What makes polluting firms clean up their act?

I was kind of psyched about Arora & Cason 1996, which does what it says on the tin: the title is "Why Do Firms Volunteer to Exceed Environmental Regulations?"

This paper looks at what types of firms choose to enroll in the EPA's 33/50 program, a voluntary program that assists firms in making cutbacks to toxic releases. The program provides assistance for firms that sign up to attempt to meet its goals of reducing releases of certain pollutants. The program goals are more stringent than what actually regulation requires, so the firms are in some sense agreeing to go above and beyond. So it seems like an interesting question: what types of firms make that decision; in other words, what makes companies choose to be good?

Sadly, academia is a land of disappointment. The answer doesn't reveal any miraculous strategies for getting polluting firms to voluntarily clean up their act.

First off, a major nitpick: reading the article, it turns out that some of the toxic substances covered in the program are ozone depleting substances that are subject to caps by the (at the time) new Montreal Protocol restrictions. Thus, while firms that worked cleaning their act up with regard to these substances were indeed technically exceeding what regulation at the time required them to do, they were facing impending caps on these releases, making those actions less voluntarily motivated than they look. I couldn't find a clear statement in the article of how much of the target population that was true of.

Beyond that, they reasons don't end up being all that interesting. Firms that spend more on advertising were more likely to enroll; that makes sense, since firms that spend on advertising are (essentially by definition) sensitive about their public image. Bigger firms were more likely to enroll; that makes sense, since bigger firms have more resources and more public exposure. Firms that emit more pollution (in absolute terms AND per employee) are more likely to enroll; that makes sense, since they're the ones who need help figuring out how to clean up their act. Firms that don't emit much pollution have no reason to sign up for a reduction program. (Theoretically, if the program had some big payoff but required action the firms really didn't want to take, we might see firms sorting the other way - big polluters steer clear so they don't have to spend, while small polluters enroll to cash in on the payoff without having to do much. But the program doesn't really have such a payoff; all you get from it as far as I can tell is stuff like training and workshops. So there isn't much incentive to try to game the system - those that sign up seem to be those that actually need and want the program.)

Oh well, negative findings are important too. Anyway, the takeaway is that the EPA's 33/50 program doesn't seem to teach us anything particularly exciting about eliciting firm cooperation on pollution clean-up. Regulation and public pressure are the things that do the trick.

The oil weapon

I went to a talk recently that put an interesting spin on the oil weapon concept. In the 1970s the Arab states attempted to use the "oil weapon" to punish the US and... the Netherlands, I think? anyway, one or more of the European countries, to try to get them to change their Israel policy.

What we mainly learned from this is that the oil weapon in its classical sense is not very useful. The oil embargo of the 1970s DID cause a lot of economic pain generally, but it was a very blunt instrument. It punished the whole world without inflicting a particularly large share of punishment on the targets, it didn't really succeed in altering US policy much, and it was pretty much as inconvenient for the Arab states as it was for everyone else. Eventually, Saudi Arabia decided to play nice with the US and unilaterally boost production, ending the attempt and beginning a long and beautiful friendship.

What the talk focused on, though, was Iran and how all this affected Iran's relationship to the Arab states. Iran had previously been the US's big partner in the region, but it had been an increasingly recalcitrant one, repeatedly demanding and getting US "permission" to raise oil prices without US opposition. On the strength of high oil prices, Iran ran up a bunch of debt to fund domestic stuff. When the Saudis unilaterally raised production, bringing oil prices down, Iran couldn't pay off those debts, and this helped destabilize the state, ending an era and permanently shifting the balance of power in the area in Saudi Arabia's favor as well as rearranging the alliance structure with the US. In other words, the "oil weapon" worked quite well against Iran. And there seems to be no reason that can't generalize - the states that are always going to be most vulnerable to manipulation of the oil markets aren't consumer states, but rather, producer states that rely on oil wealth but don't control enough of it to set the market rates. Something similar might happen with gas if LNG becomes ubiquitous enough to make natural gas a similar market to oil, rather than a pipeline-based distribution system. (and since Iran has huge LNG resources, that might hold the promise of a second era of fossil fuel power for them).

China's rare earth industry

As I've mentioned before, one of my threads of interest is how shifts in the world's energy economy might cause shifts in the importance of various resources and who holds them. One major area is that of rare and exotic minerals, which are used in things like CFLs and batteries.

Along those lines, this article on China's rare-earth mining industry, how they cornered the world market (it's not because they're the only place that has rare-earth resources), and what our alternatives are is really interesting, really worth reading, and pretty short.

Too hot, too cold, and just right are not created equal

In International Governance: Protecting the Environment in a Stateless Society (which is more reasonable than I think its title implies), Oran Young (1994) writes:

It is worth emphasizing the extent to which most scientists and many policy-makers have joined forces in an effort to focus attention on climate change as a common problem and the avoid becoming bogged down in battles regarding putative winners and losers. The work of the IPCC during 1989 and 1990 certainly helped set this tone, and the negotiators operating within the INC have carried on, for the most part, in the same vein. This spirit of cooperation does not guarantee that progress will be made on a climate regime without running afoul of distributive concerns triggered by a growing preoccupation with the identification of probable winners and lowers in the wake of global warming. So far, however, in this case uncertainty has served to soften the problems associated with distributive bargaining. (43)

This is nice, but there are two problems here that make this largely irrelevant. One is that it's only true in a very bounded way: yes, there hasn't been as much discussion of winners and losers at the country vs. country level. But there has been a whole lot of discussion of winners and losers at the industry level, and that discussion has had serious political ramifications.

But that makes sense. We'd expect to see discussion of winners and losers at the industry rather than the national level, because that's where the winners/losers divide will mostly matter. The second problem with the argument above is that the winner/loser debate just isn't very important at the country-vs.-country level, because it's highly one-sided. All the players who matter will be losers from the climate change; with the possible exception of Russia, there's no one important who will be a winner.

There's a simple reason for this. We can think of the world as divided into three Goldilocks zones: right now, some places are too hot, some places are too cold, and some places are just right. Only one of these three zones will win from climate change: the too-cold zone, which will edge closer to just-right. The too-hot zone will become even hotter, and the just-right zone will become less right.

But almost all of the states that really matter in an emissions treaty (to review, that's the states with a significant share of current or future emissions: the US, Europe, China, Japan, India, Russia, maaaaybe Brazil and Indonesia) are clustered in the zone that's currently more or less just right. That's because life is more tenable and economic development is easier in the just-right zone, so that's where the money and population is currently clustered. There are no winners here because no one benefits from making the just-right zone less right (again, the possible exception is Russia, because it, alone among the key temperate-zone players, is a major oil exporter and has a fair chunk of land in the too-cold zone.)