Business and Environmental Regulations

Several years ago, my good friend Ralph (Skip) Luken wrote a book titled “Efficiency in Environmental Regulation : A Benefit-Cost Analysis of Alternative Approaches”. Skip’s work was in the context of United States. I decided to revisit his work. and investigate effectiveness (not efficiency) of India’s environmental regulations. I found that not much work was done on this subject in India.

I classified government environmental regulations in following categories.

• Regulations that direct bans, prohibit substances, products and technologies
• Regulations that restrict development in sensitive zones or prescribe strict conditions on the type and scale of development
• Regulations that ask for environmental clearance (requiring EIA) and permits (consent) and state conditions to establish and operate
• Regulations that state requirements of compliance e.g. emission standards, ambient standards, resource consumption and waste generation benchmarks
• Regulations that ask for targets on Waste utilization (e.g. fly ash), Wastewater reuse, Zero Liquid Discharge (ZLD) etc.
• Regulations that obligate as Extended Producer Responsibility (EPR) and Corporate Social Responsibility (CSR)
• Regulations on canvas like Circular Economy.
• Regulations that insist on monitoring, data transmission and reporting on environmental compliance and sustainability.

I thought that this basic classification was good enough to commence my research. So, I met my Professor friend at our usual coffee shop on a Sunday morning. I was keen to get his inputs. Professor heard me patiently.

“Well Dr Modak, a good attempt of categorization. But do you have any good stories to talk about on the effectiveness?” He sounded a bit sarcastic.

I thought for a while. Indeed, these regulations were well intended, but in many cases,  there were overlaps and ambiguities. Further, there were major weaknesses regarding enforcement. Limited fiscal resources and poor capacities of institutions made the situation challenging. Supreme court and National Green Tribunal seemed to play a major role with judges taking decisions without 101 Course on Environment. I did not want to point out corruption as an issue. Every regulation today is plagued with corruption. Isn’t it?

Professor saw me thinking. He lit his cigar and said.

“Dr Modak, you should look at the environmental regulations in a different perspective and not solely assess them from the perspective of effectiveness. We know that regulations you cited have not been effective for many reasons but don’t forget these regulations have significantly impacted the business”

Professor saw me confused, so he continued.

“Take your category of regulations on bans and phaseouts. Several companies in Japan, Europe and Americas made tremendous money on phasing out of Ozone Depleting Substances (ODS).  The “unpacking” of substances and technologies as alternatives to ODS matched closely with the signing up of Montreal Protocol. Was it by design? Let me not open up a pandora’s box. The world of business is much more clever than you would think”.

Professor gave a pause and cleaned his pipe. He continued.

“Of course, there were several businesses who faced difficulties in this phase out or switch over. As a “compensation”, businesses operating in the developing or Article 5 countries received grant funds from the Multilateral Fund. Transfer of technology was thus lubricated. While the challenge of widening of the Ozone Hole was addressed, the structure of the business changed substantially”.

I agreed with the Professor. When phase out related regulations are planned with a road map, businesses are better prepared and respond to then challenge with innovation. New business ecosystems get established. Research at academia gets influenced with contract-based funding and efforts made on raising the awareness of the consumers, create a new market force. Figure below, taken from an article on Global Cognizance of Chemical Restrictions Drives Future Business shows how environmental regulations influenced the Aviation industry and associated businesses. I wish we had such a map for Indian industries.

There have been ongoing discussions with commitments made on the phase out of diesel cars, especially in UK, France and Germany.  See an article Countries are announcing plans to phase out petrol and diesel cars. Is yours on the list?  In the next two decades, we will see a major change of business in the global automobile industry.

Professor asked for some cookies and continued

“But remember Dr Modak, when these regulations on phase outs are introduced on ad-hoc basis, their effectiveness is low, and the business responds like a headless chicken. Things don’t work at all. Today, there is a global battle against single-use plastics, particularly when it comes to the once-ubiquitous plastic bag. A new report from UN Environment and WRI found that at least 127 countries (of 192 reviewed) adopted some form of legislation to regulate plastic bags as of July 2018. These policies range from outright bans in the Marshall Islands to progressive phase-outs in places like Moldova and Uzbekistan to laws in Romania and Vietnam that incentivize the use of reusable bags.  Despite these bans, we continue to see “plastic pollution” as the root cause is our irresponsible behaviour especially on littering and wasteful consumption patterns that requires a behavioural change.   And India is no exception”

I thought that our Ministry of Environment & Forests & Climate Change (MoEF&CC) prepares a road map of bans and phaseouts in consultation with the line ministries for the next 10 years. This will help industry and research bodies to respond and get prepared. But I decided not to speak about it as I knew that Professor would have a good laugh on this idea, for a Ministry that has a blurred vision and an impressive record of poor actions.

“As regards your other categories, such as regulations on planning/zoning, environmental clearance requirements and standards, there is nothing much exciting to be said regarding effectiveness”. Professor said this with a smirk and continued.

“All these regulations have achieved is a successful creation of a new line of business on EIA for scientists, engineers, lawyers. committee members and for anybody who has political connections. Regulations asking for online  monitoring have generated huge business for international companies and their “agents” or “representatives” in India benefiting many times, the regulators, who participate based on commissions”

Strong words but I couldn’t disagree. Indeed, these environmental regulations have created a large environmental industry surrounding the offices of the regulators. A significant amount of money is “leaked” while the environment continues to choke.

I suggested Professor that perhaps standards based on loads (i.e. mass based emission standards) and resource consumption benchmarks could make a difference, but Professor pooh poohed my idea saying that I was suggesting something  theoretical and impractical. “Think of the difficulty of measuring the mass of emission release and paucity and quality of data on resource consumption” – he said.

“And on circular economy, the concept itself is not well understood. So forget framing a regulation”.

We then spoke about the obligations of EPR and CSR. Both of us agreed that if practiced well, these regulations could have a very positive and rewarding impact beyond the “factory gate”. These regulations have potential to support innovations (technological as well as social), help  those underprivileged especially the informal sector and conserve and protect our environmental resources. There is a clear business case in the interest of the industry as well as the environment. I thought I should perhaps focus my study on effectiveness of environmental regulations only on EPR and CSR.

I remember Late Mr T N Seshan, then Secretary of Environment once said “close down the Pollution Control Boards (regulator) in India and it will make no difference to the environment.   The environment may in fact improve!”.  Many of us could understand Mr Seshan’s anguish.

Well, we do need a regulator – but a smart one who can steer the business towards compliance, competitiveness and innovations for the sustainability of this planet.

Environmental  regulations have that power that is often not realized. Can the regulator play a role of facilitator to the business? How can it be done?  I thought I should ask Professor about his views but by that time, he was already settling the bill.

Cover image taken from https://www.indiatoday.in/india/story/56-per-cent-paid-bribe-in-last-one-year-91-per-cent-don-t-know-about-anti-corruption-helpline-survey-1360392-2018-10-11

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