Document ID: EPA-HQ-RCRA-2010-0742-0014
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2011-07-22T04:00Z

November 17, 2010
                     Definition of Solid Waste Rulemaking 
                    Compliance Research Background Document
                                       
Introduction
	The purpose of this background document is to describe compliance research literature supporting the following propositions:
   * Regulation (legislation and rules) is a critical determinant of facility environmental behavior  -  more important than any other single factor.

   * Self-monitoring, reporting, and disclosure of the associated compliance information can promote significant compliance and performance improvements.

   * Inspections and enforcement actions consistently produce improved compliance and/or environmental performance at evaluated or sanctioned facilities (specific deterrence). 

   * Inspections and enforcement actions consistently produce significant compliance/ performance spillover effects on similarly situated non-evaluated or sanctioned facilities (general deterrence).

   * Higher penalties can produce greater deterrence.

Primary Sources for Quotations and Citations in Compliance Research Background Document
	The primary sources for most of the quotations and citations in this Compliance Research Background Document are:
   (1)  Shimshack, Jay P.; Monitoring, Enforcement, & Environmental Compliance: Understanding Specific & General Deterrence  -  State-of-Science White Paper (October 2007) (hereinafter cited as Deterrence White Paper) http://www.epa.gov/oecaerth/resources/reports/compliance/research/meec-whitepaper.pdf 
   (2)  USEPA; Compliance Literature Search Results -- Citations to Over Two Hundred Compliance-Related Books and Articles From 1999 to 2007 (April 2007) (hereinafter cited as Compliance Literature Search Results). http://www.epa.gov/oecaerth/resources/reports/compliance/research/lit-results-2007.pdf 
   Additional compliance and deterrence measurement information (including statistically valid empirical deterrence research results) on the following topics may also be found in the additional resources on EPA's Compliance Research Literature web page: http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html.
   * Compliance assurance 
   * Compliance monitoring 
   * Deterrence 
   * Enforcement 
   * Environmental management 
   * Program measurement and evaluation 
   * Voluntary programs 
   * Environmental performance 
   * Relationship of compliance and performance to business value and competitiveness 

Regulation (legislation and rules) is a critical determinant of facility environmental behavior  -  more important than any other single factor:
   * "Despite the many factors influencing environmental performance ... the literature strongly suggests one result central to this report. Regulation, monitoring, and enforcement have historically been, and remain, critical determinants of environmental behavior.  ... Every reviewed study indicated that regulation/legislation is a more important determinant of environmental behavior than any other single factor."  Deterrence White Paper at 9 (emphasis added).
   * 
While Khanna and Anton's [2002] survey of S&P 500 firms indicated that second-order environmental practices like total quality management were largely attributable to market factors, first-order practices like environmental staffing, audits, and internal policies were attributable to legal and regulatory factors. Kagan et al. [2003] argued that regulation is principally responsible for large environmental gains for pulp and paper facilities in the US, Canada, Australia, and New Zealand. In a survey of Canadian pulp and paper facilities, Doonan et al. [2005] discovered that a full 70 percent of managers rated the government as the single most important source of environmental pressure. Similarly, Delmas and Toffel's [2005] survey of 493 US industrial sources indicated that the influence of regulators and legislators on environmental performance was considerably stronger than community organizations, activist groups, and the media. Finally, May [2005] showed that traditional regulation had a considerably stronger influence on marine industry managers' deterrence viewpoints than non-mandatory regulation."  Id. at 9-10 (emphasis added).

   * Paper examines the role of rationality and complexity in compliance and finds empirical evidence to support that both are necessary to explain hazardous waste compliance behavior. ... [F]acilities subject to more complex regulations are more likely to violate but learn from past inspections.  Stafford, S. L.; Rational or Confused Polluters? Evidence from Hazardous Waste Compliance; Contributions to Economic Analysis & Policy: Vol. 5 : Iss. 1, Art. 21 (2006).  Compliance Literature Search Results at 18 (emphasis added).  http://www.bepress.com/bejeap/contributions/vol5/iss1/art21/

   * Empirical study of fourteen pulp and paper mills in 4 countries, including the United States. Article discusses factors affecting firm-level performance differences.  Large improvements are linked to tightening regulatory requirements and political pressures which serve as coordinating mechanisms for culture and behavior.  Kagan, R., Gunningham, N., & Thornton, D.; Explaining Corporate Environmental Performance: How Does Regulation Matter?; Law & Society Review, Vol. 37, No. , pp. 51-90 (2003).  Compliance Literature Search Results at 26 (emphasis added).   http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1084&context=igs 

   * Empirical study of Canadian program combining traditional enforcement and public disclosure finds .... stricter standards and higher penalties ... also significantly affected emissions because strong, clear standards, together with a significant, credible penalty system, sends appropriate signals to the regulated community which responds by lowering pollution emissions.  Laplante, B., Lanoie, P. & Foulon, J.; Incentives for Pollution Control - Regulation and Public Disclosure; No 2291, Policy Research Working Paper Series, The World Bank (2000) (emphasis added). http://ideas.repec.org/p/wbk/wbrwps/2291.html 

Self-monitoring, reporting, and/or disclosure of associated compliance information can promote significant compliance and performance improvements:

   * The issue of the relationship between enhanced self-monitoring, reporting, and/or disclosure of associated compliance information to improved regulatory compliance and environmental performance has to date been the subject of relatively little formal research.  Nevertheless, the following examples demonstrate that the relationship exists and can be significant. 

   * Several studies have linked the public availability of Toxic Release Inventory (TRI) data to improved compliance and reduced pollution.  For example, using a micro-level data set linking TRI releases to plant level Census data, one researcher found, among other things, that the local and state governmental use of TRI disclosures helps induce firms to become cleaner. Bui, L.; Public Disclosure of Private Information as a Tool for Regulating Environmental Emissions: Firm-Level Responses by Petroleum Refineries to the Toxics Release Inventory; Brandeis Univ. Working Paper Series (June 2005). http://ideas.repec.org/p/cen/wpaper/05-13.html
      
   * Under the Toxic Release Inventory (TRI), the systematic use of performance monitoring and benchmarking as a regulatory tool has been cited as a watershed event enabling and compelling facilities to monitor, compare, and improve their environmental performance.  At the same time, it enhances enhancing transparency and accountability to external parties.  Karkkainen, Bradley C.; Information as Environmental Regulation: TRI and Performance Benchmarking, Precursor to a New Paradigm?, 89 Geo. L.J. 257 (2001). By decreasing the time required for EPA to compile, verify, and analyze data, e-filing can reduce the lag times from when EPA receives data to when the Agency is able to make it publicly available.  TRI e-reporting, for example, achieves this by reducing costly and cumbersome paperwork for reporters while speeding EPA's ability to make it publicly available.  Id. at 289, 336-7. 
       
   * Studies of enhanced disclosure regulations and environmental compliance in other contexts have also linked enhanced disclosure to statistically significant compliance improvements.  See, e.g.,  Bennear & Olmstead; The Impacts of the "Right to Know" Information Disclosure and the Violation of Drinking Water Standards, JEEM Vol. 50, Iss. 2; pp. 117-130 (2008) (larger utilities required to mail annual Consumer Confidence Reports on water supplier compliance pursuant to the 1998 Safe Drinking Water Act amendments reduced total violations by 30%-44% and more severe health violations by 40-57%).
      
   * Evidence gathered in an EPA Region 5 study of the refinery sector demonstrated that when facilities installed Continuous Emissions Monitoring (CEM) equipment, they uncovered previously unknown operational and mechanical problems.  This allowed operators to take corrective action to reduce sulfur dioxide emissions.  Operations and maintenance (O&M) methods did not indicate the true picture of what was being emitted to the environment. After the installation of the CEM, previously unknown operational and mechanical problems were uncovered. The data generated by the CEM, allowed operators to take the necessary corrective actions and ultimately reduce emissions of SO2 to the atmosphere.  Curtis, C.; The Benefits of CEM as Enhanced Monitoring: A Study Based on Two Investigative Approaches at Petroleum Refineries (1995).   http://www.epa.gov/reg5oair/enforce/cemrefpp.html 
   * Monitoring, disclosure, and e-reporting together have produced extremely significant emission reductions.  Specifically, EPA's Acid Rain Program contributed to the "largest quantified human health benefits of any federal regulatory program implemented in the last 10 [years], with annual benefits exceeding costs by >40 to 1."  It did so by promoting "public confidence in the programs, highly accurate and complete emissions data, and a high compliance rate (>99% overall)." Schakenbach, et al.; Fundamentals of Successful Monitoring, Reporting, and Verification under a Cap-and-Trade Program, J. Air & Waste Manage.. Assoc., 56:1576 - 1583 2006).  http://www.epa.gov/airmarkt/cap-trade/docs/fundamentals.pdf
      
   * E-reporting of environmental data is being increasingly adopted by states because of the positive environmental and financial benefits it provides.  An example is Michigan DEQ's eDMR system for wastewater facilities.  As MI DEQ reports on its web page, the benefits of the state's e-reporting system include: (1) saving wastewater discharge facilities compliance costs with a streamlined reporting method and readily available computer tools; (2) saving program costs by reducing resources required for managing paper-based DMR reports; (3) improve the accuracy of compliance data by eliminating potential errors that might otherwise be introduced through manual data entry in the database; and (4) improving the DEQ wastewater program's overall effectiveness with faster responses to data analyses, compliance assessment, and decision-making.

Inspections and enforcement actions consistently produce improved compliance and/or environmental performance at evaluated or sanctioned facilities (specific deterrence):
   * The emphasis in this section is on the impact of inspections on compliance and environmental performance, though information on the impact of enforcement actions and penalties is included for some studies addressing both.  See the Deterrence White Paper and the resources posted on EPA's Compliance Research Literature web page at http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html if additional information is desired on the relationship of enforcement actions, penalties, and compliance/performance.

   * [S]pecific deterrence refers to the effects of regulatory actions on the evaluated or sanctioned firm itself. General deterrence effects, in which regulatory actions aimed at one facility impact the environmental performance at other facilities, are considered in the next section.  [f.n. omitted]  ... Collectively, the results of the specific deterrence literature indicate that both qualitative and quantitative methods exist to measure specific deterrence. Further, joint results show that significant reductions in non-compliance and emissions are obtainable with traditional monitoring and enforcement. Inspections and enforcement actions consistently produce improved future environmental performance at the evaluated or sanctioned facility. Results hold both historically and currently.  Deterrence White Paper at 10-11 (emphasis in original).
   * Environmental monitoring and enforcement activities generate substantial specific deterrence.  [paragraph break omitted]  Every reviewed study that examined the impacts of domestic environmental monitoring and enforcement actions on the inspected or sanctioned facility found at least some evidence for specific deterrence. This includes Magat and Viscusi [1990], Deily and Gray [1991], Gray and Deily [1996], Nadeau [1997], Earnhart [2004a], Earnhart [2004c], May [2005], Gray and Shadbegian [2005], Keohane et al. [2006], and Glicksman and Earnhart [2007]. In many cases, the specific deterrence effects were large."  Id.  at 22 (emphasis added).
      
   * "The seminal paper empirically assessing specific deterrence is Magat and Viscusi [1990]. Magat and Viscusi [1990] explored the relationship between EPA inspections and self-reported biochemical oxygen demand (BOD) discharges at 77 major US pulp and paper mills for the period 1982-1985. The authors found that lagged inspections had statistically significant negative impacts on both BOD compliance status and continuous BOD discharges. The results were also economically significant. Lagged inspections induced as much as a 20 percent reduction in mean BOD discharges in the quarter following an inspection."  Id. at 11.

   * "Deily and Gray [1991] studied 49 steel plants between 1976 and 1986, a period of rapid decline in the steel industry. They studied the response of plant-closing probabilities to all EPA/state enforcement actions in the industry. The authors found that a 12 percent increase in the predicted probability of EPA and state enforcement activity over the entire sample period increased the likelihood that a plant would close by 1 percentage point.  Id. 

   * In a related study, Gray and Deily [1996] analyzed the impact of non-monetary enforcement actions on the self-reported annual particulate, sulfur dioxide, and nitrogen oxide compliance of 41 US steel manufacturers for the period 1980-1989. Here, the authors detected a substantial impact of actual lagged inspections and non-monetary enforcement actions on air pollution compliance, ... Actual enforcement actions seem to have spurred changes in environmental behavior." Id. 

   * "In a study of self-reported air pollution compliance rates for 175 US pulp and paper plants from 1979-1989, Nadeau [1997] showed that EPA regulatory activity can significantly affect plants' duration of non-compliance. In particular, Nadeau [1997] studied the response of time spent in violation of air pollution statutes to EPA/state inspections and enforcement actions. Results indicated that a 10 percent increase in a plant's predicted threat of enforcement actions, including monetary penalties, resulted in a 4 to 5 percent reduction in the violation length. Results for predicted inspection activity, however, were largely indeterminate. A 10 percent increase in a plant's predicted threat of inspection resulted in a 0 to 4 percent reduction in the length of non-compliance." Id.

   * "Earnhart [2004a] and Earnhart [2004c] investigated the relationship between regulator activity and self-reported BOD discharges from 40 Kansas wastewater treatment facilities for the period 1990-1998. The key metric in both studies was the response of BOD discharges to EPA/state enforcement and monitoring actions. The most consistent result across the analyses was that lagged actual inspections and lagged actual enforcement actions caused reductions in BOD discharges (as a percentage of permitted levels)." Id.

   * "May [2005] analyzed survey results from approximately 200 marine facilities (marinas and boatyards) in Washington and California. In a study of how managers' reported deterrence fears responded to regulator inspections and sanctions, the author found that inspections significantly contributed to managers' deterrence viewpoints. Facilities inspected in the last 5 years had higher deterrent fears than those not inspected." Id. at 11-12.

   * "... Glicksman and Earnhart [2007] analyzed both qualitative and quantitative evidence of specific deterrence for water discharges in the chemical industry. The statistical database analysis examined how plants' composite BOD and TSS discharges responded to EPA/state enforcement actions. The survey component covered 267 of the 1003 originally solicited chemical facilities (a 26.6 percent response rate). Glicksman and Earnhart [2007] established that inspections and fines both produced significant deterrence effects. Nearly 75 percent of survey respondents reported that fines were an effective deterrent and approximately 87 percent reported that inspections definitely or probably effectively induced water pollution compliance. Similarly, the statistical results indicated that both inspections and enforcement actions resulted in decreased aggregate conventional water pollution emissions."  Id. at 12. 

   * "Gray and Shadbegian [2005]. In addition to measuring specific deterrence in a framework consistent with earlier studies, the authors also considered factors that influenced the responsiveness to monitoring and enforcement actions. They examined 116 pulp and paper mills for the period 1979-1990, and their key metric was the response of air pollution compliance to EPA/state inspections and enforcement actions. Results indicated that plants increased their CDS-reported air pollution compliance rates by approximately 10 percent in response to a marginal regulator action."  Id. 

   * "Specific deterrence effects are not restricted to domestic environmental institutions. For example, Laplante and Rilstone [1996] explored the impact of inspections and the predicted threat of inspection on the biochemical oxygen demand (BOD) and total suspended solid (TSS) discharges of 47 Canadian pulp and paper mills. The authors found inspections and their associated threat reduced mills' absolute BOD discharges by approximately 28 percent. Similarly, Dasgupta et al. [2001] demonstrated that inspections on manufacturing facilities in Zenjiang, China reduced common water pollutants by between 0.4 and 1.2 percent and reduced air particulates by approximately 0.3 percent. Outside of the environmental arena, Gray and Mendeloff [2005] found that OSHA inspections reduced workplace injuries by approximately 19% in 1979-1985, 11% in 1987-1991, and 1% in 1992-1998. Further, they showed that inspections with penalties had a significantly stronger effect than inspections without penalties." Id. at 12-13.

   * "Gray and Mendeloff [2005] found that OSHA inspections reduced workplace injuries by approximately 19% in 1979-1985, 11% in 1987-1991, and 1% in 1992-1998. Further, they showed that inspections with penalties had a significantly stronger effect than inspections without penalties."  Id. at 13.

Inspections and enforcement actions consistently produce significant compliance/performance spillover effects on similarly situated non-evaluated or sanctioned facilities (general deterrence):

   * The emphasis in this section is, again, on the impact of inspections on compliance and environmental performance, though information on the impact of enforcement actions and penalties is included for some studies addressing both.  See the Deterrence White Paper and the resources posted on EPA's Compliance Research Literature web page at http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html if additional information is desired on the relationship of enforcement actions, penalties, and compliance/performance. 

   * "Collectively, the results of the general deterrence literature indicate that both qualitative and quantitative methods exist to measure general deterrence. Further, joint results show that environmental facilities learn from the experiences of their neighbors, and this learning impacts compliance behavior. Inspections and enforcement actions consistently produce significant spillover effects on non-sanctioned facilities. Consequently, a substantial improvement in environmental quality might be achieved from a relatively small additional investment in traditional monitoring and enforcement."  Deterrence White Paper at 14 (emphasis in original).
   * "Environmental monitoring and enforcement activities generate substantial general deterrence.  [paragraph break omitted] Every reviewed study that examined the spillover effects of environmental monitoring and enforcement on other facilities uncovered support for the existence of general deterrence. This includes Thorton et al. [2005], Gunningham et al. [2005], Shimshack and Ward [2005], Oregon DEQ [2004], Gray and Shadbegian [2007], and Shimshack and Ward [2007]. In many cases, general deterrence effects are practically important."  Id. at 24.

   * "Shimshack and Ward [2005] used data on BOD and TSS discharges from 217 pulp and paper mills to explore the regulator reputation-building effect of general deterrence. In particular, the authors statistically analyzed the response of plants' BOD and TSS discharges to lagged enforcement and monitoring activity at both the sanctioned plant and other plants in the same regulatory jurisdiction. Shimshack and Ward [2005] found that an additional fine induced about a two-thirds reduction in the statewide water pollution violation rate in the year following that fine. Nearly all of this large result was attributable to spillover effects, as the average deterrence impact on each of the other plants in a state was almost as strong as the impact on the sanctioned facility." Id. at 15-16. 

   * "State of Oregon Department of Environmental Quality [2004] conducted an extensive survey of 450 regulated companies in Oregon for one month in 2002. The sample was selected primarily from high priority industries, and thus results are not representative for less visible industrial sectors. Key metrics included the response of managers' self-reported environmental behavior to hearing about inspections and sanctions at other facilities. Respondents frequently reported significant general deterrence effects. For example, 38 percent of surveyed companies made changes in response to hearing about inspections at another facility and 14 percent reportedly made changes in response to hearing about sanctions at other facilities. Such changes included improved water treatment, investment in new equipment, environmental personnel additions, and employee training. Oregon DEQ estimated that inspections and penalties directly generated an average of 1.6 environmental changes per company. 2.6 additional environmental actions per company occurred when other facilities later heard about the enforcement response.  [paragraph break omitted]  In Oregon DEQ [2004], inspections seemed to have stronger specific and general deterrence effects than penalty actions, largely because inspections appeared to be better publicized."  Id. at 16.

   * "In a study of particulate, sulfur dioxide, and toxics emissions from 521 US manufacturing plants located within 50 miles of three major cities, Gray and Shadbegian [2007] analyzed the response of toxic and conventional air pollution violations and emissions to EPA/state inspections and enforcement actions. The authors found evidence for both specific and general deterrence. Inspections increased compliance with regulations for both the inspected facility and for nearby plants. The specific and general deterrence effects of inspections were found to be approximately the same magnitude.  Id.

Higher penalties can produce greater deterrence:
   * Consider ... the relationship between penalty amounts and deterrence.  While there is a dearth of data in this regard,[f.n. omitted] the established wisdom is that the effectiveness of a legal threat depends on three related factors, (1) the certainty that a lawbreaker will be caught (certainty), (2) the nature and severity of the punishment (severity), and (3) the speed of apprehension and punishment (celerity), and that increases in each dimension correlate with increased deterrence and compliance. [f.n. omitted]"  Silberman, J D..; Does Environmental Deterrence Work? Evidence and Experience Say Yes, But We Need to Understand How and Why; 30 Env. Law Inst. 10523-36 (July 2000). Abridged version reprinted in Making Law Work (INECE 2005).   http://www.inece.org/mlw/Chapter4_DomesticEnforcementStrategies.pdf  

   * "Shimshack and Ward [2005] used data on BOD and TSS discharges from 217 pulp and paper mills to explore the regulator reputation-building effect of general deterrence. In particular, the authors statistically analyzed the response of plants' BOD and TSS discharges to lagged enforcement and monitoring activity at both the sanctioned plant and other plants in the same regulatory jurisdiction. Shimshack and Ward [2005] found that an additional fine induced about a two-thirds reduction in the statewide water pollution 
violation rate in the year following that fine. Nearly all of this large result was attributable to spillover effects, as the average deterrence impact on each of the other plants in a state was almost as strong as the impact on the sanctioned facility. The authors also showed that general deterrence was increasing in the amount of the penalty. In other words, larger fines induced fewer subsequent violations by other plants in the state. Other results included the finding that non-monetary enforcement responses like notices of violation alone had little influence on plant-level compliance."  Deterrence White Paper at 15-16 (emphasis added).

   * "Stafford [2002] studied the response of 8411 hazardous waste-generating facilities to a rule change that significantly increased financial penalties for violation. The 10 to 20 fold increase in potential fine magnitudes generated an approximately 15 percent reduction in regulated plants' violation probabilities." Deterrence White Paper at 13.  S. Stafford, The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations, J. Environ. Econ. Manage. 44, 290-308 (2002).  Id. at 13 (emphasis added).