Reviewed by David Vogel, Haas School of Business, University of California, Berkeley.
Over the last three decades, environmental regulation has accomplished a great deal: we have made considerable progress in reducing air and water pollution, cleaning up hazardous wastes. Indeed, regulatory policies have achieved far greater improvements in environmental quality than anyone could have imagined when the current upsurge of regulatory activity began in the late 1960s. Yet environmental policy appears to be at a crossroads. A new generation of environmental problems has emerged for which the traditional command and control strategy of regulation appears ill-equipped to cope.
One challenge is presented by global environmental problems whose amelioration requires a degree of international coordination far greater than any existing international regulatory regime appears capable of achieving. The second challenge is that command and control regulation "appears to have reached the limits of its technical capacity and cost-effectiveness." (p. 7) Much of "the low-hanging fruit has all been picked" (p 7). If we are to make continued progress in improving the environmental performance of industry, we need to devise "smarter" regulations.
Gunningham and Grabosky address the latter challenge. Since the expansion of command and control environmental regulation three decades ago, there have been numerous criticisms of its inefficiency and ineffectiveness and an almost equal number of proposals for regulatory reform. This book goes well beyond both bodies of literature. One of its important virtues is that it does not dwell on or repeat the shortcomings of command and control regulation; indeed the authors appropriately credit this form of regulation with substantial accomplishments and judge much of it to be worthwhile retaining.
Another important virtue of this book is that it does not propose a simple panacea for improving the effectiveness of regulation such as effluent taxes, improve cost-benefit analysis or eco-labeling. Indeed the central thesis of this book is that there is no single best regulatory strategy. This is true in two senses. First, appropriate regulatory strategies vary by industry. Thus what works for the highly concentrated chemical industry will not necessarily be effective for a sector such as agriculture in which there are literally tens of thousands of products.
Second, and this is the main argument of the book, what is needed are a wide diversity of regulatory policy instruments which can compliment and reinforce one another. The challenge is to formulate an optimal mix of regulations, one which is likely to yield the greatest improvement in environmental quality at the lowest cost.
The authors begin by critically and carefully reviewing the strengths and weaknesses of a variety of regulatory instruments, including command and control regulation, self-regulation, voluntarism, education and information instruments such as corporate environmental reporting and product certification, and the creation of markets for pollution. To analyze the potential as well as the shortcoming of these instruments, the authors draw on both a rich theoretical literature as well as on the actual experiences of a number of different countries.
They then turn to the role of third parties in strengthening the effectiveness and the efficiency of regulation. The authors examine the role of public interest groups as well as third parties such as green consumers, corporate consumers, institutional investors, banks and insurance companies, and environmental consultants. Their argument is that our thinking about regulation has been unnecessarily limited by restricting it to government. But "there is much more to environmental regulation than purely the work of government." (p. 132) Both the private and non-profit sectors contain potentially powerful instruments to control corporate behavior and in many cases they can perform regulatory functions more effectively than can government. But this does not mean that the government should abdicate its regulatory responsibilities. Rather our challenge is to devise regulatory options for government than can enable it to draw on the capacities of second and third parties.
What is needed, this book stresses, are instruments and institutions tailored to the wide diversity of the environmental problems one is seeking to ameliorate. Thus in some cases a strategy of government command and control may be needed, while in others governments can subtly manipulate the incentives of companies or third parties. In still other cases, governments can create "opportunity structures" which rely on "steering" instead of rowing." In short, we need regulatory approaches that are as complicated as the corporate behaviors we are trying to change.
More than half of the book is devoted to an extremely detailed discussion of the regulatory challenges and opportunities posed by two important industries, namely the chemical and agricultural sectors. The detail with which the authors explore the regulation of these industries in the third and fourth sections of their book is intended to illustrate the book’s central thesis, namely that there is not one single best approach to environmental regulation. Not only do different problems require different solutions, but any given problem is likely to be most effectively addressed through a multiplicity of approaches and institutions.
In their concluding chapter "Smart Regulation: Designing Environmental Policy," the authors try to present a more systematic overview of how environmental regulation might be improved. Their perspective emphasizes the importance of understanding the nature and pattern of the incentives and disincentives companies face in being challenged to improve their environmental performance. The key is to manipulate both the market and non-market incentives of firms with a pyramid of strategies which begin with industry self-regulation and move on to progressively more stringent forms of regulatory intervention and coercion. They urge an exploration not only of the wide range of public and private regulatory instruments that are potentially available, but also urge a systematic effort to explore how they might reinforce one another.
This is an exhaustive, creative study of alternative regulatory strategies. While its length does not make for casual reading, it contains a wealth of information about what we have learned about the circumstances under which various different instruments and institutions of regulatory control are likely to be more or less effective. The concluding chapter, in which the authors present a set of checklists and criteria to assess and improve environmental regulation, represents an important contribution to thinking about alternative regulatory strategies.
The authors do not assess the political feasibility of the reforms they advocate, nor do they pay much attention
to the significant differences in political-legal systems which make some strategies more feasible in some countries
than in others. The latter is a particular important shortcoming: the authors make no attempt to explore cross-national
differences, treating the regulatory experiences of industries and agencies in different capitalist countries as
if they were interchangeable. But this should not detract from the value of the contribution of this impressive
work of regulatory analysis.