, NAs are very likely to generate major positive “soft effects”such as collective learning, generation and diffusion of information and consensus building. It can


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even be argued that the generation of these “soft effects” is a key objective and virtue of manynegotiated agreements.

Finally, the usual claim that NAs tend to reduce administrative burdens is confirmed neither byempirical evidence nor analytical arguments. In comparison with other policy approaches, onekey feature of NAs is that they transfer administrative tasks to industry (i.e. to firms and/or tradeassociations). This leads in general to lower administrative and compliance costs through moreflexible and less demanding reporting and monitoring tasks. But also, NAs generate new types ofadministrative and compliance costs, i.e. transaction and bargaining costs entailed by the necessityfor reaching consensus. To sum up, the administrative efficiency of NAs is a question that requiresfurther study and eventually remains to be answered on a casebycase basis.

The use of safeguards

The profile drawn above may be improved through the use of safeguards against NAs majordrawbacks. In this regard, some mechanisms are used in different OECD countries:

1. the involvement of third parties in the targetsetting process (e.g., the US project XL orJapanese agreements) or even the setting of environmental targets out of the NA policyprocess (e.g. the Dutch covenants and other European negotiated agreements). Generallyspeaking, multi-stakeholders’ participation is a key element of VAs;

2. a monitoring and reporting system guaranteed by an independent party (e.g., the monitoring ofthe German CO2 agreement by RWI);

3. a credible mechanism of sanctions for noncompliance. For instance, Dutch covenants’commitments are enforced through the permitting system. The same is true for XL in the US.The French and German agreements on packaging waste recycling are backed by decrees,specifying the regulations that would be in force in case of NA failure;

4. the definition of guidelines for VA processes, in particular regarding monitoring and reportingrequirements;

5. a veto right of the Parliament on negotiated agreements (e.g., in the Netherlands).

Nevertheless, safeguards are not a panacea. Their establishment may pose many difficulties. NAsneed to be approved by industry, and firms are often reluctant to accept some of these safeguards.In the European Union, four countries have tried to define a formal framework for NAs (seeTable 17). In two cases, they failed since firms refused to adopt these new requirements. Thissuggests that NAs are by nature flexible and simple institutional solutions. Any attempts toestablish safeguards add to the complexity of these arrangements and thus bring them closer totraditional legislative/regulatory solutions. In this way they become less appealing to firms.


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Table 17. EU Member states with formal frameworks for NAs (COWI, 1997)

Field Belgium Denmark Netherlands PortugalName Flemish Decree on

Environmental CovenantsArticle 10 of the DanishEnvironmental Protection Act(1991)

Target Group Approach of theNational EnvironmentalPolicy Plan (NEPP) (1990,revised 1993)

Protocol for the conclusion ofsectoral voluntaryagreements (1995)

Purpose Establishes a legalframework for VAs

Creates a legal basis forsanctioning VA freeriders

Establishes VAs (covenants)as a key instrument forimplementing environmentalpolicy

Aims to bring industry intocompliance with existingenvironmental laws

Restrictions Prescribes terms andconditions for VAsconcerning transparency,monitoring and reporting,sanctions for non compliance

Industrial signatory mustrepresent a substantialportion of the market sector ifso, nonsignatories are alsomade liable to the terms ofthe VA

VAs to be used only wheresubstantive law is judgedless effective. A “code ofconduct” provides guidelinesfor the VA procedure andcontents

Nonsignatory companies arerequired to conform toenvironmental regulations,and, unlike signatorycompanies, are either granteddelays or financialassistance

No. of VAsconcluded under thisframe

3 1 42 8

Industry signatories Any industrial grouping(sector, geographic area,common problems, etc.)

Only industrial sectorassociations bindingnessextends to facilities withinsector which are notinterested in participating

Any industry or group ofindustries

Any industry or group ofindustries

Comments Industry has opted not toenter VAs under this lawprimarily because of theheavy bureaucraticrequirements it imposes.Sanctions provisions in thecase of noncompliance arealso considered too rigid

Industry dislikes the freeriderprovision. In practice,enforcement of the NA is onlypossible if coupled with astatutory order, i.e. traditionalregulation

Successes and failures inthe VA approach has ledGovernment and Industry todevelop standardsconcerning VA contents andprocedures

Because most industries donot comply withenvironmental regulationsand would require capitalexpenditures to do so, thisVA strategy appears effectiveprovided financial assistanceis available

Negotiated agreements are often used in a policy mix

A way of providing negotiated agreements with safeguards is to include them in policy mixes, adecision that appears to have an effect on their performance. This is typically the case in Japan,in the Netherlands and in the USA.

As an illustration, the Dutch covenants are tightly linked with two other major policycomponents:

1. The Dutch national environmental plan which sets environmental quantitative targets.

2. The permitting system run by Provincial Authorities which is used to enforce NAcommitments.

As discussed above, this provides the covenant with safeguards against their potential drawbacks.At the same time, it adds some flexibility to the regulatory system and reduces the administrativeburden of the policy package. In this regard, NAs are an answer to the imperfections of otherpolicy approaches. Other types of mix with commandandcontrol approaches are possible. In thecase of the US Project XL, existing regulations are used as a benchmark for fixing XLcommitments. The same is true for many European negotiated agreements which implementpolicy goals fixed in Directives or in national laws.


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A policy mix with negotiated agreement and economic instruments is far less frequent. To ourknowledge, the only examples are the negotiated approaches in France and Germany to promotepackaging recycling. Waste collection and recycling are organised by packaging consortia, namelyDSD and EcoEmballages, and financed through a system of charges and subsidies. Charges on eachpackaging unit put on the market are paid by recyclers and subsidies are used to develop separatecollection systems. Note that these charges are collected and managed by the packaging industry.Similarly, in the Dutch covenant with the chemical industry, the trade association VNCI isconsidering, among other options, the possibility of creating a tradable permit system to reachthe NOx emission targets of the covenant. More generally, a deeper understanding of policy mixsolutions becomes increasingly relevant for climate change policies. Many countries have reliedon NAs for coping with GHG reductions and the post Kyoto context raises the problem of theirintegration with a system of tradable permits at the international level.

3. The evaluation of public voluntary programmes


Regarding public voluntary programmes, empirical evidence is available for some US programmes.More precisely, evidence refers mainly to programmes targeting either one pollutant or aparticular class of pollutants, such as the programmes established under the 1993 Climate ChangeAction Plan and the 33/50 programme dealing with toxic releases.

It is worth noting that no information is available for multiissue programmes covering a widerange of environmental issues, such as the European programme EMAS setting standards forenvironmental management systems. The environmental assessment of these integratedprogrammes is hampered by a serious methodological difficulty: the necessity to disentangle thespecific effects of the programme from other effects, in particular those resulting from the vastarray of traditional regulations.

As far as environmental performances of climate change programmes are concerned, the debatesare intense. The US EPA carried out a comprehensive ex ante forecast for emissions in theyear 2000. This exercise provided net emission estimates with voluntary programmes and a BAUbaseline. It is worth noting that a subsequent revision of this assessment in 1997 led tosignificantly lower projections for the impact of voluntary programmes (see Table 18). EPA’sexplanation for these differences relates to lower than expected fuel prices, strong economicgrowth, and a 40 per cent reduction in public funding levels for voluntary programmes.

However, the General Accounting Office criticised EPA for overestimating the impact ofvoluntary programmes (GAO, 1997). GAO examined four programmes and only found theprojection for the Coalbed Methane Outreach Programme consistent with the experience withsuch programmes so far.

In particular, the GAO report criticised EPA’s evaluation of the Green Lights programme, andchallenged EPA’s contention that Green Lights was responsible for technology adoption decisionsamong one quarter of the participants, given that evidence showed that a significant part of theenvironmental results attributed to Green Lights by EPA took place before the programme waswell under way. Furthermore, GAO found that 593 out of 2 308 of Green Lights participants weremore likely to adopt energy efficient lighting in the first place, since they were companies thatsell, manufacture and install lighting products.

In contrast, it should also be noted that a general evaluation on the diffusion of energyefficientlightning systems made by Morgenstern and Al Jurf (1997) suggests that information programmes


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such as Green Lights are significantly environmentallyeffective.

Table 18. EPA actions to reduce greenhouse gas emissions

1993 action plan estimatesa 1997 action plan estimatesa

Green Lights + Energy Star Buildings 3.6 3.4Energy Star Products 5.0 4.3Energy Star Transformers 0.8 0.5Natural Gas Star 3.0 3.4Landfill Methane Outreach 1.1 1.9Coalbed Methane Outreach 2.2 2.6HFC23 Reductions 5.0 5.0AgStar 1.5 0.3Ruminant Livestock Programme 1.8 1.0Environmental Stewardship Programme [new] 6.5Climate Wise not est. 1.8State and Local Outreach Programme not est. 1.9Seasonal Gas Use for Control of NitrousOxide

2.8 0.

Waste Minimisation 4.2 2.1Voluntary Aluminium IndustrialPartnership

1.8 2.2

a) million metric tones of carbon equivalent, MMTCE by 2000.Source: U.S. Department of State, 1997

As far as nonenergy programmes are concerned, evidence is only available on the 33/50Programme. The 33/50 programme, aimed at reducing toxic releases by 33 per cent by 1993 and50 per cent by 1995 is considered by the US EPA as a major success (see Box 21 for apresentation). According to EPA, interim and final targets were both met one year ahead ofschedule. Unlike most VAs, this programme has been subject to many interesting evaluationswhich are summarised in Box 24. Overall, they suggest that it has been effective (that is, itprovided reductions over and above the BAU trend).

Despite the previously mentioned criticisms of EPA estimates, results indicate that climatechange and 33/50 programmes have been effective overall. If environmental impacts are stated,are they significant? To put their achievements in perspective, it has to be pointed out that EPAclaims that climate change programmes prevent the emissions of 24.7 million metric tons ofcarbon dioxide, which amounts to a mere 1.9 per cent of total annual emissions (1 305 millionmetric tons). It is difficult to arrive at a general judgement from this figure. Analytical argumentscan, however, be applied. The impact of these programmes is likely to be limited since theirvoluntary nature means that they only concern a portion of the industry. Furthermore, they onlytarget “no regret” pollution abatement investments in firms. Figure 10 adapted from Worrell(1994) illustrates this point.

The technical potential is the achievable level of abatement resulting for the most technicallyeffective combination of options available in the period under investigation.

The market potential reflects pollution abatement efforts that are profitable or at least costneutral to firms under prevailing market conditions.

The potential for public voluntary programmes is represented by the gap between the currentlevel and the market potential. This is mainly achieved through channelling information to firms.


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Box 24. Evaluating 33/50 Programme's environmental effectiveness (Mazurek, 1998a)

Most available evaluation exercises are based on the comparison of (i) performance by participants versus nonparticipants, and (ii) the evolution of emissions of 33/50 Programme chemicals versus other chemicals. Ingeneral, the results suggest that 33/50 achieved reductions over and above the BAU pattern (see Tables 19 and20).

However, EPA estimates were criticised on different accounts. Firstly, the General Accounting Office consideredthe choice of the baseline year (1988) inappropriate, since large cuts in emissions occurred between 1988 and1991, the starting date of the 33/50 Programme. Table 21 shows how 33/50 results are affected when changingthe baseline year.

Secondly, it has been pointed out that the difference between participants’ and non participants’ performance maywell be due to a selfselection bias: the firm participates because it anticipates that its BAU trajectory is sufficientto reach programme targets while nonparticipating companies estimate they will not. Nevertheless, allowing forselfselection biases, a recent econometric study shows that the programme led to a reduction in emissions of28 per cent relative to the preprogramme levels over the period 19911993 (Khanna, Damon, 1998).

Finally, Arora and Cason (1995) have studied the profile of the firms entering the 33/50. They found that firmswith large releases of 33/50 and nonprogramme chemicals in the programme, large firms and companies closer tofinal markets were more likely to participate. This suggests that the main motivation of participants is related topublic recognition.

Table 19. Emissions and transfer declines, participants and nonparticipantsYears 33/50Program

Participants

Non-participants

1991-1994 - 49percent - 30percent

Source: U.S. EPA (1996b).

Table 20. Production related waste declines, 33/50 and nonprogramme chemicalsYears 33/50 Program

chemicals

Non-program

chemicals

1991-1994 -1percent 9percent

Source: U.S. EPA (1996b).

Table 21. Baseline selection and 33/50 Programme resultsReduction

Goal/Year

1994Result

(1988baseline)

1994Result

(1991baseline)

33percentby1992 40percent 12percent

50percentby1995 51percent 28percent

Source: Adapted from Davies et al. (1996).

Table 22. Characteristics of firms likely to participate in the 33/50 ProgrammeFirmDescription Increased Probability of

Participation

Highcustomer interfacing 20 percent

HighR&Dintensity 12 percent

Largenumber of employees 44 percent

Highnon-33/50chemicalreleases 99 percent

High33/50chemicalreleases 22 percent

Source: Arora and Cason (1995)


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Figure 10. Potential for pollution abatement: different measures (Worrell, 1994)

current level

m a r k e t p o t e n t i a l

t echn ica l po ten t ia l


The lack of empirical evidence brings us back to analytical arguments. On these grounds,voluntary programmes appear to rate quite well. The main reason lies in the fact that publicvoluntary programmes offer rules devised by public authorities, and firms are then free to choosewhether to participate or not. In comparison with traditional regulations, this provides gains interms of economic efficiency: firms willing to participate are those for which the cost of reducingemissions is lower. In other words, voluntary participation generates a selfselection process oflowest cost firms within the industry, which is clearly advantageous from the perspective ofeconomic efficiency.

Moreover, public voluntary programmes usually offer firms flexible rules, that is, they leave firmsa considerable degree of freedom to select costefficient solutions for their emission reductions. Asan illustration, the 33/50 programme set overall targets for 17 substances. It did not, however,impose the overall targets on each individual company, but left it to firms to define theirindividual emissions reduction. For its part, the Green Lights programme assists firms inidentifying those areas in the company where the adoption of energyefficient lightning is at leastcostneutral. Participating firms are then obliged to convert at least 90 per cent of the identifiedareas to energyefficient lighting systems. Similarly, in the Climate Challenge Programmeestablished in 1994 by the US Department of Energy, utilities are asked to make commitments,but are given considerable flexibility in their choices (Dowd, Boyd, 1998).

Finally, economic efficiency is also improved through the diffusion of information on pollutionabatement techniques towards firms. This information helps firms to identify and implementcosteffective solutions for abatement.

3.3 Administrative and compliance costs

On the one hand, costs related to traditional administrative and compliance tasks are likely to bevery low primarily because monitoring is light. Public voluntary programmes monitor progressthrough annual selfreporting (Davies et al., 1996; Kappas, 1997). Moreover, they do not entailenforcement activities since they are not legallybinding. On the other hand, a key feature of these


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programmes is that they provide firms with technical assistance and information subsidies. Thismay entail significant public expenditures. In this regard, Green Lights’s administrative costsamount to about US$20 million per year (see Table 23).

Table 23. Participants, funding, and other details about four CCAP programmes

Green Lights Source Reductionand Recycling

Coalbed MethaneOutreach

State and LocalOutreach

Targeted gas (es) Carbon dioxide Carbon dioxide andmethane

Methane Various

Type of participants Business andgovernment

Business and localgovernment

Coal companies States, territories,and local

government

Number ofparticipants

2 308 513 13 29 states, PuertoRico, 42 cities

1996 funding* 20.1 2.9 1.7 5.3

GHG reductionsthrough FY 1995MMTCE**

0.6 0.92.4 2.7 0.8

GHG reductions in2000 MMTCE**

3.9 4.18.9 6.1 1.7

Note: *in US$ million, ** million metric tons of carbon equivalent.Source: U.S. General Accounting Office. 1997.

3.4 Soft effects

Soft effects of public voluntary programmes are likely to be significant. Although they pose manymeasurement difficulties, their relevance should not be underestimated in relation to other morevisible impacts. In the case of public voluntary programmes, soft effects may come from differentsources. First of all, such programmes often include technical assistance, decisionsupport tools,bestpractice guidelines, evaluation tools, and training sessions, thus improving the level ofknowledge in the participating companies. Besides, they frequently exhibit a function of“signalling” via the use of a logo (e.g. US Energy Star programmes, ecolabelling schemes) orpromotional supports. They thus improve public recognition of efforts for greening businessstrategy. In turn, such reputation gains provide industry with longterm incentives to commit toenvironmentallyfriendly trajectories.


The crucial relevance of tackling concerns about transparency in order to guarantee the socialacceptability of NAs, also applies to public voluntary programmes. In general, however, efforts toimprove transparency have not been very successful. For instance, in the case of the 33/50Programme, EPA attempts to reinforce monitoring through additional checks and controls failed,as programme participants refused to accept them (Davies et al., 1996). Another illustrationsupporting this argument is provided by the comparison between ISO 14000 and the Europeanscheme EMAS. While both these voluntary programmes define standards for environmentalmanagement systems, EMAS requires that environmental statements be made public. Moreover,EMAS requirements are controlled by socalled “environmental verifiers” that are accredited by anofficial body.


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3.6 Other criteria

Again due to the lack of evidence, we will consider all the remaining criteria under this heading.First of all, it should be noted that unlike collective NAs, public voluntary programmes do notinvolve negotiations among a group of firms. It follows that they cannot promote collusivebehaviour and are thus unlikely to lead to competitionadverse effects. As far as their impact oninnovation is concerned, the argument developed for negotiated agreements also applies here.Once more, since voluntary programmes are not very demanding in terms of pollution abatementefforts, firms can merely rely on existing technological solutions to reduce their emissions andcomply with the agreement commitments. As a result no innovation efforts stem directly fromthe voluntary programmes even though dissemination of existing innovation results and bestpractices is likely to be very significant (see 3.4 on soft effects).

3.7 Preliminary conclusions

A stylised "profile" of the performance of public voluntary programmes

Voluntary programmes have a profile similar to negotiated agreements, though for somewhatdifferent reasons.

As far as environmental effectiveness is concerned, the little empirical evidence available suggeststhat public voluntary programmes have positive environmental impacts. These, however, arelikely to be modest. The main reason for this general result is the absence of regulatory threat:lacking that incentive to abate over and above existing regulations, firms’ prime motivation forparticipating in programmes are related to the existence of “no regret” (profitable) pollutionabatement actions or to benefits from public recognition. In general, such motives will not takefirms very far in their environmental improvements, as pollution abatement quickly becomes acostly business. In this regard, voluntary programmes may lead to lower environmental benefitsthan negotiated agreements. On the costeffectiveness account, public voluntary programmes arelikely to outperform commandandcontrol approaches, primarily because they target “no regret”actions, but also due to their higher flexibility regarding the ways to achieve the targets. Asregards administrative costs, savings in traditional administrative costs due to low monitoring andenforcement requirements are offset by the extra costs of providing technical assistance and otherinformation tools to participating companies. In this regard, programmes can be consideredinformationintensive policy arrangements with a high potential for generating important “soft”effects through the diffusion of information on pollution abatement techniques in industry.

Public voluntary programmes in a policy mix

Just like negotiated agreements, public voluntary programmes may be included in a policy mix. Itseems, however, to be less frequent. One possible illustration is the 33/50 Programme which isprimarily linked to two main components: (i) the obligation to report toxic emissions to theToxic Release Inventory (TRI) which is made public and (ii) Title III of the 1990 Clean Air ActAmendments fixing National Emissions Standards for Hazardous Air Pollutants (NESHAP). UnderNESHAP, emissions of 189 toxic chemicals (including 33/50 chemicals) will be subject to strictertechnology standards by the year 2000. This provides firms with a very clear picture of futureenvironmental regulation (Khanna & Damon, 1998). However, in the US, such credible regulatorythreats are not so frequent, primarily because EPA does not have the appropriate legalempowerment to enact regulation.

Another very interesting example is provided by the Danish scheme on GHG emission reduction(see Box 15). This programme is closely related to the national CO2 tax established in 1996 for


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industry. Participating companies benefit from a very significant tax rebate (about 30 per cent).The two components of this policy package provide some safeguards against the comparativedisadvantages which could result. The tax allows for ambitious CO2 abatement level under theprogramme. The programme allows for decreasing the financial burden on heavy(energyintensive) industries.

4. The case of unilateral commitments

This type of VA poses a particular problem for evaluation due to the lack of empirical evidence.

Many data are published by the industry on the environmental improvements that occurred alongwith the implementation of the unilateral commitments (on Responsible Care, see inter aliaMazurek, 1998b; UIC, 1995). But, to our knowledge, there is no study which attempts to isolateUCs’ impacts from the BAU trend and/or from parallel mandatory regulations. Analyticalarguments suggest that environmental benefits are likely to be low since targets are unilaterally setby industry. Also, targets are frequently set in qualitative and ambiguous terms. However, evidencesuggests that UCs are very heterogeneous so that drawing a general conclusion is difficult. In thisregard, the comparison of the French and Canadian version of Responsible Care is noteworthyregarding the difference in environmental results that can be expected (see Box 17). In Canada,six codes of practice, recommended by a group of independent consultants, are mandatorywhereas the same are “recommended” in France. Moreover, the monitoring of the French“Engagement de Progrès” (the name of the Responsible Care) is based on selfreporting whereas, inCanada, each plant is assessed each year by a group of four people, two of whom are of theindustry (but independent from the plant) and two are nonindustrialists (one from the localcommunity). The International Council of Chemicals Association (ICCA) publishes an annualstatus report of implementation of the Responsible Care Programme.

As far as other criteria are concerned, some evidence can be provided regarding “soft” effectswhich are quite often explicitly included as the central goal of these initiatives. In particular,changes in public opinion towards the industry is frequently expected. In the case of the USResponsible Care programme, opinion surveys suggest that positive impacts visàvis the generalpublic have not yet been obtained. On the contrary, public opinion regarding the chemicalindustry seems to be continually deteriorating (see Table 24).

Table 24. Public favourability towards ten industries, 19901995 (percentage very/generally favourable)

Industry 1990 1991 1992 1993 1994 1995

Computer 78 78 79 83 82

Food 73 72 73 57 69

Lumber and Paper 61 57 60 57 62

Airline 68 62 62 44 52

Automobile 59 51 42 42 50

Pharmaceutical 58 51 42 42 50

Petroleum 36 39 41 35 44

Nuclear 33 35 38 25 26

Chemical 28 27 25 26 20 21

Tobacco 15 12 14 12 11

Source(s): NFO Research, Inc. 19891993. National Opinion Surveys for the Chemical Manufacturers Association, Arlington, Virginia: CMA;Market Directions, 19941995. Attitude and Perception Studies. Arlington, Virginia: CMA in Kappas 1997.


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Nevertheless, the American chemical industry has primarily targeted local population living in theneighbourhood of chemical facilities. In this regard, formal communication channels betweenplant managers and local communities have been created through socalled Community AdvisoryPanels (CAPs). The spread of these panels is impressive since 316 CAPs were in place in 1995(see Figure 11). This communication innovation is considered by many observers as the mainachievement of the US Responsible Care programme.

Figure 11. Surveys by industry showed an increase of favourability from 44 per cent in 1989to 80 per cent in 1994

56

128

215

244262

316

0

50

100

150

200

250

300

350

1990 1991 1992 1993 1994 1995

Among positive soft aspects, unilateral commitments set at the international level may promotethe dissemination of best practices throughout the world. As an illustration, the InternationalCouncil for Metals and the Environment (ICME) is a group of the leading western mining firms.ICME has developed an environmental charter for the mining sector and is cooperating withUNEP in editing and disseminating best environmental practices guides.

Finally, such initiatives are hindered by concerns of feasibility and viability. In general, theirpublic image is bad. Also, due to their collective and unilateral character, they are under scrutinyfor their potential adverse effects on competition. According to Mazurek (1998), this suspicionleads, in return, to negative impacts on the design of the US Responsible Care programme.Antitrust laws have constrained the types of enforcement mechanisms available to industryassociations. As a result, they may use persuasion at most. Also, the chemical industry developedcodes of practice that minimise the possibility for discriminatory behaviour on behalf of membercompanies. Without these constraints, such codes would be less ambiguous and more transparent.The transparency and credibility of unilateral commitment can be improved through draftingguidelines for designing these commitments, as in the example set by the Government of Canada(1998).


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Chapter 4. Conclusions and recommendations

1. The lessons from experience

Based on economic analysis and empirical evidence, the report can provide answers to three mainquestions outlined in the executive summary:

1. What are voluntary approaches?

2. How are voluntary approaches used in OECD countries?

3. How well do voluntary approaches perform?

1.1 What are voluntary approaches?

Voluntary approaches covered in this report are those schemes whereby firms make commitmentsto improve their environmental performance beyond or in compliance with legal requirements.This definition provides a wide scope, since it also applies to selfregulatory arrangements (e.g.voluntary codes).

Three main types of voluntary approaches have been studied in the report:

Public voluntary programmes involve commitments towards environmental protection devisedby the environmental agency and to which individual firms are invited to participate. Sinceparticipation in the voluntary programme is a choice left to individual companies, they can beseen as “optional regulations”.

Negotiated agreements involve commitments elaborated through bargaining between a publicauthority and industry. They are frequently signed between an industry sector and a publicauthority, although agreements with individual firms are also possible, in particular at the locallevel.

Unilateral commitments are set up by firms and communicated to their stakeholders (employees,shareholder, customers, etc.). The definition of the environmental targets, as well as of theprovisions governing compliance are determined by the committed firms without theinvolvement of any public authority.

1.2 How are voluntary approaches used in OECD countries?

Although evidence of all three types of voluntary approaches above may be found in each singleOECD country, distinct national patterns of VA use have been identified. These underline therelevance of the different institutional and economic contexts.


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In Japan a pervasive use of negotiated agreements concluded at the local level (e.g. between amunicipality and an individual firm) can be observed. These negotiated agreements bridge the gapbetween the requirements of national regulations and local needs. In addition, they are alsopreferred as they present lower institutional obstacles: negotiated agreements need not beapproved by the local legislation. Enforcement is exerted by local authorities through withholdingor authorising permits for new facilities and production extensions.

Despite the considerable institutional diversity among European Union Member states, an overallrepresentative pattern of VA use can be identified. In this regard, most countries appear to usenegotiated agreements at the national level, concluded between the government and a coalition offirms, mostly represented by a branch organisation. They have been developed as part of aregulatory reform, seeking improved efficiency in environmental policy. Enforcement is providedthrough the threat of new legislation, should the negotiated agreement fail to reach its targets.

In the United States, the most preferred VA type appears to be public voluntary programmes.They are signed between the Environmental Protection Agency and an individual company,without any enforcement provisions. Companies’ incentives to join the programmes are mainlydriven by public image considerations. Thus, the US public voluntary programmes mainly aim atproducing incremental environmental improvements. In addition, the development of unilateralcommitments is also significant in the US, even though their use is hampered by antitrust law.

In Canada, negotiated agreements predominate but there is also a large number of unilateralcommitments.

1.3 How well do voluntary approaches perform?

Over the last few years, a growing debate developed among industrialists, policymakers, scholarsand environmental interest groups about the potential contribution of voluntary approaches tothe efficiency and effectiveness of environmental policy. The available evidence to date onlyconcerns negotiated agreements and public voluntary programmes.

Negotiated agreements

As far as their weaknesses are concerned, the environmental effectiveness of negotiatedagreements appears rather modest. This conclusion stems from a little empirical evidenceavailable, supported by analytical arguments. A preliminary list of problems potentially leading tomodest environmental outcomes could be made. First, regarding goal ambitiousness, the evidencepoints to the central role of industry in the targetsetting process, the scope for freeriding, and theuncertainty over regulatory threats. Second, in relation with the implementation stage, negotiatedagreements seem to perform poorly due to nonenforceable commitments, poor monitoring andlack of transparency. However, certain agreements have established safeguards which mayefficiently prevent such shortcomings.

Additional weaknesses of negotiated agreements are related to their lack of credibility visàvispublic opinion. In the case of collective agreements, potential competition distortions are also ofconcern.

Looking at their strengths, the general claim of negotiated agreement’s good performance oneconomic efficiency appears to be confirmed. Nevertheless, it is worth noting that in negotiatedagreements established at the industry branch level, burden sharing between firms appears mostlydriven by equity considerations, at the expense of costefficiency considerations. Furthermore,they do not rely on price mechanisms to induce pollution abatement at the level of the company,and thus do not appear to be as costeffective as economic instruments. Finally, they are verylikely to generate major positive “soft effects” such as collective learning, generation and


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diffusion of information, and consensus building. It can even be argued that the generation ofthese “soft effects” is a key objective and virtue of many negotiated agreements.

Finally, the usual claim that negotiated agreements tend to reduce administrative burden isconfirmed neither by empirical evidence nor analytical arguments. In comparison with otherpolicy approaches, one key feature is that they transfer administrative tasks to industry (i.e. tofirms and/or trade associations). This leads in general to lower administrative and compliancecosts through more flexible and less demanding reporting and monitoring tasks. But also, theygenerate new types of administrative and compliance costs, i.e. transaction and bargaining costsentailed by the need for consensus. To sum up, the administrative efficiency of negotiatedagreements is a question that requires further study and so far remains to be answered on acasebycase basis.

Public voluntary programmes

Voluntary programmes have a profile similar to negotiated agreements, though for somewhatdifferent reasons.

As far as environmental effectiveness is concerned, the little empirical evidence available suggeststhat public voluntary programmes do have environmental impacts, although they are likely to bemodest. The primary reason for this general result lies in the absence of regulatory threat: lackingan incentive to abate above and beyond existing regulations, firms’ prime motive to participate inprogrammes are driven by either the existence of “no regret” (profitable) pollution abatementactions or to benefits from public recognition. In general, such motives will not take firms veryfar in their environmental improvements, as pollution abatement would soon become a costlybusiness. In this regard, voluntary programmes may lead to lower environmental improvementsthan negotiated agreements. On the costeffectiveness account, public voluntary programmes arelikely to outperform commandandcontrol approaches, primarily because they target “no regret”actions, but also due to their higher flexibility on the means of achieving the targets. As regardsadministrative costs, savings in traditional administrative costs due to low monitoring andenforcement requirements may be offset by the extra costs of providing technical assistance andother information tools to participating companies. In this regard, programmes serve asinformationintensive policy arrangements with a high potential for generating important softeffects through the diffusion of information on pollution abatement techniques in industry.

2. Policy recommendations for design and implementation of VAs

This section includes policy recommendations on the devising of VAs, the contexts in which theyare suitable, and the areas for future research on VAs. They are based on the results of this reportbut also on CEC (1996b), EEA (1997), Lévêque (1997), Office of Consumer Affairs (1997).

2.1 How to use negotiated agreements and public voluntary programmes

As already seen, VAs are far from being perfect policy options. But the same is true for otherpolicy instruments that reveal their own weaknesses (e.g., poor economic efficiency ofcommandandcontrol approaches, potentially heavy financial burden of ecotaxes).

In this context, available evidence on performance suggests two ways of using negotiatedagreements and voluntary programmes efficiently:

1. Using them in a policy mix.


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2. Using them to explore new policy areas.

Using negotiated agreements and voluntary programmes in a policy mix

Voluntary approaches improve the flexibility and cost effectiveness of the policy mix, andpotentially allow for savings in administrative costs. Reciprocally, regulatory components providevoluntary approaches with safeguards against their main shortcomings, namely a low level ofambition in their environmental targets, weak enforcement provisions, and the lack of credibleand efficient monitoring and reporting requirements.

A straightforward route is to associate voluntary approaches with a traditionalcommandandcontrol system, and substantial evidence has been found in this regard. This istypically the way negotiated agreements are used in the Netherlands, the USA, Canada and Japan.Negotiated agreements are used as complements to traditional commandandcontrol systems (e.g. apermit system for the US Project XL or the Dutch covenants, a complex array of national andlocal standards in the case of Japanese Pollution Control Agreements). Negotiated agreementsimprove the flexibility and the cost effectiveness of the policy mix, and potentially allow forsavings in administrative costs. Reciprocally, the other components of the policy mix providenegotiated agreements with safeguards against their main shortcomings. First, targets are setoutside the negotiated agreement (e.g. in the National Environmental Policy Plan in theNetherlands) or regulation standards are used as a starting point to negotiate the targets ofnegotiated agreements. Second, the regulatory system provides negotiated agreements withenforcement incentives, as well as credible and efficient monitoring and reporting requirements.The inclusion of voluntary programmes in a policy mix seems to be relatively rare. The reasonlies in the fact that this type of VA is mainly used in the US, where such combinations arehampered by institutional obstacles (the lack of EPA’s discretionary power).

Voluntary approaches might also be mixed with economic instruments. However, the overallperformance of this kind of policy mix remains unknown. As a matter of fact, it should beunderlined that their use along with economic instruments in a policy mix has rarely beenobserved in practice so far. However, the Danish CO2 scheme provides a very original mix of anemission tax and a public voluntary programme. Similarly, the Swiss negotiated agreement on thereduction of CO2 emissions is linked with the threat of a CO2 tax. If carefully designed and craftedinto the policy mix, VAs can play a useful role for “lubricating” this policy mix: increasedflexibility paving the way for new regulations without a stringent and brutal implementation,inducing industry to develop innovative approaches, filling enforcement deficits, participation ofstakeholders, codes of conducts and guidelines, can all contribute to this “lubricating” function.

There is a risk, however, that a multiplicity of VAs of different types could create a complex andopaque mosaic of voluntary schemes, becoming difficult to streamline and control in the longerterm. A clear policy framework and guidance remains essential.

Using negotiated agreements and voluntary programmes in new policy areas

Negotiated agreements or voluntary programmes often constitute a first step to exploring a newpolicy area, environmental policy issues which are not covered by existing regulations. Availableevidence points to a considerable number of voluntary approaches applied to this end. Inparticular, VAs are typically used to deal with climate change and waste recycling problems, whichemerged in political agendas in the early 1990s. In this regard, voluntary approaches can beregarded as a policy instrument with a transitional function, i.e. to work until time is ripe forother regulations to come into force. They are particularly suitable for this role, since they arelikely to generate soft effects and learning, and hence can help improve the future design of moretraditional instruments.


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2.2 Recommendations on the design of voluntary approaches

Our analysis of the strengths and weaknesses of negotiated agreements and public voluntaryprogrammes allow for identifying possible safeguards against their main shortcomings:

• Clearlydefined targets

The targets should be transparent and clearlydefined. VAs should define quantitative targets.Moreover, the setting of interim objectives is crucial since they permit all the parties to identifydifficulties arising during implementation at an early stage.

• Characterisation of a businessasusual scenario

Before setting the targets, estimates of a businessasusual trend — what the emission levels orother target variables are likely to be, given natural technical progress within the industry inquestion — should be established in order to provide a baseline scenario.

• Credible regulatory threats

Made at the negotiation stage, a threat of regulation by public authorities provides companieswith incentives to go beyond the businessasusual trend.

• Credible and reliable monitoring

Provisions for monitoring and reporting are essential for keeping track of performanceimprovements. They constitute the key for avoiding failure to reach targets. Monitoring shouldbe made at both the company level and the sector level in the case of collective VAs. In certaincontexts, monitoring by independent organisations may be used.

• Third party participation

Involving third parties in the process of setting the VA objectives and in its performancemonitoring increases the credibility of VAs. More generally, environmental performance shouldbe made public and transparent. It provides industry with additional incentives to respect theircommitments.

• Penalties for non compliance

Sanctions for noncomplying firms should be set. This can be achieved by either making bindingcommitments or linkages between VAs commitments and regulatory requirements (e.g., theintegration of VAs requirements into operating permits).

• Informationoriented provisions

In order to maximise the informational soft effects of VAs, support for activities in technicalassistance, technical workshops, edition of best practice guides, etc., should be promoted.

• Provisions reducing the risk for competition distortions

In the case of collective VAs, safeguards against adverse effects on competition could be providedby notification of new VAs to antitrust authorities.


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2.3 Future areas for research on the efficiency and effectiveness of voluntary approaches

Case studies and surveys on voluntary approaches carried out in the last few years in severalOECD countries give a clear picture of the use of these instruments. However, an assessment oftheir performances remains limited, as empirical and theoretical economic analysis of voluntaryapproaches are still underdeveloped. From this perspective, two research gaps are noteworthy.First of all, additional research efforts should be devoted to study soft effects. Although they seemto represent a key advantage of voluntary approaches over commandandcontrol regulation andmarketbased instruments, a clear understanding of soft effects, especially such as learning andawarenessraising, remains to be elaborated. This calls for empirical studies as well as theoreticalwork aimed at understanding the very nature of this phenomenon. Secondly, some reflection onthe performance of voluntary approaches combined in a policymix along with marketinstrumentsis also becoming increasingly necessary. Such an analysis appears particularly crucial for theongoing policy debate on climate change. Added to the fact that most OECD countries have reliedon voluntary approaches as a first step for reducing CO2 emissions in energyintensive sectors, thepossibilities for emissions transfers soon being defined at the international level point in thedirection of the relevance of VA policymixes with tradable permit systems and taxes in thepostKyoto context.

The lack of evaluation of VA administrative efficiency has to be especially underlined: this is anopen question, even though administrative efficiency is a key motive in regulators’ decision to usesuch approaches. In this regard, the crucial question is the comparative administrative efficiencyof voluntary approaches with other policy approaches (namely marketbased and regulatoryinstruments), and it should be borne in mind that little is known about the administrativeefficiency of other instruments. A general research effort is thus necessary to understandadministrative phenomena in order to integrate administrative and transaction costs in theassessment of environmental policies.

As regards unilateral commitments, there is, once again, a lack of independent empiricalevaluation. Among other things, this prevents drawing conclusions on their environmentaleffectiveness. As far as negotiated agreements and public voluntary programmes are concerned,considerable research is still necessary to fully understand their advantages and disadvantages. Ithas to be recalled here that VAs have been created by practitioners. This explains the pooravailability of theoretical results on their performance, whereas their recent introduction hampersempirical investigation. But the situation is quickly changing and we may hope for significant newinsights in the coming years, in particular on the costefficiency and environmental effectivenessof these approaches.


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AMACHER, G.S. AND MALIK A.S., “Instruments Choice When Regulators and Firms Bargain”, Journal ofEnvironmental Economics and Management, 35, p. 225241.

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