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Encouraging Compliance Through Public Disclosure: Creating Effective Environmental Regulation

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On November 13, 2005, a chemical explosion at a plant owned by the China Natural Petroleum Corporation contaminated the upper reaches of the nearby Songhua River with toxic benzene. This wasn’t a lone industrial accident in a country mired in environmental catastrophe. Economy (2004) reported China had 16 of the 20 most polluted cities in the world in 2000.

Environmental regulations are tough to enforce, especially for poor developing countries with meager resources for enforcement, high levels of corruption, and the high stress of poverty that makes aggressive enforcement politically tricky.

Now, recent World Bank research concludes that merely making information about emissions public improves compliance. The World Bank research shows that the public disclosure approach pays dividends even in countries “with obvious regulatory problems.” A recent joint program with EcoWatch in the Philippines “recorded an increase in compliance by 50 percent in over 45 rated factories between 1997 and 1998.” (David Wheeler, World Bank economist)

Similarly, China’s GreenWatch program, in which the environmental performance of firms was rated and reported to the public, was a huge success. The study also concluded that “performance disclosure can significantly reduce pollution, even in settings where environmental NGO’s play little role and there is no formal channel for public participation in environmental regulation.”

The above research gives heart that providing information about pollution can actually help enforce existing laws. The next question that arises is what kind of information should the government provide — as in what pollutants to monitor and report on? Monitoring thousands of toxic effluents that modern factories produce needs sophisticated equipment and large amounts of money, both of which governments may not be willing to pay for. Additionally a government may only have resources to focus on a few sectors of industries, rather than the entire gamut. Research by Marc Paquin & Carla Sbert suggests that limiting the monitoring to important industries and to major toxic chemicals can be highly effective.

It is not very often that one can get results from such a small intervention and with little extra expenditure. What remains unanswered is why does such an intervention work? Simply put, providing the information puts additional pressure on the company to comply for it ramps up its costs due to possible lawsuits, bad PR, and disaffection amongst local community among other things. While these are important factors in making a factory change its workings, research done by Blackman and Afsah in Indonesia on a program called Program for Pollution Control, Evaluation and Rating (PROPER) concludes that public disclosure helps improve “factory managers’ information about their own plants’ emissions and abatement opportunities.” The report goes on to say that the measures to improve compliance work best in concert with external pressures.

In all, the simple act of making information about emission public seems efficacious in encouraging compliance in developing countries. The program cannot be seen as a panacea but as a vital tool to work in tandem with other governmental programs.

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