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Environmental Regulations Can Create Win-Win Situations

June 2000

Environmental regulations can result in win-win situations for society and regulated industries, according to a new ELI report. The study supports the so-called “Porter Hypothesis,” named for Harvard Professor Michael E. Porter, who has posited that properly designed regulations foster business innovation, increasing companies’ efficiency and therefore their competitiveness. Traditional economics holds that environmental requirements reduce productivity and employment while increasing prices for goods and services.

“The key to producing a win-win scenario is how environmental regulations are designed and implemented,” said ELI Senior Attorney Byron Swift, author of Innovation, Cost, and Environmental Regulation: Perspectives on Business, Policy, and Legal Factors Affecting the Cost of Compliance. Swift is the Director of the Institute’s Center for Energy and Innovation. “Standards that allow businesses the freedom to achieve required pollution reductions in the most economically efficient way, instead of mandating how companies have to achieve them, have obvious benefits for the bottom line while offering equal protections for public health and the environment.”

Major environmental laws, such as the Clean Air Act and Clean Water Act, tend to rely on standards that dictate specific pollution reductions at the smokestack or discharge pipe. These standards are usually based on what the best pollution reduction technologies can achieve, and more often than not businesses simply use — or are required to use — these technologies. That means that pollution reduction strategies — which instead of removing the pollution at the point of discharge change industrial processes to reduce the amount of pollution generated — are seldom used by industry. Process changes can have huge advantages, however, since they involve reducing the amount of materials consumed, energy used, etc., thereby reducing the cost of production — and the price to the consumer. In some cases, businesses can actually save money while reducing pollution, instead of paying extra for the control devices usually used to reduce emissions.

Innovation, Cost, and Environmental Regulation synthesizes current research regarding the Porter Hypothesis. It examines the nature and potential of real-world legal and business barriers that may prevent industry from achieving least-cost, innovative, or pollution prevention goals, and shows precisely how the design of environmental regulation exerts a significant effect on the cost of compliance. Better designed regulations that set overall performance standards could solve inflexibility problems of our current system and achieve the benefits suggested by the Porter Hypothesis.

“Improvements in regulatory design, and in ways to improve management decisions like environmental management systems, offer ways to help firms achieve the win-win situations, and achieve environmental goals at low cost,” Swift said.

Innovation, Cost, and Environmental Regulation: Perspectives on Business, Policy, and Legal Factors Affecting the Cost of Compliance can be downloaded for free or ordered by calling (800) 433-5120 or by sending an email to orders@eli.org. For press copies, please contact pressrequest@eli.org.