Chapter 14

Managing Environmental Quality

This chapter:

Explains how pollution risks are assessed to determine

which are most important to regulate. Discusses alternative approaches to regulation with emphasis on new, more flexible initiatives. Illustrates how many companies are now managed differently so they can move beyond simple legal compliance.
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

The Commerce Railyards Opening Case

The city of Commerce, near Los Angeles, is a vibrant jumble of factories, businesses, and residential neighborhoods. The city has four railyards and they saturate Commerce with diesel exhaust. The people in the neighborhoods near the railyards have an estimated cancer risk elevation of up to 800 chances in a million. The EPA and California regulators have sought emissionreduction measures. The people of Commerce think that progress in emissionreduction is too slow. The case of diesel exhaust emission in Commerce is an example of how regulators attempt to assess pollution risks and manage environmental quality.
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Regulating Environmental Risk

The majority of the benefits and costs produced by Federal regulation are derived from environmental rules. For every dollar spent on environmental regulation the nation gets between $2.15 and $10.52 in benefits. Environmental expenditures need to be focused on the highest risks to human health and the natural environment.

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Elements of Risk Assessment and Risk Management and Their Sequence

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Risk Assessment
In theory, risk assessment is a scientific process leading to an objective, quantitative measure of the risks posed by any substance. The EPA and other agencies make a series of precautionary assumptions based on the fear that scientific data might understate risks to human health. Risks are often overstated to ensure that public health is protected with a margin of safety.
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Hazard Assessment
Hazard assessment establishes a link between a substance and human disease. Animal testing is one method, with problems: Scientists rely heavily on strains of rats and mice genetically disposed to high rates of tumor production. In animals exposed to large amounts of a chemical, tumors can arise from tissue irritation rather than carcinogenesis. Animal physiology can be so different from humans that disease processes are unique.
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Hazard Assessment (continued)

A second method of identifying hazards is epidemiological study. Epidemiological studies have the advantage of measuring real human illness, but also have problems. Low statistical power riddled with uncertainties. Cancer latency periods so these studies may not detect harm done by recent exposures. Data from one population may not predict risk for another population.

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Dose-Response Assessment
A dose-response assessment is a quantitative estimate of how toxic a substance is to humans or animals at increasing levels of exposures. For most chemicals, regulators use extrapolation from high doses to predict the effects on human populations at much lower doses. Linear-dose response rate The EPA makes the precautionary assumption that risk estimates should be based on the linear curve. Industry favors the use of sublinear and threshold models that support less regulation.

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Exposure Assessment
Exposure assessment is the study of how much of a substance humans absorb through inhalation, ingestion, or skin absorption. To make exposure assessments, researchers measure activities that bring individuals in contact with toxic substances. Regulators present their estimates as a distribution of individual exposures.
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Risk Characterization
Risk characterization is an overall conclusion about the dangers of a substance. It is a detailed, written narrative describing the scientific evidence, including areas of ambiguity. Risk characterizations are built on scientific calculations of toxicity, potency, and exposure. The precision of risk characterizations are limited.
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Risk Management
Control options
These are alternative methods for reducing most risks.

Legal considerations
Many environmental laws are specific about risk reduction required and methods of achieving it.

Economic and social factors

Risk decisions cannot always be based solely on scientific findings.
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Cost-Benefit Analysis
Cost-benefit analysis is the systematic calculation and comparison of the costs and benefits of a proposed action. Cost calculations typically include such factors as:
Enforcement costs Capital and compliance costs to industry Potential job losses and inflation Reduced productivity such as lowered crop yields or the costs of substitution for a banned substance
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Cost-Benefit Analysis (continued)

Benefits can include:
Lives saved Reduced absenteeism from work Lower health care expenditures Rising property values Increase tourism Heightened aesthetic appeal

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Advantages of CostBenefit Analysis

Forces methodical consideration of each economic impact a policy will have on society. Injects rational calculation into emotional arguments. Cost-benefit analysis that reveals marginal abatement costs can help regulators find the most efficient levels of regulation.
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Criticisms of Cost-Benefit Analysis

Fixing price values of costs and benefits is difficult and controversial.
Contingent valuation is one method of measuring the monetary value of ecosystem goods. A second method is the value of a statistical life, the willingness to pay for reducing risk of premature death in a population exposed to a pollution hazard.

Cost-benefit approaches compromise ecosystems deserving absolute, not conditional, protection. Benefits and costs of a program often fall to separate parties.

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The Spectrum of Regulatory Options

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Command-and-Control Regulation
One cause of high pollution-abatement costs is heavy reliance on command-and-control regulation. Advantages
It enforces predictable and uniform standards. There is great equity in applying the same rules to all firms in an industry. It produces abatements and it comforts the public to know that the EPA is watching and regulating.

However, this approach can be inefficient and increase costs without commensurate increases in benefits.
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Market Incentive Regulation

Gives polluters financial motives to control pollution while giving them flexibility in how reductions are achieved.
Environmental taxes Emission trading (cap and trade)
Carbon offsets Some environmentalists ridicule carbon offsets

Information disclosure
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Voluntary Regulation
Another way that regulation is made more flexible is the voluntary program. When a company signs up for a voluntary program, there are often reporting requirements, but no enforcement actions are taken for failure to meet goals. Company motives for participating: Companies believe more regulation is imminent and want to prepare control strategies now. Nonregulatory pressures for companies to be environmentally responsible.
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Managing Environmental Quality

Environmental management systems (EMS) have been adopted by many firms. The leading international model for EMSs is ISO 14001. Actions to reduce environmental impacts
Precautionary action Pollution prevention Product analysis Environmental marketing Environmental metrics Environmental management system (EMS) A set of methods and procedures for aligning corporate strategies, policies, and operations with principles that protect ecosystems.

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Concluding Observations
This chapter looked more deeply into the methods of regulations. New, more flexible, market-based approaches can be used to achieve environment-preserving goals. Much progress has been made in protecting both ecosystems and human health. The sum of regulatory activity and voluntary business action has been inadequate to avert climate change.
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