Stringent policy control and effective negotiated environmental agreements: counterproductive...

Stringent policy control and effective negotiated

environmental agreements: counterproductive forces?

R. Bracke and M. De ClercqR. Bracke and M. De Clercq

Content

IntroductionIntroduction The modelThe model Policy implicationsPolicy implications ConclusionsConclusions

R. Bracke and M. De Clercq

GIN 2006, 2-5 July, BRASS, Cardiff

Introduction



HARD LAW

• regulations

• market based instruments

• Unilateral commitments

• voluntary schemes

• Negotiated agreements

SOFT LAW

Trends in instrument use



Voluntary approaches

Unilateralcommitments

Voluntary schemes

Negotiated agreements

EMS

C&C MBI

Labels

Environmental policy instruments



Policy process

regulator

companies companies

regulator

TOP DOWN

Based on coercion

CO-OPERATION

Based on partnership



NEA enthusiasm

““Environmental agreements have an Environmental agreements have an important important role to playrole to play within the mix of policy instruments within the mix of policy instruments sought by the Commission” (EC, 1996)sought by the Commission” (EC, 1996)

““The increase in the use of voluntary approaches The increase in the use of voluntary approaches since the beginning of the 1990s is mainly due to since the beginning of the 1990s is mainly due to the the favourable attitude of both industry and favourable attitude of both industry and public authoritiespublic authorities towards these instruments” towards these instruments” (OECD, 1999)(OECD, 1999)



NEA evaluations

““environmental effectiveness of negotiated environmental effectiveness of negotiated agreements appears agreements appears rather modestrather modest” (OECD, 1999)” (OECD, 1999)

““negotated agreements seem to negotated agreements seem to perform poorlyperform poorly due due to non-enforceable commitments, poor monitoring to non-enforceable commitments, poor monitoring and lack of transparency” (OECD, 1999)and lack of transparency” (OECD, 1999)

““It is very difficult to draw general conclusions about It is very difficult to draw general conclusions about the environmental effectiveness of EAs” (EEA 1997)the environmental effectiveness of EAs” (EEA 1997)



Policy recommendations

Background legislative threat (policy mix)Background legislative threat (policy mix) Strengtening the desing of NEAStrengtening the desing of NEA

Quantified targetsQuantified targets monitoringmonitoring Control and enforcementControl and enforcement Sanctions for non-complianceSanctions for non-compliance



Legislative Threat

The legislative threat option has been ginven much The legislative threat option has been ginven much attention in the literature but attention in the literature but Executive (environmental agency) versus Executive (environmental agency) versus

legislative powerlegislative power Agreements are especially interesting policy Agreements are especially interesting policy

instruments where instruments where other instruments are not other instruments are not feasiblefeasible (e.g. economic or political motivations) (e.g. economic or political motivations)

Integrating a legislative instrument may tackle Integrating a legislative instrument may tackle the advantage of the advantage of fast and flexible policyfast and flexible policy making making by negotiated agreementsby negotiated agreements



Control and enforcement policy

Gentleman’s agreementsGentleman’s agreements

non-binding agreements that non-binding agreements that do not provide for sanctions do not provide for sanctions in case of non-compliance in case of non-compliance

(ELNI, 1998). (ELNI, 1998).

vague non-quantified targets vague non-quantified targets and no credible and efficient and no credible and efficient

monitoring and reporting monitoring and reporting requirementsrequirements (OECD, 1999) (OECD, 1999)

Binding agreements

Second generation agreements with

quantified targets, strong provisions concerning monitoring, control,

enforcement…. Concluded in a policy

framework



Examples guidelinesguidelines

EC, 1996 ‘Communication…’EC, 1996 ‘Communication…’ OECD, 1999OECD, 1999

Legal frameworkLegal framework Flanders (1994)Flanders (1994) Denmark (1992)Denmark (1992)

Administrative guidelinesAdministrative guidelines The Netherlands (1996, updated 2003)The Netherlands (1996, updated 2003) Portugal (1995)Portugal (1995)



Policy outcome

Denmark: only 1 agreementDenmark: only 1 agreement

Flanders: (only) 7 agreements in 10 years Flanders: (only) 7 agreements in 10 years time (long and difficult negotiation phase; 2 time (long and difficult negotiation phase; 2 outside the framework)outside the framework)

Netherlands and Portugal considered more Netherlands and Portugal considered more successfulsuccessful



Aim of the paper

Develop a simple model to analyse the Develop a simple model to analyse the impact of a more “stringent control and impact of a more “stringent control and enforcement policy” on the enforcement policy” on the acceptanceacceptance and and compliancecompliance decision decision

First time the compliance decision is First time the compliance decision is taken into accounttaken into account



The model



The setting: pollution abatement

0 ≤ L ≤ M: Pareto-optimal pollution 0 ≤ L ≤ M: Pareto-optimal pollution reduction level (level in case of legislative reduction level (level in case of legislative intervention)intervention)

0 ≤ α ≤ M: pollution reduction level of an 0 ≤ α ≤ M: pollution reduction level of an environmental agreementenvironmental agreement

Linear abatement costs C(α) = xαLinear abatement costs C(α) = xα

M0

L

α



Decision tree

acceptanceNon-acceptance

Non-compliance compliance

pC(L)

cF C(α)Abatement cost for αPossibility of being fined

Possibility of abatement cost for L



Uncertainty When the When the acceptance decisionacceptance decision has to be made, there is has to be made, there is

uncertaintyuncertainty about the compliance decision (e.g. new about the compliance decision (e.g. new abatement technology, price of emission credits, profit abatement technology, price of emission credits, profit levels, strictness of control…)levels, strictness of control…)

Here we assume there is no uncertainty about the Here we assume there is no uncertainty about the abatement cost, but only uncertainty about the abatement cost, but only uncertainty about the futurefuture ability/willingness to pay the abatement cost ability/willingness to pay the abatement cost (future (future profit levels are uncertain and exogenous)profit levels are uncertain and exogenous)

Thus acceptance decision taken with imperfect Thus acceptance decision taken with imperfect information; compliance decision taken with perfect information; compliance decision taken with perfect informationinformation



Acceptance decision

Acceptance if the expected cost of non-acceptance is Acceptance if the expected cost of non-acceptance is higher than or equals the expected acceptance cost or ifhigher than or equals the expected acceptance cost or if

WithWith α/M being the chance of non-complianceα/M being the chance of non-compliance 1-(α/M) being the chance of compliance1-(α/M) being the chance of compliance

(the higher the target α, the higher the chance of non-(the higher the target α, the higher the chance of non-compliance and vice versa)compliance and vice versa)

cFM

CM

LpC

)()1()(



Expected acceptance cost

cFM

CM

C

)()1(

αMM/2

Mx/4

cF



Expected acceptance cost curve

cF

M αx

cFM

22

Cα



Expected acceptance cost curve The expected acceptance cost curve always has a The expected acceptance cost curve always has a

downward sloping partdownward sloping part if if

This implies that the cost for non-compliance This implies that the cost for non-compliance should be below the abatement cost for achieving should be below the abatement cost for achieving a zero pollution level (acceptable condition)a zero pollution level (acceptable condition)

Downward sloping part is explained by the fact Downward sloping part is explained by the fact that the that the decline in expected abatement costdecline in expected abatement cost is not is not completely compensated by the completely compensated by the increase in the increase in the expected non-compliance costexpected non-compliance cost

xMcF



Acceptance decision

pC(L)

Cα



Compliance decision

Decision with perfect informationDecision with perfect information Compliance if the abatement cost is below Compliance if the abatement cost is below

the non-compliance cost or ifthe non-compliance cost or if

F instead of fine think of loss of confidence F instead of fine think of loss of confidence from authorities, public image, from authorities, public image, administrative trouble… administrative trouble…

cFC )(



Compliance decision

αM

cF

cF/x

C(α)

Cα



Policy implications





Policy options

Background legislative pressure (p): Background legislative pressure (p): only influences the acceptance decisiononly influences the acceptance decision Higher p leads to a larger range of acceptable Higher p leads to a larger range of acceptable

agreementsagreements Control and enforcement regime (c):Control and enforcement regime (c):

Higher c leads to a higher compliance rangeHigher c leads to a higher compliance range But decreases the range of acceptable agreements But decreases the range of acceptable agreements

(increases the expected acceptance cost)(increases the expected acceptance cost)

counterproductive effectcounterproductive effect

Evaluation indicators

Acceptance rate (AR)Acceptance rate (AR): percentage of agreements : percentage of agreements of all possible agreements that will be acceptedof all possible agreements that will be accepted

Compliance rate (CR)Compliance rate (CR): percentage of agreements : percentage of agreements of all acceptable agreements that will be complied of all acceptable agreements that will be complied withwith Compliance range: percentage of agreements of Compliance range: percentage of agreements of

all possible agreements that will be complied all possible agreements that will be complied with (acceptance rate = acceptance range)with (acceptance rate = acceptance range)

Successful agreementSuccessful agreement: agreement that is : agreement that is accepted and will be complied withaccepted and will be complied with



Three settings

The impact of the policy change depends on The impact of the policy change depends on the initial level of p and cthe initial level of p and c

Three settings will be distinguishedThree settings will be distinguished Legislative threat = E(non-compliance cost)Legislative threat = E(non-compliance cost) Legislative threat < E(non-compliance cost)Legislative threat < E(non-compliance cost) Legislative threat > E(non-compliance cost)Legislative threat > E(non-compliance cost)



(1) pC(L) = cF

α

pC(L) = cF



Evaluation of setting (1)

Acceptance range = compliance rangeAcceptance range = compliance range Compliance rate = 100%Compliance rate = 100% (no unexploited (no unexploited

agreements)agreements)

Distinction between ‘sanction’ for non-Distinction between ‘sanction’ for non-acceptance and non-compliance is acceptance and non-compliance is redundant and we arrive at the analysis of redundant and we arrive at the analysis of Segerson and Miceli (1998 in JEE&M)Segerson and Miceli (1998 in JEE&M)



Policy options in setting (1)



pp cc

AcceptanceAcceptance RateRate ++ --

compliancecompliance RangeRange == ++

Rate Rate (100%)(100%)

<100%<100% ==

(2) pC(L) < cF

α

cF

pC(L)




Compliance range is larger than the Compliance range is larger than the acceptance range acceptance range

100% compliance100% compliance raterate unexploited agreements: agreements that unexploited agreements: agreements that

would be complied with but that are not would be complied with but that are not concludedconcluded






pp cc



Rate Rate (100%)(100%)

== ==

(3) pC(L) > cF

α

cF

pC(L)






Acceptance range consists of two intervalsAcceptance range consists of two intervals The compliance rate is The compliance rate is below 100%;below 100%; i.e. there are i.e. there are

agreements that will be accepted but not agreements that will be accepted but not concluded (also in the first range)concluded (also in the first range)

This might be worse than the previous situation as This might be worse than the previous situation as There is no use in concluding agreements that There is no use in concluding agreements that

will not be executedwill not be executed Not concluding an agreement leaves open the Not concluding an agreement leaves open the

opportunity of other policy actionsopportunity of other policy actions




pp cc



Rate Rate (<100%)(<100%)

-- ++



Evaluation summary

Initial Initial settingsetting

Evaluation Evaluation criteriacriteria

pp cc

pC(L) = pC(L) = cFcF

ARAR ++ --

CR (100)CR (100) - - = =

pC(L) < pC(L) < cFcF

ARAR ++ --

CR (100)CR (100) = = = =

pC(L) > pC(L) > cFcF

ARAR ++ --

CR (<100)CR (<100) -- ++

Optimal policy options

Policy measures that bring the Policy measures that bring the legislative threat legislative threat in line with the control regimein line with the control regime increase the range increase the range of successful agreementsof successful agreements

Creating a background threat and organising a Creating a background threat and organising a monitoring and control are monitoring and control are two different things two different things and done by different actorsand done by different actors Threat: legislative power, convincing, Threat: legislative power, convincing, Control: stimulation, coordination, practical Control: stimulation, coordination, practical

implementation … ‘keeping the agreement implementation … ‘keeping the agreement alive’alive’





Conclusions



conclusions

Model to analyse acceptance and compliance Model to analyse acceptance and compliance decisions of companies in NEAsdecisions of companies in NEAs

Model can explain the decline in the use of NEA Model can explain the decline in the use of NEA in Flanders and Denmark due to the introduction in Flanders and Denmark due to the introduction of NEA design-guidelinesof NEA design-guidelines

‘‘First best’ when background legislative threat First best’ when background legislative threat equals the expected non-compliance costequals the expected non-compliance cost Only policy changes that bring both more in Only policy changes that bring both more in

line increase the range of successful agreementsline increase the range of successful agreements



conclusions However, creating a policy environment for However, creating a policy environment for

concluding agreements is not the same as a control concluding agreements is not the same as a control and enforcement regime and enforcement regime Background threat: legislative power, stimulate Background threat: legislative power, stimulate

business to take up responsibility, create business to take up responsibility, create incentives… (e.g. Netherlands)incentives… (e.g. Netherlands)

Control regime: environmental agency, set up Control regime: environmental agency, set up monitoring systems, discuss actual monitoring systems, discuss actual implementation problems, coordinate… (e.g. implementation problems, coordinate… (e.g. benchmarking agreements)benchmarking agreements)



Questions…Remarks…

Suggestions…

Date post:	27-Dec-2015
Category:	Documents
Upload:	alexander-james
View:	219 times
Download:	1 times

Stringent policy control and effective negotiated environmental agreements: counterproductive...

Documents