In both industrial and developing countries environmentalism is a big factor in consumer decisions. Investors also scrutinize environmental performance, weighing the potential for financial losses from regulatory penalties and liability settlements. For similar reasons, international and local suppliers of financing, industrial equipment, and engineering services, too, pay close attention to firms' environmental performance. Public certification of good or bad performance can translate into large expected gains or losses. Once the community and the market are introduced, variations in factory pollution are more easily explained.
Clean factories are possible in poor countries, and polluting plants in rich countries.
In this world of multiple agents and multiple incentives, it is necessary to rethink the regulator's role, which no longer needs to be confined to producing, monitoring, and enforcing rules and standards. Instead, regulators can use nontraditional programs that harness the power of communities and markets. Let's look at experience in China and Indonesia. Roughly 300,000 factories are monitored and potentially subject to the levy. Case studies have suggested that the system is poorly administered and that enforcement is largely arbitrary and ineffective.