Voluntary Approaches to Environmental Protection

Abstract

Voluntary approaches for environmental protection include a range of policies from unilateral firm initiatives to government-sponsored public programs and negotiated agreements between industries and regulators. For regulators, these approaches offer the potential to facilitate more cost-effective pollution control as compared to traditional command-and-control regulations that are prescriptive and media specific. For firms, participation in a voluntary approach may act as a signal of their environmental responsibility to stakeholders. Of concern with voluntary programs is the potential for participating and nonparticipating firms to free-ride and gain benefits from the program without undertaking actual pollution abatement. Evidence on the effectiveness of these approaches shows that they can improve environmental performance, induce firms to go beyond compliance, and stimulate innovation under certain conditions. These conditions are more likely to exist when voluntary approaches are accompanied by mandatory disclosures of environmental performance by participants and nonparticipants, which enable public sanctioning of low performers. They also need to be accompanied by monitoring and a credible threat of regulation and are more likely to succeed if they create excludable benefits for participants. The lack of success of these approaches in other situations can largely be explained by the lack of specific targets for improvement relative to some baseline, limited mechanisms for monitoring performance, no third-party audits of changes in operating practices, and the absence of sanctions for participating firms that do not make environmental performance improvements.