Can Pollution Prevention Investments Produce a "Win-Win" for Industry and the Environment?


FOR EMBARGOED RELEASE
Monday, May 11, 1998

Contact:
Michael Tebo
(202) 328-5019
tebo@rff.org

CAN POLLUTION PREVENTION (P2) INVESTMENTS PRODUCE A "WIN-WIN" FOR INDUSTRY AND THE ENVIRONMENT?

NEW RFF REPORT EXAMINES P2 DECISIONMAKING AT DOW, DUPONT AND MONTSANTO

WASHINGTON, DC - Is American industry passing up opportunities to profit by operating "clean and green?" A new report released by Resources for the Future (RFF) addresses this question through three case studies of pollution prevention-related decisionmaking at three multinational chemical manufacturers headquartered in the U.S. RFF's James Boyd, author of the report, finds that the answer is much more complex than a simple "yes" or "no." But, he concludes that corporate pollution prevention efforts are more likely to flourish if environmental regulations allow businesses the flexibility to experiment with environmentally-friendly innovations.

In his report, "Searching for the Profit in Pollution Prevention: Case Studies in the Corporate Evaluation of Environmental Opportunities," Boyd explains the strategic and financial factors that affect the profitability of pollution prevention (P2) investments. In analyzing decisions that rejected or delayed P2 investments, he finds that such investments were financially unattractive because of a combination of regulatory barriers and insufficient environmental enforcement.

"The concept of pollution prevention, coined 'P2,' is emblematic of a new environmental mindset that promises more sustainable industrial management," Boyd says. "By targeting the causes, rather than the consequences, of polluting activity, P2 seeks to eliminate pollutants at their source - where and when they occur in manufacturing processes - thereby eliminating the need to treat or dispose of those pollutants later."

The case studies examined in the report include: Dow Chemical's contemplation of in-process recycling of a key input to its production of polyurethane foam and thermoplastic products; Montsanto's consideration of an improved production process that would drastically reduce wastes and eliminate several process steps; and, Dupont's marketing of a product that would allow for the recycling of wastes created by photochemicals in the printing and publishing industries.

"This P2 concept has given rise to notions of 'win-win' opportunities in which innovation and new ways of thinking will lead to waste reduction while at the same time making firms money by reducing costs or stimulating new products," Boyd says. "Unfortunately, P2's vision as a set of 'win-win' opportunities is somewhat at odds with actual corporate experience. While anecdotal evidence suggests that such opportunities exist and that many firms have pursued them, proponents say the pace of P2 is too slow and that the private sector is somehow failing to seize opportunities."

Among other things, Boyd asked: Are firms really passing up P2 opportunities that could save them money? Do firms' current financial and accounting practices treat environmental investments differently from other investments? What hurdles must P2 investments clear? Do firms evaluate P2 opportunities in a defensible manner, or are there persistent organizational biases against P2, perhaps due to inappropriate accounting procedures or incentive schemes? Are there unambiguous financial benchmarks that can be used as a guide to which P2 projects should go forward?

Boyd concludes his report by outlining a number of recommended policy changes to enhance pollution prevention's profitability. These include:

REGULATORY FLEXIBILITY. Allow regulatory flexibility by moving even faster toward "performance-based" regulations. Rigid media- and technology-specific regulations often thwart corporate experiments with pollution prevention. P2 often involves the complex redesign of products and processes. Technology-forcing regulations often limit the output of individual pollutants in a way that constrains redesign. Performance-based regulations take a more aggregate, holistic view of a facility's emissions. Under such a system, limits on emissions of certain substances may be relaxed - thus providing design flexibility - in exchange for more stringent aggregate emission limits.

CONSISTENT ENFORCEMENT. Make small firms comply with emissions regulations. Small firms represent a large market for pollution prevention products and services. This market will fail to develop, however, unless small firms face more meaningful regulatory pressure.

DON'T "PICK WINNERS." Regulators and environmental advocates should avoid the temptation to "pick winners" when advocating pollution prevention (i.e. when it comes to P2, one size does not fit all). The case studies show how such restrictions can significantly influence the profitability of a given P2 initiative.

Boyd also notes that improved environmental cost accounting methods are needed to better estimate environment-related financial benefits. Flexible, performance-based regulations enhance the private sector's demand for improved environmental accounting information. Conversely, end-of-pipe, single-media, technology-forcing regulations leave firms with little reason to innovate, Boyd says, and even less reason to collect information that would reveal environment-driven financial opportunities.

"My findings run counter to the perception that firms are somehow failing to pursue win-win opportunities," Boyd says. "Instead, failure to pursue pollution prevention opportunities appears to be best explained by a project's lack of expected profitability."

"These case studies open a window into business decisionmaking generally, and environmental decisionmaking specifically," Boyd adds. "It's important to point out that these three non-randomly selected cases should not be used to draw broad policy or empirical conclusions. Instead, they should be viewed as a lesson on the practical challenges facing managers in the private sector."

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The RFF report, "Searching for the Profit in Pollution Prevention: Case Studies in the Corporate Evaluation of Environmental Opportunities," can be downloaded as a PDF file on the internet at http://www.rff.org/disc_papers/PDF_files/9830_may.pdf.

To order the report in hard-copy (paper), call (202) 328-5000.


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