1. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 14 Managing Environmental Quality

2. 14-2 The Commerce Railyards o The city of Commerce, near Los Angeles, is a vibrant jumble of factories, businesses, and residential neighborhoods o The city has four railyards and they saturate Commerce with diesel exhaust o The people in the neighborhoods near the railyards have an estimated cancer risk elevation of up to 800 chances in a million

3. 14-3 The Commerce Railyards o The EPA and California regulators have sought emission-reduction measures o The people of Commerce think that progress in emission-reduction is too slow

4. 14-4 Regulating Environmental Risk o The majority of the benefits and costs produced by Federal regulation are derived from environmental rules o For every dollar spent on environmental regulation the nation gets between $3.15 and $19.07 in benefits o Environmental expenditures need to be focused on the highest risks to human health and the natural environment

5. 14-5 Figure 14.2 - Elements of Risk Assessment and Risk Management and Their Sequence

6. 14-6 Risk Assessment o In theory, risk assessment is a scientific process leading to an objective, quantitative measure of the risks posed by any substance o The EPA and other agencies make a series of precautionary assumptions based on the fear that scientific data might understate risks to human health o Risks are overstated to ensure that public health is protected with a margin of safety

7. 14-7 Hazard Assessment o Hazard assessment establishes a link between a substance and human disease o When a substance is thought to pose a risk, the two basic methods of proving it dangerous are: o Animal testing o Epidemiological studies

8. 14-8 Dose-Response Assessment o It is a quantitative estimate of how toxic a substance is to humans or animals at varying exposure levels o For most chemicals, regulators use extrapolation from high doses to predict the effects on human populations at much lower doses o Linear-dose response rate

9. 14-9 Dose-Response Assessment o The EPA makes the precautionary assumption that risk estimates should be based on the linear curve o Industry favors the use of sublinear and threshold models that support less regulation

10. 14-10 Figure 14.3 – Alternative Assumptions for Extrapolating the Effects of High Doses to Lower-Dose Levels

11. 14-11 Exposure Assessment o Exposure assessment: The study of how much of a substance humans absorb through inhalation, ingestion, or skin absorption o To make exposure assessments, researchers measure activities that bring individuals in contact with toxic substances o Regulators present their estimates as a distribution of individual exposures

12. 14-12 Risk Characterization o Risk characterization is an overall conclusion about the dangers of a substance o It is a detailed, written narrative describing the scientific evidence, including areas of ambiguity o Risk characterizations are built on scientific calculations of toxicity, potency, and exposure o The precision of risk characterizations are limited

13. 14-13 Risk Management o Control options o These are alternative methods for reducing most risks o Legal considerations o Many environmental laws are specific about risk reduction required and methods of achieving it o Economic and social factors o Risk decisions cannot always be based solely on scientific findings

14. 14-14 Cost-Benefit Analysis o Cost-benefit analysis: Systematic calculation and comparison of the costs and benefits of a proposed action o Cost calculations include factors as: o Enforcement costs o Capital and compliance costs to industry o Potential job losses o Higher consumer prices o Reduced productivity

15. 14-15 Cost-Benefit Analysis o Benefits can include: o Ecological o Health

16. 14-16 Advantages of Cost-Benefit Analysis o It forces methodical consideration of each impact of a policy on social welfare o Injects rational calculation into emotional arguments o Cost-benefit analysis that reveals marginal abatement costs can help regulators find the most efficient levels of regulation

17. 14-17 Criticisms of Cost-Benefit Analysis o Fixing price values of costs and benefits is difficult and controversial o Contingent valuation is one method of measuring the monetary value of ecosystem goods o 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

18. 14-18 Criticisms of Cost-Benefit Analysis o Cost-benefit approaches compromise ecosystems deserving absolute, not conditional, protection o Benefits and costs of a program often fall to separate parties

19. 14-19 Figure 14.4 – Relationship Between Extent of Regulation, Costs, and Benefits in Environmental Regulation

20. 14-20 Figure 14.5 - The Spectrum of Regulatory Options

21. 14-21 Command-and-Control Regulation o One cause of high pollution-abatement costs is heavy reliance on command-and-control regulation o Advantages o It enforces predictable and uniform standards o There is great equity in applying the same rules to all firms in an industry

22. 14-22 Command-and-Control Regulation o It produces abatements and it comforts the public to know that the EPA is watching and regulating o This approach can be inefficient and increase costs without commensurate increases in benefits

23. 14-23 Market Incentive Regulation o Gives polluters financial motives to control pollution while giving them flexibility in how reductions are achieved. o Environmental taxes o Emission trading (cap and trade) o Carbon offsets o Some environmentalists ridicule carbon offsets o Information disclosure

24. 14-24 Figure 14.6 - How a Cap-and-Trade System with Offsets Works

25. 14-25 Voluntary Regulation o Voluntary regulation: Regulation without legal compulsion or sanctions o When a company signs up for a voluntary program, there are reporting requirements, but no enforcement actions are taken for failure to meet goals

26. 14-26 Voluntary Regulation o Company motives for participating: o Companies believe more regulation is imminent and want to prepare control strategies now o Nonregulatory pressures for companies to be environmentally responsible

27. 14-27 Figure 14.7 - The Environmental Protection Agency’s Climate Leaders Program

28. 14-28 Managing Environmental Quality o Environmental management systems (EMS) have been adopted by many firms o The leading international model for EMSs is ISO 14001 o Actions to reduce environmental impacts o Precautionary action o Pollution prevention o Product analysis

29. 14-29 Managing Environmental Quality o Environmental marketing o Environmental metrics o Environmental management system (EMS) o A set of methods and procedures for aligning corporate strategies, policies, and operations with principles that protect ecosystems

30. 14-30 Concluding Observations o This chapter looked more deeply into the methods of regulations o New, more flexible, market-based approaches can be used to achieve environment-preserving goals o Much progress has been made in protecting both ecosystems and human health o The sum of regulatory activity and voluntary business action has been inadequate to avert climate change