Voluntary Approaches in Climate Policy Magali Delmas & Janice Mazurek

2 OUTLINE 1.The possible role of voluntary approaches (VAs) in climate policy 2.Definitions 3.Why do firms and the regulator participate? 4.Effectiveness and efficiency of VAs 5.Applications, case studies 6.Conclusions on the actual role of VAs

3 1. The possible role of VAs VAs are not new (John Muirs Sierra Club 1892) We all make voluntary efforts to reduce our environmental impacts, with little effect Better results if firms participate in efforts Better results if authorities promote and encourage voluntary efforts VAs are the fastest growing type of environmental instrument in recent years (OECD 2003) In some cases, they are the only instrument for climate protection (USA)

4 2.1 Definition VA = any effort to reduce environmental impacts that go beyond what is imposed by regulation or what is cost-minimizing in the face of economic instruments Types: –Self regulation –Negotiated agreements (NAs) –Public voluntary programs (PVPs)

5 2.2 Types of VAs

6 2.3 Further distinctions Do firms undertake voluntary abatement alone or jointly? What type of compensation or incentive is offered by the regulator? Is abatement costly in the net or not (no regret actions)? What are the motives for participation?

7 2.4 Distinctive features of VAs Co-operation with the regulator There must be an interest, material or ideal, for polluters to make an effort VAs are flexible Co-ordination among polluters

8 3.1 Why do firms participate ? Direct financial gain, win-win, no regrets action (chaps 3 & 10) Subsidies or tax rebates (chaps 3, 6, 13, 14 & 15) Exemption from regulation, regulatory relief (chap. 11) To prevent restrictive regulation or tax (chaps. 3-8 &14) Collective learning (chaps 5, 10 &12) To improve environmental reputation (chaps 4, 5 & 10) Strategic move (chaps 4 & 5) Stewardship (chap. 2)

9 3.2 Why does the regulator participate ? VAs are less efficient than other instruments, but those other instruments are not available: Lyon & Maxwell (chap. 6) Regulator is not sure Parliament would accept constraining regulation: Langpap & Wu (chap. 7) Parliament or citizens may prefer VAs, which they consider more participative and less costly: Grepperud & Pedersen (chap. 8)

Effectiveness and efficiency of VAs Effectiveness = impact on emissions. Survey of literature and experiences by Khanna & Ramirez (chap. 2). Difficulty: what is the baseline? Efficiency = (1) total cost minimizing amount of abatement, (2) least cost abatement. Survey by Segerson & Roti Jones (chap. 3)

Specific problems Trade-off between effectiveness of VAs and market competition: Brau & Carraro (chap. 4) Same problem with imperfect information and incomplete contracts; e.g. VAs are signals of abatement costs to regulator or of environmental quality to customers: Cavaliere (chap. 5)

Applications, case studies Long term agreements in the Netherlands: Glasbergen (chap. 9) Green Lights and Energy Star Office in the USA: Howarth, Haddad & Paton (chap. 10) Programme XL in the USA: Delmas & Mazurek (chap. 11)

Applications, case studies Production and product regulation in the EU: Albrecht (chap. 12) Climate Change Levy Agreements in the UK: de Muizon & Glachant (chap. 13) CO 2 law in Switzerland: Baranzini, Thalmann & Gonseth (chap. 14) Energy agreements in Denmark: Bjørner (chap. 15)

14 6. Conclusions on the role of VAs 1.What is special about climate change ? 2.Do not expect too much of VAs 3.VAs are useful in early stage 4.They should be part of policy mix

What is special about climate change? The uncertainty about abatement costs and consequences of warming is so great, that constraining measures are hardly acceptable Global and long term effects; no direct victims who could sue polluters Many polluters, many non-point sources

Do not expect too much of VAs Participation is greater when targets are energy or emissions intensities They work fine as long as they are costless (no regret) In general VAs reach their targets, but those targets are not very demanding They are costly to negotiate and implement (NAs with large polluters, PVP with small ones)

VAs are useful in early stage In early stage of environmental policy, VAs are often the only possible choice because they are the most politically acceptable instrument VAs can facilitate the preparation and implementation of more constraining instruments They can create support for those instruments VAs can also delay the implementation of more constraining instruments

VAs should be part of policy mix Modern environmental policy combines diverse instruments in order to address the conflicting goals of efficiency and equity VAs do not particularly increase the effectiveness or efficiency of policy mixes, but they can increase their acceptance and influence burden sharing VAs are rather transitory measures that prepare the ground for more constraining instruments