It was noted in Section 4.4 that emissions charges were rarely high enough to have a great incentive effect and were often used simply to finance regulatory agencies, that subsidies were usually combined with the enforcement of regulations, and that the trading experiments undertaken in the US were to a considerable extent an attempt to mitigate the impact of environmental standards which would otherwise create economic distress in particular areas. The evidence suggests therefore that the instruments we observe are all part of a regulatory process which involves firms in a continuing bargaining relationship with regulators. Economic instruments of environmental policy are, in general, part of the bargaining framework rather than substitutes for it. As usual, bargaining occurs in a situation characterized by substantial information problems.
Regulators face enormous problems in calculating the damage caused by a particular pollutant. Even where the physical effects can be estimated, the valuation of these effects in economic terms may still be a matter of considerable dispute. Further, the effects of one pollutant may depend upon the presence or absence of some other pollutant in the environment, thus making information about inter-reactions between various emissions of great importance.
Photochemical smog is caused by the action of sunlight on nitrogen oxides. It is the presence of other contaminants in the air, especially certain hydrocarbons from motor car exhausts, which produces the build up of ozone and the reduction in visibility associated with photochemical effects. Thus the impact of a particular type of emission on environmental quality depends upon climate, physical geography, and the existence of other pollutants.
Although regulators may accumulate technical information about industrial processes which use (in the US) ‘ best available control technology’ (BACT) or ‘ reasonably available control technology’ (RACT) or (in the UK) ‘ best practical means’ (BPM), the interpretation of these terms is open to dispute. Further, the circumstances of every plant are likely to be idiosyncratic and make it difficult to estimate abatement costs with accuracy.
The distinction between ‘best available technology’ and ‘best practicable means’ is very significant. The EC industrial air pollution directive requires ‘ best available technology not entailing excessive cost’ (BATNEEC). This criterion has entered British legislation in the Environmental Protection Act (1990) (see Section 4.2), and would appear to be tougher than BPM. All such criteria involve some implicit cost–benefit calculation, however, and are open to wide differences of interpretation.
The 12th Report of the Royal Commission on Environmental Pollution (RCEP 1988) criticized BPM on the grounds that it had permitted ‘unsatisfactory practices, such as the emission of sulphur dioxide from coal-fired power stations, to continue even after the necessary abatement technology had become available because the cost of putting them right was judged to be too great’ (p. 31).
Evidence from the former Federal Republic of Germany indicates that, there too, bargaining over the costs of air pollution control technology is common. One study found that 36 per cent of firms investing in corrective measures achieved delays or the acceptance of less costly alternatives by using the argument that the original proposals were not economically feasible (Ullman 1982). An earlier study had found that the willingness of the authorities to accept ‘economic feasibility’ as a reason for modifying plans depended on economic conditions. Boom conditions put the regulators in a strong bargaining position with respect to firms and vice versa in depression conditions.
The influence of cost estimates on bargaining can be illustrated by interview evidence in the field of health and safety as reported in Peacock (1984). A paint manufacturer undertaking modifications to a warehouse was asked to install a sprinkler system. The cost of the sprinkler was estimated to be 13 per cent of the total cost of modifying the warehouse and the company persuaded the regulators to accept a cheaper system of fire screens. In the case of a much larger project the sprinkler system accounted for only 2.5 per cent of total cost and was duly installed.
Calculating the environmental impact of a single pollutant and deciding on suitable control arrangements is a complex enough task, but treating one pollutant will usually involve creating another so that the assessment of environmental options can become even more difficult. Nevertheless, recognition that pollution problems can simply be transferred from one medium to another has led to a recommendation that regulatory authorities should aim to achieve the ‘ best practical environmental option’ (BPEO) which would take into account all environmental effects (see RCEP 1988).
The manufacture of terephthalic acid by ICI produced residues which were disposed of at a landfill site. These residues gave rise to a strong smell causing complaints from nearby residents. ICI have now developed a process for treating the residues and rendering them innocuous while retrieving some valuable constituents.
Conversely, air pollution problems can be turned into land pollution problems. The removal of gaseous fluoride from emissions to air by wet scrubbing creates an effluent which is discharged into sewage systems. In one case, sludge from a sewage works was spread on grazing land and this resulted in the cattle developing fluorosis from fluoride-contaminated grass.
Source: RCEP (1988), p. 15
The monitoring of emissions to check whether they comply with agreed standards is a costly activity. One of the problems with emissions taxes is that the calculation of tax liability requires a measure of total emissions. The installation of measuring devices (even if technically feasible and sufficiently accurate) and the setting up of an administration for assessment and collection would be a complex and costly exercise. The difficulty of continuous monitoring is one reason for the use by regulators of technology-based controls. Rather than enforcing an emissions standard, regulators insist on the use of particular technology which they expect will result in environmental objectives being met. Often it will be the case, however, that technology will only produce the correct outcome if it is operated correctly, and frequent monitoring either of emissions or productive operations once more becomes necessary.
Monitoring by firms of their own activities and self-reporting to a regulator is a system which is increasingly used. Costs of monitoring pollution levels or accidents are then home by the firms. The system will induce honesty in reporting only if firms expect more favourable treatment in the event of spills or accidents when these are reported accurately than would be the case when firms are found to be cheating. The regulator implements a system of checks to ensure that the probability of detecting cheaters is sufficiently high to induce honesty.
A system which proceeds through negotiation and agreement produces a disinclination to prosecute for non-compliance unless it is suspected that failure to comply is part of a deliberate policy of evasion and non-cooperation. The system in the UK has always depended upon the generation of trust between firms and the regulatory authorities. There is an implicit agreement that prosecution for noncompliance will only be used as a last resort providing the authorities are convinced that firms have acted in a cooperative way. This philosophy is apparent in the reports of the HSC and HMIP.
The monitoring policy of the EA relies on a degree of self-reporting. ‘The Inspectorate places requirements on operators … to carry out monitoring, including undertaking testing and continuous measurement of releases, and to report the results to HMIP’. An auditing programme aims to provide ‘confirmation and reassurance that this system is working honestly and effectively’ and to provide ‘information, independently generated, against which the operators' data may be compared’.
Source: HMIP (1993–94), p. 74
The EA is responsible for the administration of integrated pollution control under the Environmental Protection Act 1990. In addition it monitors compliance with legislation on radioactive substances and other environmental matters. In 1993–94 HMIP completed only 13 prosecutions concerning ‘scheduled processes’ of which 12 were successful. Similarly, in 2000–01 the EA brought 13 prosecutions for infringements of process industries and radioactive substances regulations all of which were successful. The Agency brought 687 prosecutions for water quality and waste disposal offences in 2000–01 though its declared enforcement policy is to seek ‘full voluntary compliance’. The HSE pursues a similar policy. ‘HSE inspectors do not approach their task with a view to seeking out legal violations and prosecuting error. They seek to promote reasonable compliance with good standards’ ( HSE 1988–89, p. 4).
Figures of convictions, penalties, and notices issued by the HSE are given in Table 4.1. Average penalties increased gradually during the 1980s and have recently shown signs of a more rapid rise. Higher penalties for those convicted of environmental infringements may be a necessary part of a system of self-reporting and negotiated compliance.
a Excludes fines totalling £100 000 imposed on several large companies for particularly
serious infringements.
Source: Health and Safety Commission Annual Reports 1988–89, 1993–94 and 1999–2000.
