Economic instruments operate alongside command-and-control to align environmental goals

Policy instruments are like the two-headed Roman God, Janus. They fall into two general categories: market-based economic instruments and command and control. In simple words, they play at two levels: Carrots: new markets; Sticks: regulatory burden.  However, economic instruments and command-and-control approaches often operate alongside each other.
 
Policy instruments can be used to influence business drivers to align environmental goals. In this respect, Clean Air Act that came about in the US in 1970 was a turning year. Since then, a number of regulations have been implemented in an exploding manner. In regulatory terms, the European Authorities have emerged as important drivers of change with various Directives addressing VOC and solvents reductions. Another legislation is CAFE, launched in 2001, reducing further VOC.
 
REACH (Registration, Evaluation, Authorisation of Chemicals), the new European legislation to control chemicals, was adopted in 2007 and is being implemented. It will affect both the availability and the price of final products, with direct impact on the chemical industry and the downstream industries and their customers. Further legislation is expected in the future, putting more pressure and constraints on the chemical industry.
 
Economic instruments encompass a range of policy tools from pollution taxes and marketable permits to deposit-refund systems and performance bonds. The common element of all economic instruments is that they operate on a decentralised level through their impact on market signals. Under most scenarios, they shift the costs and responsibilities associated with pollution back on to the polluter more efficiently than do command and control, which rely on mandated technologies and-or pollution reduction targets applied universally across polluters.
 
Markets inherently use less of more expensive inputs, and invest more in activities that promise higher returns. Economic instruments drive up the price of environmentally damaging inputs, as well as increase the returns to more sustainable approaches. When implemented carefully, economic instruments tend to reduce the societal cost to achieve any given level of environmental quality. They can accomplish a number of important changes in market dynamics.
 
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In market terms, consumers may increase their demand for green chemistry products, or avoid products that are seen as risky or exposing them to health problems. In some situations, consumers and businesses may willingly pay a price premium for ‘green’ products, or may avoid products and manufacturers seen as unethical or environmentally damaging. In other cases, customers may be price sensitive and may prefer green products only when key factors (cost, performance and accessibility) are equal with those of other products.
 
Sustainability marketing activities are not novel developments. The evidence that this type of marketing can succeed is mixed. Particular marketing outcomes depend on the industry sector, specific product category, supply chain characteristics and participants being targeted. Much of the literature focuses on marketing to consumers. It centres on branded products and producers that are highly visible to consumers.
 
Most chemical manufacturers, however, are invisible to consumers. Most chemicals are used as ingredients in products or in processes and are hidden from public sight. They are often not branded or associated with companies, or are branded only for certain industry users. Consumers may only look at the overall product, not at what it contains. Therefore, the end consumers may not be the major actors demanding greener chemicals.
 
Institutional buyers, downstream manufacturers and retailers may preferentially buy green chemicals, or use them in making their products, but to do so they need to know which products can be reckoned as ‘sustainable’. The information may not exist or be in an accessible format. Searching for sustainability data can be a time-consuming process, particularly if the data are spread across many sources and scientific disciplines ranging from toxicology to public health. Moreover, customers may have no experience with how products perform on environmental grounds or what the outcomes are. They may not even have thought about inherent toxicity or resource use.
 
Command-and-control approaches remain the most dominant throughout the world despite the benefits of economic instruments. There are a number of reasons for that, including a lack of understanding of how economic instruments work to protect the environment and how to choose the appropriate instrument. They also include political interests that seek to minimise control costs via regulations, and a preference for some to keep the status quo. Opportunities for much greater environmental and economic gains are therefore lost.
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The author is an Independent Consultant based in Chapel Hill, NC, USA, and was recently Vice President - Technology at Asian Paints Ltd, Mumbai, India. He is a member of the American Chemical Society and Product Development Management Association. Email: mosongo@mosongomoukwa.com