EFFECTIVENESS OF STATE POLLUTION PREVENTION PROGRAMS AND POLICIES

I. INTRODUCTION Environmental policies in the United States have evolved from command and control to market-based incentives, and more recently to voluntary programs and information disclosure mechanisms. The evolution largely stems from the growing recognition that firms respond to environmental policies not only to improve compliance, but also to lower production costs, improve product quality, and enhance market competitiveness. Thus, prescriptive technology and emission standards are being replaced with a mix of policies that promote techniques such as pollution prevention (P2) technologies which allow firms to go beyond compliance and address strategic objectives. In the United States, the National Pollution Prevention Act of 1990 mandates that "pollution be prevented or reduced at source whenever feasible." Beginning in 1991, the U.S. Environmental Protection Agency (EPA) began collecting annual data on 43 types of P2 activities undertaken by facilities and in doing so, it expanded the purpose of the Toxic Releases Inventory (TRI) under the Emergency Planning and Community Right-to-Know Act (EPCRA) by providing the public detailed information about toxic chemical releases as well as waste management activities to promote informed decision-making by industries, government, and the public. In 1992, the National Advisory Council for Environmental Policy and Technology recommended to the U.S. EPA that P2 programs should emphasize diffusion of P2 technologies through preferential increase in the use of nonregulatory drivers, creation of incentives, and provision of rewards, training, and information (U.S. EPA 1992). In addition, 36 states have also legislated P2 programs, each mandating a mix of regulatory-, information-, and management-based policies. How effective these policy instruments are in promoting P2 and reducing toxic releases is the central issue addressed in this study. The need for multiple policy instruments to address environmental goals arises because profit-maximizing firms tend to adopt fewer than optimal levels of environmental technologies and emit more than optimal pollution levels. In this study, I focus on three of the reasons for the suboptimal choices, which are the targets of the policy instruments I examine. First is externalities: firms do not internalize the damages of their pollution to the rest of society (Jaffe and Stavins 2005). Second is incomplete information: the reputational benefits from environmental technology adoption and pollution reduction cannot be fully realized because stakeholders that could influence firms' choices are not fully aware of the environmental performance and activities of firms (Tietenberg 1998). Lastly, the costs of environmental technology adoption and abatement may be too high (King and Lennox 2002; Lennox and King 2004). Thus, a mix of policy instruments that compel firms to reduce their pollution levels and externalities, provide environmental-related information to the public, and lower costs of technology adoption and abatement are necessary to promote environmental technology adoption and encourage lower pollution. Empirical comparison of the relative effectiveness of various policy instruments is limited. Foulon, Lanoie, and Laplante (2002) compare the impact of regulation and public disclosure of information on abatement activity while Frondel, Horbach, and Rennings (2007) compare how standards, taxes, accounting, audits, and reports promote adoption of end-of-pipe versus cleaner production technologies. Arimura, Hibiki, and Johnstone (2007) compare how environmental taxes, accounting, and standards promote environmental R&D. In another study, Arimura, Hibiki, and Katayama (2008) compare the effectiveness of management-oriented ISO 14001 and publication of environmental reports on reducing natural resource use, solid waste, and wastewater effluent levels. None of these studies have analyzed the adoption of P2 activities or level of toxic emissions by U. …