Environmental regulations – often referred to as ‘green tape’ – are commonly portrayed as pitting regulator against regulatee, business against government, environmentalists against industry groups, environment against economy. But the latest evidence shows that green tape does not polarize.
In fact, green tape can be win-win. When done correctly, green tape can bring economic and environmental rewards – which everyone wants.
At Sustainable Prosperity, we’ve done our homework and surveyed the available evidence. Today, we released a report Green Tape Measures Up that shares our findings. And what the evidence shows is clear – green tape measures up to scrutiny. In our opinion, here are the top three reasons why environmental regulation can be win-win:
1. Industry is far more innovative than we think – When regulators introduce regulations that ensure environmental protection, industries and individual companies faced with the regulation are forced to think creatively about their operations and products. They’re pushed out of their comfort zone and their current practices – and this is a good thing. Rethinking practices and processes can lead to new ways that value the environment more – it can mean more efficient resource use and the creation of green & clean technologies. Best of all, these types of innovations can improve the company’s economic performance so much so that in some cases, the company’s bottom line is strengthened.
2. Compliance costs are not as high as we think - It turns out regulators and regulatees are terrible at predicting the costs of meeting environmental regulations. Almost without fail, when estimating the prospective costs of complying with environmental regulations before the regulation starts, they are overestimated, compared with the actual costs seen when looking back after some length of time. The compliance costs crystal ball is not just imperfect; it’s really quite bad. Not only is there an overestimation, it’s done in a big way – often by a factor of 10 or more.
3. Better policies are being designed – Not only is there an overestimation on compliance costs for industries and an under-appreciation of industry’s ability to innovate, we’re making better green tape than before. Compared to past regulatory approaches that mandated a specific technology or prescribed a process (i.e., “thou shalt install this scrubber on thy smokestake”), modern regulations are generally more flexible. Using prices (like the “emit what thy will but pay for a permit for each unit of emissions” of a cap-and-trade system) or prescribing an outcome (like “thou shalt ensure water effluent from thy factory has no more than X ppm of yucky stuff”) allows the regulated industry and individual companies flexibility in how they meet the regulation. What’s interesting is that any environmental economist can tell you this would be expected (we’ve known this to be true in theory) but now increasingly, real world evidence is also showing that this is indeed true.
While this report doesn’t examine all aspects of green tape (we didn’t consider the cost to the regulator of administering, monitoring, and enforcing green tape, or the full environmental benefits), we’ve looked at the part that has been controversial – the costs to industry.
Having done that research, we’re increasingly confident that green tape measures up.
This makes a lot of sense. Intuitively, many of us know that what improves our environment is good for our bottom line. After all, industries rely on accessing healthy ecosystems to provide them with natural resources and ecosystem services like clean water and air. Industries, firms and other market players are increasingly seeking well-designed environmental regulations – those that are clear, transparent and flexible. This is perhaps most evident with the growing number of companies and associations calling for a carbon price (as evidenced by the reaction to Alberta’s climate announcement on Nov 22.)
Knowing well-designed green tape can result in a win-win – where economic benefits can be enjoyed alongside the health and wellbeing benefits of sustained ecosystems – means that we shouldn’t hold back from using it where it’s warranted. Governments, policy-makers and other decision-makers shouldn’t waste time wondering if green tape is good or bad (when well-designed, it’s good!) -- but should instead go directly to the question of how to ensure it is well designed.