Pollution Prevention: The Role of Environmental Management and InformationEPA Grant Number: R830870
Title: Pollution Prevention: The Role of Environmental Management and Information
Investigators: Khanna, Madhu , Deltas, George , Joshi, Satish
Institution: University of Illinois at Urbana-Champaign , Michigan State University
Current Institution: University of Illinois at Urbana-Champaign
EPA Project Officer: Michaud, Jayne
Project Period: May 30, 2003 through May 29, 2006 (Extended to May 29, 2007)
Project Amount: $286,539
RFA: Corporate Environmental Behavior: Examining the Effectiveness of Government Interventions and Voluntary Initiatives (2002) RFA Text | Recipients Lists
Research Category: Economics and Decision Sciences , Pollution Prevention/Sustainable Development
Environmental Management Systems (EMSs) that encourage firms to regulate themselves from the inside and make efforts at reducing waste are an appealing concept to policy makers and to many firms. Regulatory agencies, seeking cost-effective and less adversarial approaches to environmental protection, are launching programs to motivate firms to implement EMSs by offering financial and regulatory incentives and public recognition. Firms are adopting such systems with the expectation of realizing win-win gains as they reduce waste, improve process efficiency and improve relations with stakeholders. Stakeholders are increasingly receiving environmental information about firms through the Toxics Release Inventory (TRI) and through corporate reports. However, the extent to which EMSs and information provision are motivating firms to be innovative and make changes in their operating practices by adopting pollution prevention (P2) methods is not known. Since public policy incentives are typically focusing on inducing the means for pollution control (adoption of EMSs) rather than the ends (actual performance improvement) they do not necessarily guarantee P2 and improvements in environmental performance. Additionally, the joint impact of EMSs and P2 on firm profitability is yet to be systematically examined.
The first part of this research will develop a theoretical framework to examine the extent to which current public policy efforts providing public recognition and regulatory benefits to induce EMS adoption lead to innovative source reduction of pollution. In this framework "green consumers" are assumed to observe a firm's EMS (because of public policy efforts) and are willing to pay a price premium for products of such firms. Additionally firms obtain regulatory relief and technical/financial assistance by adopting an EMS. Conditions under which EMS adoption simply provides insurance against stakeholder pressure and does not lead to innovation or pollution reduction and conditions under which such initiatives are social welfare enhancing relative to potential mandatory regulations will be analyzed. The second part will develop testable hypothesis to empirically examine the factors motivating a sample of S&P 500 firms to adopt an EMS and/or P2 practices and its implications for their toxic wastes. Instrumental variable methods that control for endogenous adoption decisions will be used. In the third part, event study methods and multivariate regressions will be used to examine the impact of provision of information about toxicity of chemicals on investors and on returns to firms. We will also investigate the sources of economic benefits (through the demand side or supply side) that EMSs and P2 activities are providing firms, whether these are having a mitigating effect on stock market reactions to TRI and whether claims that pollution prevention pays are valid.
This research will enable us to determine the types of firms more likely to be innovative and adopt P2 voluntarily and the barriers to it faced by other firms. It will show if provision of information about the volume and toxicity of toxic releases, P2 activities and EMSs as well as policy incentives to adopt EMSs are effective in achieving reduction in waste generation using innovative methods. These findings will be used to offer recommendations for whether public policy efforts can be made more cost-effective if redirected to reward actual outcomes of voluntary initiatives rather than participation alone, about the type of firms towards which such policy initiatives should be focused and about the value of information about toxicity of pollutants and P2 activities. The detailed firm-level database we compile will be useful for future researchers.