Grantee Research Project Results
Final Report: Shaping Corporate Environmental Behavior and Performance: The Impact of Enforcement and Non-Enforcement Tools
EPA Grant Number: R828828Title: Shaping Corporate Environmental Behavior and Performance: The Impact of Enforcement and Non-Enforcement Tools
Investigators: Earnhart, Dietrich H. , Haider-Markel, Donald , Glicksman, Robert , Ebihara, Tatsuji
Institution: University of Kansas
EPA Project Officer: Hahn, Intaek
Project Period: March 12, 2001 through March 11, 2004 (Extended to December 11, 2005)
Project Amount: $341,234
RFA: Corporate Environmental Performance and the Effectiveness of Government Interventions (2000) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
Our interdisciplinary research team integrates the fields of economics, political science, law, and engineering management to determine the factors that shape corporate environmental behavior and performance at individual facilities in the industrial sector of chemical and allied products. The overarching goal of this project was to determine and isolate the effects of various government interventions: inspections, federal fines, federal injunctive relief, federal supplemental environmental projects (SEPs), and state fines. We measured environmental behavior in various dimensions, such as the frequency of auditing or amount of provided environmental training, with a focus on the extent of an environmental management system (EMS). We measured environmental performance by wastewater discharges, especially relative to permitted effluent limits. When describing our findings and conclusions, we focused on the following measures of environmental performance: (1) biological oxygen demand (BOD) relative discharges; (2) total suspended solids (TSS) relative discharges; (3) composite BOD and TSS relative discharges; and (4) monthly count of effluent limit exceedances.
The specific objectives of this research project were to: (1) identify the differential effects of government interventions on environmental behavior and performance; (2) identify the effects of general deterrence and enforcement approach on environmental behavior and performance; (3) test empirically the theoretical understanding of specific deterrence; (4) identify the interactions between the effects of government interventions and facility characteristics, especially the status as a major or minor discharger; (5) explore the influence of environmental behavior, including EMS protocols, on environmental performance; (6) explore the influence of community pressure on environmental behavior and performance; and (7) explore the influence of financial status on environmental behavior and performance.
In general, each of our objectives speaks equally to firms’ abilities and motivations to comply with effluent limits as well as their abilities and motivations to overcomply with these same limits. At a minimum, the objectives not related to community pressure speak to facilities’ abilities to overcomply with effluent limits.
Summary/Accomplishments (Outputs/Outcomes):
To achieve these objectives, we have gathered, formatted, and analyzed data on environmental performance and government interventions from U.S. Environmental Protection Agency (EPA) and state agency databases, along with data on financial status for publicly held firms that own major facilities and data on community characteristics from federal government databases. We also have gathered, formatted, and analyzed information on environmental behavior from an original survey of all 1,612 chemical facilities that discharge wastewater directly into surface water (along with other restrictions).
Conclusions:
Based on our analysis, we report the following findings and conclusions, organized according to the list of specific objectives shown above.
By accomplishing Objectives 1 and 2, we generate the following findings and conclusions:
- The effects of inspection-related specific deterrence on environmental performance depend on the measure of performance. Federal inspection-related specific deterrence improves BOD-related environmental performance, whereas state inspection-related specific deterrence has no effect. In contrast, state inspection-related specific deterrence improves TSS-related performance.
- Specific deterrence stemming from federal inspections is more effective at improving BOD-related performance than specific deterrence stemming from state inspections. State inspection-related specific deterrence, however, more effectively improves TSS-related performance than does federal inspection-related specific deterrence.
- Although state inspection-related general deterrence undermines BOD- and exceedance-related performance, federal inspection-related general deterrence has no effect. In contrast, state inspection-related general deterrence improves TSS-related performance.
- No significant difference exists between federal inspection- and state inspection-related general deterrence when examining their effects on environmental performance.
- The effects of sanction-related specific deterrence on environmental performance depend on the source of the sanction and the measure of performance to a lesser extent. An increase in the number of administrative sanctions against specific facilities undermines BOD- and exceedance-related performance, yet a larger administrative sanction improves both performance types. In contrast, more civil sanctions improve BOD-related performance, whereas a larger civil sanction undermines BOD performance. Civil sanctions do not affect exceedance-related performance. Neither civil nor administrative sanctions affect TSS-related performance.
- General deterrence stemming from the number of administrative sanctions undermines BOD-related performance, whereas general deterrence stemming from the average administrative sanction magnitude has no effect. In contrast, general deterrence relating to the number of civil sanctions does not influence BOD-related performance, whereas general deterrence relating to the average civil sanction magnitude improves performance. Contrary to BOD-related performance, general deterrence stemming from both the average administrative penalty magnitude and the average civil penalty magnitude improves TSS-related performance.
- Differences exist between deterrence stemming from EPA administrative and federal civil sanctions when examining their effects on environmental performance but only for BOD-related performance.
- In terms of specific deterrence, an increase in the number of civil sanctions improves performance more greatly than does an increase in the number of administrative sanctions, whereas an increase in the average administrative sanction magnitude improves performance more greatly than does an increase in the average civil sanction magnitude.
- In terms of general deterrence, an increase in the number of civil sanctions improves performance more strongly than does an increase in the number of administrative sanctions.
- Differences also exist between administrative sanctions and civil sanctions when we consider specific types of sanctions. We base our conclusions on the most comprehensive measure of environmental performance: BOD/TSS relative discharges, while assessing the robustness of our conclusions.
- Federal administrative fines are more effective than federal civil fines, in terms of specific deterrence, at inducing better BOD/TSS-related performance. Our results for TSS-related environmental performance also support this conclusion. In terms of general deterrence, however, federal civil fines are more effective than federal administrative fines. Our results for the other performance measures also support this conclusion, but the evidence for TSS-related and BOD-related performance is mixed.
- In contrast to fines, federal administrative SEPs and federal civil SEPs, in terms of specific deterrence, comparably affect BOD/TSS-related performance. Although similar to fines, in terms of general deterrence, federal civil SEPs are more effective than administrative SEPS at inducing better BOD/TSS-related performance. Our results for BOD-related performance also support this conclusion.
- Similar to both fines and SEPs, in terms of general deterrence, federal civil injunctive relief sanctions are more effective than administrative injunctive relief sanctions at inducing better BOD/TSS-related performance. Our results for both BOD-related and exceedance-related performance, however, indicate an opposite conclusion.
- Nonfine sanctions are more effective than fines, in terms of both specific deterrence and general deterrence, at inducing better environmental performance, measured by relative discharges. This conclusion extends to the comparison of fines and injunctive relief. In terms of both specific deterrence and general deterrence, injunctive relief sanctions are more effective than fines. Similarly, SEPs are more effective than fines, in terms of specific deterrence, at inducing better environmental performance. In terms of general deterrence, however, fines are more effective than SEPs.
- State fines are more effective than federal fines, in terms of specific deterrence, at inducing better BOD/TSS-related environmental performance. In contrast, federal fines are more effective than state fines, in terms of specific deterrence, at inducing better BOD-related environmental performance. In terms of general deterrence, state fines and federal fines are comparably effective at inducing better environmental performance measured by BOD/TSS-related or TSS-related relative discharges. Results based on TSS-related performance are mixed for specific deterrence. Yet, in terms of general deterrence, federal fines are more effective than state fines at inducing better TSS-related performance. Lastly, federal fines and state fines comparably affect the count of effluent limit exceedances in terms of specific deterrence; the results for general deterrence are mixed.
- The type of enforcement approach, cooperative versus coercive, does not affect environmental performance.
- Based on our examination of survey responses, there seems to be a hierarchy of government intervention tools according to how effective they are perceived by our survey respondents at inducing compliance with National Pollutant Discharge Elimination System effluent limits; inspections (especially state inspections) are viewed by the greatest percentage of the respondents as being effective, followed by monetary fines, SEPs, and, finally, court injunctions.
- Inspection-related and sanction-related deterrence influence few of the environmental behavioral measures to any meaningful degree.
- Facilities enjoying a cooperative relationship with their regulator appears to implement more stringent monitoring.
By accomplishing Objective 3, we generate the following findings and conclusions:
- Our results reject the hypothesis of initial penalty neutrality, which stems from the conjecture that specific deterrence stems solely from a notion of general deterrence. Specific deterrence does not appear to follow simply from an updating to the ex ante size of a fine or the ex ante likelihood of a fine. Instead, the actual imposition of a fine appears to convey some other information to facilities.
- Fine likelihood and fine size comparably affect the environmental behavioral decisions in the constructed hypothetical scenarios. This result confirms the theoretical notion that the product of these two components—likelihood and size—drives behavioral decisions.
By accomplishing Objective 4, we generate the following findings and conclusions:
- Facilities owned by publicly held firms outperform facilities owned by privately held firms, in that the former category of facilities generates better environmental performance.
- Larger facilities underperform smaller facilities, in that the former category of facilities generates worse environmental performance.
- Facilities facing higher marginal compliance costs underperform their counterparts, in that the former category of facilities generates worse environmental performance.
- Facility characteristics also influence the effectiveness of specific deterrence and general deterrence.
- Federal inspection-related general deterrence is less effective against organic chemical facilities but more effective against other chemical facilities than against the average chemical facility.
- Federal inspection-related specific deterrence is more effective against facilities experiencing higher discharge volatility. Federal inspection-related general deterrence, however, is less effective against these facilities.
- Federal inspection-related general deterrence is more effective against facilities facing higher marginal compliance costs. Federal inspection-related specific deterrence, however, is less effective against these facilities.
- State inspection-related specific deterrence is less effective against facilities enjoying higher (i.e., less stringent) effluent limits.
- State inspection-related general deterrence is more effective against facilities facing final permit limits.
- Federal inspection-related general deterrence is more effective against facilities with modified permits; it less effective against facilities facing higher marginal compliance costs.
- The effectiveness of federal civil sanction-related deterrence is independent of facility characteristics.
- Firm-level ownership structure influences the effectiveness of inspection- and sanction-related deterrence at inducing better environmental performance. The direction of this influence, however, depends on the performance measure. For example, federal inspection-related general deterrence is less effective against facilities owned by publicly held firms than against facilities owned by nonpublicly held firms at lowering relative discharges, but federal inspection-related general deterrence is more effective at lowering the count of effluent limit exceedances when confronting facilities owned by publicly held firms.
- The most consistent predictors of environmental behavior are the type of facility and the size of the facility. Facilities owned by publicly-held firms and larger facilities, especially majors, are more likely to take greater steps to improve their behavior.
By accomplishing Objective 5, we generate the following finding and conclusion:
- Environmental behavior strongly and robustly influences environmental performance; better environmental behavior leads to better environmental performance (i.e., better compliance). •Specifically, lower discharges relative to permitted effluent limits for all regulated pollutants.
By accomplishing Objective 6, we generate the following findings and conclusions:
- Several proxies for community pressure affect environmental performance. In particular, communities that are more wealthy (measured by per capita income), white, Democratic party loyal, urban, unemployed, uneducated, elderly, dependent on chemical manufacturing for their private earnings, politically active (measured by the voter turnout rate), and urban seem to induce better performance.
- Communities suffering higher unemployment rates enjoy better environmental performance. This result runs counter to the expectation that communities facing higher unemployment would worry more about economic development than about applying pressure for better environmental quality.
- Communities that vote more often suffer worse BOD-related performance but enjoy better TSS-related performance. The latter result is consistent with the expectation that more politically active communities would apply more effective pressure for better environmental quality.
- Communities that vote more for Democratic presidential candidates enjoy better environmental performance. This result is consistent with the possible expectation that Democratic voters would be more concerned about environmental quality.
- Better educated communities suffer worse BOD-related performance and effluent limit exceedance-related performance. These results run counter to the expectation that better educated communities would be better able to appreciate environmental quality and/or be better positioned to apply effective pressure for better environmental quality.
- More rural communities enjoy better BOD-related performance, whereas urban communities enjoyed better TSS-related performance.
- Communities consisting of more homeowners suffer worse BOD-related performance but enjoy better TSS-related performance. The latter result is consistent with the expectation that homeowners would take more “ownership” over their communities and pressure local facilities for better environmental performance.
- More elderly communities enjoy both better BOD- and TSS-related performance. These results are consistent with the expectation that elderly people would possess a stronger connection to their communities and pressure facilities for better environmental performance.
- More wealthy communities enjoy better BOD- and TSS-related performance but suffer worse exceedance-related performance. The former results are consistent with the expectation that environmental quality is a normal good so that increases in wealth would prompt increased demand for environmental quality.
- Communities more dependent on chemical manufacturing for their private earnings enjoy better TSS-related performance. This result runs counter to the expectation that greater dependency would prompt communities to scale back any demands on local facilities for better environmental performance.
- Less white communities suffer worse TSS-related performance but enjoy better exceedance-related performance. The former result lends some support for the concern of environmental justice.
- In sum, the use of community pressure proxies does not generate results that lead to a general conclusion about the influence of local community pressure on environmental performance.
- In contrast to the use of community pressure proxies, based on direct measures of community pressure subjectively reported by respondents to our survey, our analysis indicates that greater community pressure leads to better environmental performance.
- The results from our analysis of environmental behavior suggest that community characteristics have little direct influence. Yet, based on some analysis, more Republican communities contain facilities that do less to ensure compliance; also, in some cases, greater community involvement, as measured by voter turnout, improves environmental behavior. These effects, however are inconsistent.
By accomplishing Objective 7, we generate the following findings and conclusions:
- Better financial performance neither begets nor undermines good environmental performance, yet greater financial resource availability improves environmental performance, based on the most comprehensive measure of performance: BOD/TSS relative discharges. This conclusion, however, is not fully robust to the choice of performance measure or choice of financial status measures.
- Specific and general deterrence stemming from both inspections and federal administrative sanctions depend on the financial status of the firm owning the relevant facility. For example, facilities owned by firms enjoying greater financial resource availability respond less strongly to general deterrence stemming from federal civil sanctions than do facilities owned by firms suffering lesser resource availability. In other words, the threat of federal civil sanctions is less productive against resource-laden firms.
Journal Articles on this Report : 4 Displayed | Download in RIS Format
Other project views: | All 15 publications | 4 publications in selected types | All 4 journal articles |
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Burness T, Huang H. On base sizes for primitive groups of product type. JOURNAL OF PURE AND APPPLIED SCIENCE 2023;227(3):107228. |
R828828 (Final) |
Exit Exit |
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Earnhart D, Leonard J. Determinants of environmental audit frequency:The role of firm organizational structure. JOURNAL OF ENVIRONMENTAL MANAGEMENT 2013;128:497-513. |
R828828 (Final) |
Exit Exit |
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Raff Z, Earnhart D. Employment and environmental protection:The role of regulatory stringency. JOURNAL OF ENVIRONMENTAL MANAGEMENT 2022;321(115896). |
R828828 (Final) |
Exit Exit |
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Rassier D, Earnhart D. Effects of environmental regulation on actual and expected profitability. ECOLOGICAL ECONOMICS 2015;112:129-140. |
R828828 (Final) |
Exit Exit |
Supplemental Keywords:
water, discharge, survey, socioeconomic, enforcement, monitoring, engineering, law, chemical and allied products, Heckman two-stage estimation,, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Sustainable Industry/Business, Economics, Corporate Performance, Economics and Business, decision-making, Environmental Law, Social Science, Economics & Decision Making, environmental performance, SEPs, environmental management systems (EMS), policy analysis, deterrence, compliance assistance, enforcement strategy, policy making, government intervention, incentives, decision making, environmental decision making, corporate compliance, environmental compliance determinants, socioeconomics, economic incentives, enforcement, environmental policy, air & water pollution regulations, Laws, environmental behavior, regulations, enforcement impact, EMS, legal and policy choices, public policy, regulatory impact, corporate environmental behaviorRelevant Websites:
http://www.ku.edu/pri/CEP/EPA/ Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.
Project Research Results
- 2004 Progress Report
- 2003 Progress Report
- 2002 Progress Report
- 2001 Progress Report
- Original Abstract
4 journal articles for this project