Pollution Prevention: Public and Private Roles

By Lynn Scarlett
Los Angeles, CA
June, 1998


Public and private decision-making institutions always interrelate in complex synergies--seldom are decisions shaped through purely public rules or private choices. So it is with decisions about materials use, pollution prevention, and waste. Changing public rules will affect private choices; but so, too, do dynamic market decisions constrain the prospects that different public rules will achieve intended outcomes.

Understanding past market dynamics, therefore, helps us to better define the "problem" toward which proposed public actions might be directed. A glimpse at the past also helps us understand the opportunities and challenges that proposed new public rules and actions might face.

The Industrial Era in Three Stages

Over the past 200 years, industrialized market economies have moved through what might be characterized as three phases.

First was the era of mechanics in which the primary focus was on making large numbers of consumer goods available at very low cost through mass-production using machinery and inanimate energy. Waste was prodigious, as speed, volume, and low-cost preoccupied the minds of inventors.

Second was the era of chemistry in which the focus began to turn toward new products, product refinement and production efficiency, and product quality. Through chemistry and physics came lightweight, efficient plastics, new pharmaceuticals, contact lenses, CD-roms, and much of the information age. Materials-use reduction and pollution prevention were inadvertant, unintended (and often unnoticed) by-products of this pursuit of quality, comfort, and convenience. Material use per unit of output dropped 1/3 just in the twenty years from 1970 to the early 1990s. Household appliances "went on a diet", requiring less and less material per appliance. Engines became more efficient; fuel-switching to achieve efficiencies occurred as we moved from wood to coal to oil to natural gas as an ever-larger portion of total energy consumption. With the switches came huge, and well-documented reductions in air emissions, even predating the advent of 1970s regulations. Material substitutions resulted in substantial source reduction, for which the unintended byproduct was also less pollution and waste. A fiber optic cable made from 65 kilos of sand carries 40-fold more messages over its length than a cable made from a ton of copper, with all its mining tailings and corresponding production sludges. But much waste went unnoticed and unattended.

Now we arrive at the era of biology in which industrial ecology and deliberate focus on pollution prevention and residuals recycling is coming of age--driven by consumer and societal demands, a growing conservation ethic, and the competitive search for new ways to reduce costs and add value in an evolving marketplace in which environmental, aesthetic, health, and spiritual values loom large.

The Forces Behind Environmental Progress

Market forces played a large role in this progression from the era of mechanics to the era of physics to the era of biology. Market institutions combine three elements that compel dynamism and a search for ways to use materials more efficiently, through source reduction (materials conservation), pollution prevention, and residuals recycling:

- The first is institutionalized competition which creates incentives to search for "better mousetraps"--ways to accomplish goals with fewer resources, better quality, etc.

- Second is resource ownership, which defines boundaries, links choices with responsibility for outcomes, limits externalities, and allows for trade and exchange.

- These conditions, in turn, allow for the emergence of resource "prices", which embody information about the relative scarcities of available resources given infinite and competing demands for those resources.

These three market institutions played (and continue to play) a critical role in the drive toward resource conservation and innovations that permit us to do more with less. But, of course, no set of institutions is perfect; indeed, the market itself is no particular set of institutions but a continual discovery process regarding new arrangements that might better allocate resources while meeting consumer desires. And new technologies make possible new market arrangements--the advent of electronic tagging is just now allowing development of "ownership" rights in some fisheries, for example.

Continued Challenges

But market challenges remain. Some resources--air basins, for example--are fundamentally "collective"; they are not divisible into separate spheres of ownership. They invite, therefore, the classic "commons problem" in which unfettered access leads to despoilation and pollution. Public rules in the form of pollution regulations have been established to partly remedy this problem. Creation of emission charges has been proposed as another way to incorporate information about pollution effects into market decisions--and may be a component of further, deliberate pollution-prevention efforts in the future, though setting such charges by political fiat is an important constraint.

Other challenges also persist. Intra-firm organizational arrangements can impede information flows about pollution-prevention opportunities. Experimentation with environmental management systems is beginning to address these intra-firm challenges. This process should remain voluntary and fluid, to permit broad experimentation with institutional form. But establishing public-sector fee rebates for good performance may nurture this organizational discovery process. Privately, some insurers have already begun to offer lower rates for good environmental performance. Experimentation with producer-consumer contractual relationships may also play a role in pollution-prevention. Where wastes are highly toxic, product stewardship arrangements are emerging to ensure proper waste-handling and recycling: in some cases, such arrangements are driving the search for pollution-prevention opportunities.

The Public-Private Verdict

But reality is tricky. Institutional arrangements that make sense for one set of products may not make sense for another. Hence, public mandates should be viewed with caution. Pollution-prevention in its most robust sense requires experimentation with organizational form and with production processes.

Public rules will always shape private actions. Contract law, liability rules, and regulations that constrain use of "collective, open-access" resources all shape private decisions and can encourage pollution prevention. Public procurement practices, especially where capital and operating decisions are separate, can adversely affect pollution-prevention opportunities. Quasi-public rules--as in the case of accepted accounting practices and product standards--also influence production and consumption decisions. Where information is a constraint--as is especially true for small businesses that pollute--information and technical assistance through public and private actions can be critical to environmental progress.

But framers of these public rules must be cautious that they not prescribe specific technologies or particular practices; such prescriptions are essentially static and run afoul of the innovation imperative that lies at the root of environmental progress. Such prescriptions also run afoul of the inevitable complexity of resource-use decisions in which trade-offs abound, and what makes sense in one instance may not make sense in another.



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