A Voluntary Approach to Environmental Regulation: The 33/50 Program

Pollution reduction programs that encourage voluntary participation by companies are gaining currency as a viable approach to environmental improvement. But can voluntary programs be effective in reducing pollution? What kind of company would decide to participate? And what kinds of pollution reductions would be made?

To answer these questions, we conducted a study of the 33/50 Program, a voluntary pollution prevention initiative designed by the U.S. Environmental Protection Agency (EPA) to reduce toxic releases. This program stresses cooperation between regulators and industry and provides positive feedback and awards to participating firms. We evaluated factors that lead to participation in this program by industries and by individual firms. We also compared the 33/50 Program with other voluntary pollution control programs. Before we summarize our findings, however, we present some background on voluntary compliance and the 33/50 Program itself.

The movement toward voluntary compliance

In 1984, a poisonous gas leak from a Union Carbide pesticide plant in Bhopal, India, killed more than 2,500 people and permanently disabled some 50,000 more. Since then, the potential for accidental chemical releases has worried residents of communities near industrial plants, who have wanted to know what chemicals these plants are emitting in order to prepare for such releases. U.S. residents began advocating local community right-to-know laws, augmenting a movement for worker right-to-know laws that begun in the late 1970s.

The chemical disaster in Bhopal also catalyzed the movement for a federal community right-to-know law. In 1986, Congress passed the Emergency Planning and Community Right-to-Know Act, which embodies the principle of public disclosure. The act requires all manufacturing facilities to report annually on releases and transfers of more than 320 toxic chemicals. This reporting has resulted in the creation of a national database called the Toxics Release Invent (TRI).

One of the results of mandated public disclosure has been public pressure for accountability. Such pressure may be exerted by consumer groups, citizen action groups, or the media. Even the mere anticipation of public pressure can lead companies to alter their behavior, as it did in the case of Monsanto.

When the TRI was first publicly reported in 1987, Monsanto discovered that it was one of the largest polluters. This discovery led the company to pledge to reduce its toxic air releases by 90 percent by the end of 1992. Several features of this pledge are striking. First, the pledge was voluntary, as the company was not violating any environmental standards. Second, it came from the highest echelon of the corporation—in fact, from Richard Mahoney, Monsanto's chief executive officer. Third, it set a trend for other polluting firms to follow.

While public disclosure prompted Monsanto to act before consumers, citizen action groups, and the media had time to react to the TRI information, other companies needed more urging. Soon after the first TRI was reported, the New York Times published a full-page advertisement, which was sponsored by citizen action groups, highlighting the top ten corporate land polluters, water polluters, and air polluters. Firms that figured prominently in the ad immediately approached EPA and pledged to improve their environmental performance.

By the late 1980s, many companies that had not been at the forefront of environmental stewardship began to adopt a much more proactive environmental stance. Among the results of the companies' inclination toward voluntary action was the 33/50 Program.

The 33/50 Program

The 33/50 Program gets its name from its two-step reduction goals: a 33 percent reduction of chemical releases and transfers from 1988 levels by 1992 and a 50 percent reduction by 1995. The program encourages firms to develop less-toxic substitutes for highly toxic chemicals, reformulate products, and redesign production processes in order to reduce pollution at its source. It focuses on seventeen of the 320 TRI chemicals that are highly toxic, are produced by industry in large volumes, and present pollution prevention opportunities. The 33/50 Program stresses flexibility, allowing participants to reduce releases of any of these chemicals into any environmental media (air, land, or water). Since about 70 percent of these releases are into the air, however, the 33/50 Program is primarily an air toxics reduction program.

Participation in the program is voluntary and does not change a firm's responsibilities for complying with environmental laws. Indeed, EPA claims that it will not give preferential treatment—such as relaxed regulatory oversight or enforcement of EPA regulations—to program participants. Because participation is voluntary, commitments to achieve pollution reductions are not legally enforceable—in fact, firms are free to renege. Nevertheless, many companies that have decided to participate in the 33/50 Program have submitted detailed timetables and pollution reduction targets.

Incentives for participation in the 33/50 Program include public recognition by EPA, special awards for outstanding achievements in pollution prevention, and, significantly, the opportunity to take least-cost actions to mitigate pollution. Unlike mandatory programs, this voluntary program allows firms the flexibility to make the emissions reductions that are most cost-effective for them. Moreover, EPA provides assistance to the companies making these reductions by conducting regional pollution prevention workshops and by providing access to the agency's Pollution Prevention Information Exchange System.

Voluntary pollution reduction programs such as the 33/50 Program appeal to regulators because the programs require EPA to engage in no costly rule-makings. Furthermore, they save regulators the substantial costs of monitoring and enforcing compliance.

EPA initiated the 33/50 Program in February 1991, when it invited 555 companies with substantial chemical releases to participate. It later extended this invitation to all other firms that release chemicals targeted by the 33/50 Program. As of March 1994, the agency had invited more than 8,000 companies to participate in the program. To date, nearly 1,200 of these firms have done so.

The 33/50 Program has been hailed as a success. It exceeded its 1992 interim goal (a 33 percent reduction in emissions) by more than 100 million pounds—a reduction of more than 40 percent from 1988 emissions levels. According to the projections of participating firms, the 1995 target is also likely to be achieved.

Participation by industry and EPA region

Since participation is critical to the success of voluntary pollution reduction programs, we examined the factors that may have led 1,100 of the more than 7,000 firms in our study sample to take part in the 33/50 Program. Our analysis revealed substantial variation in the willingness to participate among different industries and EPA regions. Among industries, this variation may be explained by levels of advertising as well as research and development (R&D) expenditures; the strength and environmental commitment of trade and manufacturer associations; and each industry's market structure. Among EPA regions, the variation may be due to differences in the regions' environmental regulations. We look at each of these factors in turn.

The amount of money an industry spends on advertising and on R&D helps to explain which industries participate in the 33/50 Program. Industries with high advertising expenditures tend to have high levels of contact with consumers. If consumers are environmentally conscious, we would expect that participation in the 33/50 Program would be higher among industries that produce final products, and hence have a lot of consumer contact, than among industries that produce inputs to final products. When we tested this hypothesis using advertising expenditures as a proxy for consumer contact, we found that the greater an industry's advertising expenditures, the greater the likelihood that it participates in the 33/50 Program. Industries with high R&D expenditures are also likely to participate in the program, perhaps because a commitment to developing new products is consistent with the program's goals.

The comparative strength and environmental commitment of trade and manufacturer associations is another factor in industry participation: industries with associations that exert a strong measure of influence on members' actions and that stress environmental stewardship are likely participants. The high participation rate within the chemical industry may be owing in part to the fact that all members of the Chemical Manufacturers Association must join Responsible Care, an initiative with goals similar to those of the 33/50 Program.

The market structure of each industry may also help explain which industries participate in the program. Recent trends in "green" marketing and in consumer awareness of environmental issues, as well as theoretical work on firms' environmental performance, provide a basis for the expectation that firms compete on environmental variables, particularly when they are part of an industry in which competition is great and individual market shares are small. We confirmed this intuition in a study of a small sample of firms for which we were able to combine financial (or economic) information with toxic release data. The study indicates that unconcentrated industries, in which firms have many competitors (and hence small market shares), are more likely to participate in the 33/50 Program than concentrated industries.

Within EPA's ten regions, the variation in willingness to participate may be a result of differences among the regions' environmental regulations. In some regions, EPA may mandate pollution prevention laws or toxics reduction laws that complement 33/50 Program goals. In regions where this is the case, willingness to participate may be relatively high. Moreover, regional variation may reflect the varying stringency of environmental regulations in individual regions. It may also be a measure of the effectiveness of EPA's regional coordinators in recruiting firms to join the 33/50 Program.

Participation by individual firms

Our research revealed many determinants of the willingness of individual firms to participate in the 33/50 Program. Overall, we found that only a small percentage of the invited firms in any one industry chose to participate (see figure, p. 9). However, the firms that did participate were responsible for a large percentage of their industry's toxic emissions (see figure, p. 10). Specific determinants, such as the volume and number of 33/50 chemicals and other TRI chemicals that a firm emits, a firm's size and financial health, and the intensity with which EPA tries to recruit it, are considered next.

Firms that use high volumes of the seventeen chemicals targeted by the 33/50 Program (as well as of other TRI chemicals) obviously have the potential for making the largest aggregate reduction in releases of these chemicals and are more likely to participate in the 33/50 Program. By voluntarily reducing these releases, these firms may benefit from consumer goodwill.

In certain circumstances, however, the larger a firm's release intensity (as measured by the volume of chemicals emitted per volume of sales), the more unlikely it is to participate in the 33/50 Program. Firms with high release intensities will incur high costs per volume of sales if they switch to alternative chemicals and production processes.

The number of chemicals a firm releases is also a significant determinant of its willingness to participate in the 33/50 Program. Firms that emit a large number of chemicals are more likely to participate, perhaps because these firms possess greater opportunity and flexibility to develop less toxic chemicals.

Holding other factors constant, large firms, as measured by number of employees, are also likely to join the program. These firms may enjoy greater benefits from participation than small firms because they typically serve a larger market demand and because improved environmental performance may generate employee goodwill. Compared with small firms, large firms may also feel more pressure to participate in the 33/50 Program. Large firms have more shareholders, and shareholder pressure for environmental consciousness could spur program participation.

While large size increases the likelihood that a firm will join the 33/50 Program, the fact that a firm has a large number of facilities does not. This finding is contrary to our expectation, since firms could theoretically benefit from public recognition, even if just one of their facilities participated in the program.

Financial health and profitability is another determinant of participation. Increased earnings provide opportunities for firms to invest in pollution prevention. While profitability increases the likelihood of participation, our analysis showed that its effect on the firms in our study sample was not significant.

A significant determinant of a firm's willingness to join the 33/50 Program is the intensity of EPA contact. EPA consulted extensively with the 555 companies it initially invited to join the program. At one point, participation among these companies was as high as 60 percent. By contrast, the participation rate among the approximately 6,000 companies EPA later invited to join the program has been less than 15 percent. With these companies the agency had comparatively little contact.

Distinguishing between TRI and 33/50 Program emissions reductions

Once we knew something about the industries and firms that participated in the 33/50 Program, we wanted to know whether emissions reductions made by program participants were attributable to the 33/50 Program or to the disclosure requirements of the Toxics Release Inventory.

Our research indicates that program participants are not free-riding on the reductions that they made in response to TRI disclosure requirements, which went into effect in 1988. Instead, the 33/50 Program has induced firms to modify their toxic emissions, as is clear from the changing pattern of toxic releases since the program began.

Our analysis suggests that, between 1988 and 1990, releases and transfers of the seventeen chemicals targeted by the 33/50 Program fell by 16 percent, while releases and transfers of other TRI chemicals fell by 24 percent. This pattern changed dramatically after the 33/50 Program was initiated. Between 1990 and 1991, releases and transfers of 33/50 Program chemicals fell by 21 percent, While releases and transfers of nonprogram chemicals fell by only 8 percent. The 1992 data reveal that reduction rates for the program chemicals are four times those reported for other TRI chemicals. A breakdown of these data by program participants and nonparticipants reveals that both groups have increased their reductions of chemicals targeted by the 33/50 Program. This suggests spillover effects from the program. The availability of more environmentally friendly products and chemical substitutes has made it easier for even nonparticipants to achieve emissions reductions.

But could reductions in chemicals targeted by the 33/50 Program be "crowding out" potential reductions or even increasing emissions of other chemicals? The answer is probably "no." We found that releases and transfers of nonprogram chemicals by program participants have fallen more than 12 percent. This finding suggests that the 33/50 Program has been successful in setting priorities with respect to the chemicals targeted by firms in their pollution control efforts. In addition to encouraging reductions in emissions of some of the most toxic chemicals, the program may also bring about reductions in emissions of other toxic chemicals.

Our evaluation of the 33/50 Program raised three additional questions: Does a firm's participation in another voluntary pollution reduction program affect its likelihood of participating in the 33/50 Program? Does a firm's participation in the program affect its compliance with environmental regulations? Do firms that participate in the program get preferential treatment in terms of relaxed regulatory oversight and enforcement of EPA regulations?

To answer the first question, we examined the relationship of the 33/50 Program with EPA's Green Lights Program. Participants in the Green Lights Program sign a memorandum of understanding with EPA in which they agree to install energy-efficient lighting to reduce emissions of greenhouse gases. As with the 33/50 Program, the major incentive for participating in the Green Lights Program is positive public recognition. Of the more than 1,000 participants in this program, ninety are corporations that release chemicals targeted by the 33/50 Program. Our analysis reveals that participation in the Green Lights Program significantly increases the likelihood that a firm will participate in the 33/50 Program. This observation suggests that "environmentally conscious" firms seek to improve their reputation by participating in several voluntary pollution reduction programs at the same time.

Our second question was prompted by fears that firms can use participation in the 33/50 Program to circumvent some environmental regulations under the Clean Air Act. Skeptics of the program argue that this participation may be a way to obtain an extension for complying with certain of the act's requirements. While such an extension may be obtained through participation in the 33/50 Program, it is more appropriately obtained by participation in the Early Reductions Program. Any reductions in hazardous air pollutants documented under the Early Reductions Program may be credited under the 33/50 Program and vice versa. Unlike the 33/50 Program, however, the Early Reductions Program is more stringent and is, in fact, enforceable.

Our research reveals that the companies with the largest amounts of toxic releases are most likely to take part in the 33/50 Program. This suggests that this voluntary program may achieve substantial pollution reductions because it targets firms with the greatest pollution reduction potential.

Our research also indicates that a voluntary approach to pollution reduction could augment existing command-and-control regulation, under which mandated pollution reductions and prescribed technologies for achieving those reductions give firms little flexibility to control pollution in a cost-effective way. The potential for voluntary programs to augment such regulation is increased when their progress can be tracked through publicly available information that introduces accountability for pollution control and rewards pollution reduction efforts beyond those required by law.

Indeed, public awareness of the pollution reductions achieved through innovative voluntary programs can increase the programs' effectiveness. Regulators can use this awareness to increase participation in such programs, thereby spurring competition in environmental quality. Of course, public disclosure is not a costless exercise for firms, which under the requirements of the Superfund Amendments and Reauthorization Act must report their releases and transfers of chemicals. Estimates of doing so have ranged from EPA's conservative estimate of $4,000 per TRI chemical to the Chemical Manufacturers Association's estimate of $7,000.

The benefits, in terms of consumer goodwill, might outweigh the costs of such disclosure when a firm can document substantial pollution reductions through participation in voluntary pollution control programs. To help ensure these benefits, EPA should provide substantial public recognition and awards to firms achieving such reductions. Greater public awareness of firms' participation in voluntary pollution control programs is key to achieving the program's goals.