THE CHANGING PLAYING FIELD

The industrial green game is complicated by the fact that environmental costs are often not reflected directly in the value of products or services. If they were, products and services that impact the environment more than others would be priced accordingly. In practice, however, the cost of environmental damage is often incurred as the cost of protecting human health and the environment, and this expense is passed on essentially as overhead to the public. Subsidies further distort these costs by giving market preference to certain industries or practices.

The difficulty in determining environmental costs is illustrated by considering effluent charges. The notion of applying effluent charges is based on the seemingly logical rationale that polluters should pay for their actions. For example, a factory whose effluent impacts adversely fish populations imposes a cost on commercial fishermen without their consent. As long as the cost of the pollution is not incurred by the factory, it has no incentive to reduce the pollution. As long as factory ownership is unclear, the polluter has "free" access to the fishing hole for waste disposal. It is difficult, however, to determine the appropriate charge (or penalty) that will generate the "ideal" level of pollution, without knowing the costs of pollution damages. It is because this type of information is absent or difficult to determine that the industrial green game is so difficult to play. Some of the external costs of pollution have been internalized through environmental regulations, which often are designed to address single environmental concerns. Several U.S. regulations were enacted in response to crisis in various environmental media (for example, the Clean Water Act to address water pollution and the Clean Air Act to address air pollution) or to address specific pollution-management concerns (for instance, the Resource Conservation and Recovery Act to address solid waste management and the Comprehensive Emergency Response and Liability Act [also known as Superfund] to remediate contaminated land and groundwater).

In the United States, there is a 30-year record of "command and control" environmental regulation and enforcement that has dictated how companies addressed environmental, health, and safety issues. Businesses have responded to the regulatory "stick" by complying with regulations and applying technology to control pollution. The tangle of these regulations has grown extraordinarily rapidly (Figure 1). Sometimes, they thwart more systems-based approaches to improve environmental performance. Indeed, there is growing evidence that approaches other than those proscribed by regulations can effectively meet and sometimes exceed environmental standards or goals set by the regulation. One example is the joint U.S. Environmental Protection Agency (EPA)-Amoco study of opportunities to prevent pollution at an Amoco refinery. The results of the effort revealed that, compared to traditional steps to meet regulatory requirements, similar reductions in pollution could be achieved at lower cost ($11 million instead



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