Industrial Innovation and Environmental Regulation: Developing Workable Solutions

By Saeed Parto; Brent Herbert-Copley | Go to book overview

8
Reconfiguring environmental
regulation: Next-generation policy
instruments

Neil Gunningham

The environmental impact of industry, especially pollution, has been subject to regulation for at least three decades, under an approach that is somewhat unfairly called “command and control” regulation.1 This approach typically specifies standards, and sometimes technologies, with which the regulated must comply (the “command”) or be penalized (the “control”). It commonly requires polluters to apply the best feasible techniques to minimize the environmental harm caused by their activities. Command and control has achieved some considerable successes, especially in terms of reducing air and water pollution. However, this “first generation” of environmental regulation has been widely criticized by economists for inhibiting innovation and for its high costs, inflexibility and diminishing returns.

The problems of command and control can be overstated and its considerable achievements too easily dismissed. At the same time, its limitations have led policymakers and regulators to recognize that it provides only a part of the policy solution, particularly in a rapidly changing, increasingly complex and interdependent world. However, regulatory reform must take place in an environment of shrinking regulatory resources, making it necessary in some contexts to design strategies capable of achieving results even in the absence of a credible enforcement regime (as when dealing with small and medium-sized enterprises), and in almost all circumstances to extract the “biggest bang” from a much diminished “regulatory buck”.

This paper is about how to design regulation and alternatives to regu-

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