New Bottom Line Volume 2.1 – Environmental Regulatory "Reform"

February 10, 1993

The call for “regulatory reform” is high on many legislative agendas. Environmental regulations are a particular target, highlighted by assertions that they are a major cause of business weakness.

Regulatory streamlining to make compliance less burdensome and approval processes more predictable would be welcome. But weakening environmental quality standards caters to whiners, not winners, and protects inefficiency instead of 21st century economic leadership. It’s a bad idea, both for individual enterprises and for the economy. Here’s why.

1. There is no evidence to support the old saw that environmental regulations are bad for business.

In fact the opposite may be true. MIT Professor Stephen Meyer compared environmental regulation and economic well-being in all 50 states, and found no correlation to support the notion that environmental regulation weakens economic development. In fact, Meyer concludes, “states with stronger environmental policies consistently outperformed the weaker environmental states on all economic measures.”

2. Well-designed environmental regulations can promote business innovation.

The traditional “command and control” approach to environmental regulation is prescriptive, specifying the actions to be taken and even the technologies to be used to meet environmental goals. Command and control may ease the monitoring burden, but a bureaucracy’s regulations aren’t likely to keep up with the rapidly evolving world of environmental engineering, and can actually hinder pollution prevention innovations.

As a result, many jurisdictions are moving toward performance based regulations, specifying the result to be achieved — such as emissions not to exceed a certain level — and letting each firm to determine how to meet those standards. This approach poses monitoring challenges, especially with smaller companies, but can fuel considerable creativity, with examples like Hexfet America, a Temcula semiconductor manufacturer that has “designed out” many potential hazardous materials from their processes and now recycles 90% of their water.

There are attempts at even leaner and more elegant approaches. A Swedish province developed regulations more than 25 years ago simply requiring that a company’s wastewater discharge into a river be 100 meters upstream from its water intake. Think about it.

3. Tough environmental standards are becoming a major driver of international competitiveness.

A strong environmental quality policy can enhance competitiveness in international and domestic markets, where consumer and regulatory standards will continue to rise.

If environmental regulations hinder competitiveness, why is Germany doing so well, and toughening environmental standards? Why is MITI directing Japanese companies to “exceed environmental standards by as much as possible” worldwide? Perhaps because they understand, in Michael Porter’s words, that “the toughest markets create the best industries.”

Germany’s packaging regulations, requiring companies to take back — and reuse or recycle — virtually all packaging, has fueled significant growth in the recycling industry, and has driven imaginative innovation in packaging design. Siemens, for example, is developing modular, reusable computer packaging that uses half the materials of standard packging, and no styrofoam at all.

Germany is now developing product take-back regulations, which will require companies to take back products — probably starting with household appliances — at the end of their useful life. These creative pressures are already resulting in “design for environment” initiatives at German automobile companies, with such benefits as increased product life and ease of repair, as well as intended environmental benefit.

4. We can choose a regulatory policy that responds to whiners… or to winners.

A “world class” economic strategy must have a solid environmental foundation.

The whiners who say “weaken the regulations, we can¹t afford to stop polluting” are reminicent of US auto industry. The seeds of GM’s present difficulties go back to the arrogant 1970¹s, when Detroit spent its money on lawyers, and whined that it was “impossible” to meet the Clean Air Act’s 1981 standards. Honda had been spending its money on engineers, and met the 1981 standards in 1973.

Times have changed, even in Detroit. The 1993 Ford Taurus had double the fuel economy of 1975 midsized car; 86% of the efficiency gain came from design and technology (only 2% from downsizing).

The winners now understand the simple truth: pollution is waste. In the words of Bruce Cranford of the Department of Energy, “companies that pollute are actually manufacturing ‘products’ that they’re getting no revenue for.” That makes about as much sense as Levi’s leaving a trail of blue jeans down the freeway.

Regulations that allow companies to “leave their blue jeans on the freeway” aren’t good for the environment, and aren’t good for business either.

(c) 1993 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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