Environmental Law

26/02/2015

Towards smart environmental regulation that stimulates innovation

The economic crisis has spurred legislatures and regulators around the world to take away possible obstacles for economic growth through deregulation and to introduce or amend provisions with the aim to offer businesses greater flexibility and room for experiments. Environmental laws and regulations are often targeted by politicians and regulators because businesses complain that environmental rules and standards present stumbling blocks not just for economic growth in general, but for innovations that lead to a net benefit for the environment as well.

What is the relationship between environmental regulation (used here to indicate the various regulatory instruments such as EU Directives and Regulations, domestic Acts of Parliament and delegated regulations, as well as ordinances at decentralized levels of government) and innovations that leads to major improvements in environmental performance of businesses? When does environmental regulation hinder innovation and when does it promote innovation?

The market does not usually lead to innovation because environmental improvements are not often rewarded by the market: benefits are for society at large, not for individual businesses and do not, usually, lead to greater profits. Research shows that innovation efforts die as a consequence of internal obstacles (lack of know-how, lack of time and financial resources, unclear internal responsibility for innovation processes etc.). Therefore, the government plays an important role. How should the government than foster innovation? In a soft way (through the supply of information, training, subsidies, voluntary rules) or in a legally binding way? Over the past two decades, a lot of research focused on these questions. The starting point of all this research is the so called Porter hypothesis, developed by Michael Porter from the Harvard Business School (Porter 1991). His work has radically changed the way we look at the role of environmental regulation. The dominant idea of economists was that environmental laws and regulations are a burden for businesses. They have a negative impact on businesses even in case the environmental laws lead to benefits for society at large, because the introduction of new rules lead to reduced value within companies. The Porter hypothesis, which is broadly supported by empirical research, states that well designed environmental regulations lead to innovations that not only have a positive impact on the environment, but also lead to cost reductions for companies and, in the somewhat longer run, to a competitive benefit of the innovating company when compared to its competitors in the market. More specifically, environmental laws (Ambec et al. 2013):

• Indicate businesses that they are possibly using resources inefficiently and show them where potential improvements are;
• Laws aimed at the collection and dissemination of environmental information within the company helps the company to work better because of increased awareness and involvement of its employees (raising corporate awareness);
• Diminish uncertainty about the profitability of investments in clean technologies and practices;
• Introduces pressure that stimulates innovation and progress;
• Sets a level playing field in a transitional phase as a consequence of which opportunistic companies that do not innovate do not have economic benefits.

What is ‘well designed’ environmental regulation? Three factors are relevant: a) environmental regulation should leave maximum room for innovation, b) environmental regulation should focus on continuous improvement and not on the adoption of a certain technology, c) the regulatory process should leave as little room for uncertainty as possible.

Empirical research has shown that, based on these criteria, environmental taxes work very good, better than emissions trading (because with ETS there is always market uncertainty, and after the biggest players have acquired the necessary allowances, the need to improve is gone, and the ETS has very high transaction costs). Economic instruments like taxes have to be accompanied by other instruments: a) industry policy, patent law, subsidies and taxes aimed at enhancing innovation, b) programmes aimed at supporting managers of business corporations to acquire the necessary knowledge on possible technological innovations that are relevant for his or her company, c) legislation that aims to make information publicly available to spread innovations. The organisation of the business corporation itself needs to be adjusted to foster innovation too. Ground breaking empirical research into environmental performance in the paper from pulp industry in the US, Canada, Australia and New Zealand shows that big differences between companies that merely followed environmental regulations and those that went ‘beyond compliance’ were entirely to be explained from the internal culture of the company (Kagan, Gunningham, Thornton 2003).

Innovation can also be forced by regulators. This is called ‘technology forcing’: innovation is stimulated when the regulator sets unattainable environmental goals, goals that cannot be achieved when applying existing technology and regular practices. Regulation that is gradually becoming stricter leads to incremental changes and not to innovations (‘moving target regulation’). ‘Disruptive regulation’ does lead to innovation, as is best shown through the well-known example of the emissions from cars-standards introduced in the 1970s, first in California, later at the federal level in the US (aiming at a 90% reduction of polluting emissions). The adoption of these standards lead to the introduction of the catalytic converter. In Europe, a similar example exists with the 2000 End-of-life vehicles directive, requiring end-manufacturers to take back all their end of life vehicles and to reuse or recycle 80-95% of the vehicles. This has had a tremendous impact on the entire production chain, as car manufactures required their suppliers to deliver only reusable or recyclable parts.

This brief overview of what we currently know about the relationship between regulation and innovation shows that regulators should develop a regulatory policy aimed at stimulating innovation, rather than applying blunt deregulation policies or introducing all kinds of flexible norms that may or may not lead to innovation. Such a regulatory policy aimed at achieving innovation for better environmental and economic performance should take into account following lessons from more than 20 of academic research:

• Strict environmental goals that are stable for a good number of years are essential for radical innovation;
• Incremental improvements are facilitated by standards that gradually become stricter. In case the regulator opts for such gradually changing rules, radical innovation will not happen;
• The regulator has to take away information asymmetry and, more generally, embed strict environmental goals in a wider innovation facilitating policy.

At the Tilburg Sustainability Center, we are currently researching this issue within the context of the Netherlands Environment Act, which has rules on the environment, water, nature conservation, and land use planning. Empirical research into several cases in which radical innovation was pursued (sometimes successful, sometimes unsuccessful) provides us with very interesting findings. In a later blog, I will report on our findings in more detail. Generally, we find that environmental laws, currently, do not stimulate innovation following the guidelines described above. Instead, environmental laws, at best do not hinder innovations. Other constraints than those present in environmental law are more relevant, such as a non-cooperative attitude with individual government officials. Companies indicate that their enthusiastic new ideas and proposals are often met with scepticism. Often government officials first say: “no, this is impossible”, as they (especially those trained as lawyers!) are used to think in worst case scenarios, and aim for regulating against all possible negative consequences. When asked what the background of their response is, and both the official and the business representative jointly look for a solution for the underlying problem, it often appears that easy solutions exist.

Local political issues are a far bigger reason for failure or at least delays. Local politicians are interested in short term benefits for the local community that they represent. The direct, local impacts of innovations are not always known as we cannot rely on much experience (that is a typical feature of any innovation!). Local communities may, therefore, resist the unknown.

Problematic too are the number of government levels, agencies and divisions within one government level involved in some of the innovation project we researched, especially when the innovations have major spatial implications (such as the development of a zero emissions sustainable business park, applying circular economy principles). In such cases, it is important that there is business can rely on one contact point for all government issues involved. This person should coordinate the activities of various authorities involved, meet relevant officials and those bearing political responsibility, talk, persuade, and explain the project to all stakeholders involved, including local communities.

More generally, the case studies show that a positive, constructive personal attitude of all of those involved in the decision-making process is essential for the success of an innovation.

One element remains problematic, even with the presence of a lot of constructive and positive stakeholders, and that is the element of time. The experience of time in businesses is completely different from that within governments. Businesses see opportunities in the market and want to jump into these opportunities rather tomorrow than the day after. The decision-making process, especially when various levels of government are involved and a project becomes the subject of political deliberations, can take several years. At a given point, the market opportunity is gone, at which point the company or companies involved will have lost interest in the innovative project. This is a pity, not just for these companies, but also for the environment.

20/02/2015

Climate Induced Displacement or Anticipatory migration? Time to decide!

For a long while, environmental degradation, climate change and its impacts were primarily on the scientific—not public—agenda. The topic was surrounded by much scepticism and policy-makers had little interest to act upon it. Of course, the situation changed dramatically, with climate change now acknowledged as one of the central global challenges.[i] The impacts of climate change go far beyond damaging flora and fauna. Already in 1990, the IPCC predicted that one of the greatest impacts of climate change will be on human migration.[ii] People will be induced to move as a result of such factors as increasing intensity of extreme weather events, sea-level rise, droughts and accelerated environmental degradation. Although it is complicated to estimate the precise amount of those likely to be displaced as a result of global warming, according to the UN this number will range between 50 million and 350 million by 2050[iii]

From the legal perspective, people relocating or being displaced due to climate change fall in something of a limbo, not fitting under existing international legal frameworks. While several approaches to conceptualize this group of people have been suggested, no solution so far has been found. Despite the differences, existing approaches (for example, expanding the 1951 Refugee Convention to include people displaced by climate change, creating a separate convention, or drafting an optional protocol to the UNFCCC) tend to treat climate induced migration as a protection issue, where people affected by climate change need to be protected through this or that mechanism based on this or that grounds. This approach, as McAdam explains, is based on “the assumption … that movement is forced and should be treated as a refugee-like nature, with binding protection obligations for States … with respect to those displaced.”[iv]

At the same time, achieving any success through this protectionist approach appears hardly realistic. States are reluctant to accept responsibilities towards people affected by climate change, to develop new treaties, or to expand existing ones.[v] Furthermore, still very little is known about this type of movement, empirical data is limited, and proving that climate change is a “push factor” for migration is not possible.[vi]

The hopeless protectionist approach means, in reality, a “wait-and-see approach”. While negotiations and political debates remain stuck, the situation of people living in the areas affected by climate change will continuously worsen. At some point this will leave these people with no other choice than to look for a better and more secure livelihood elsewhere. Since they largely lack any legal grounds for relocation, they will use any opportunities, including dangerous and illegal.

Developed countries, particularly the USA, Australia and the EU’s member states, as top destination countries for migrants, have a choice to stick to the wait-and-see approach or to start taking anticipatory measures to mitigate the upcoming migration crisis. The examples of the Lampedusa and Christmas Islands, and the facts that there are already 16.7 million refugees and 51.2 million forcibly displaced persons worldwide who have no durable solution in sight, are just some of the arguments against waiting until people affected by climate change will join the fate of “boat people”.[vii] Another argument is that, as McAdam has warned – “a wait-and-see approach” with respect to movement … could ultimately stimulate a dynamic interpretation of human rights law so as to provide a remedy for people whose homes have become uninhabitable. This, in turn, may create a precedent for accepting people from other affected States (with much larger populations, such as Bangladesh).”[viii]

Tuvalu (Creative Commons license. Photo: Tomoaki INABA at Flickr)

These concerns are in fact no longer just theoretical, since the first case has already been ruled, with a Tuvaluan family getting a residence in New Zealand on humanitarian grounds. The “decision of the New Zealand Immigration and Protection Tribunal does not grant the applicants refugee status under the 1951 Refugee Convention.The bases for humanitarian status were the applicants’ strong family ties and community connections in New Zealand, and not the climate change claim[ix]. Therefore, the applicants are not the world’s first climate change refugees, contrary to the numerous headlines of the media.[x] The decision of the New Zealand Immigration and Protection Tribunal has no impact at international level. As Corendea, a legal expert at the United Nations University, said in that regard, “It is not significant for the international arena, as this is an isolated rule … and the decision of the court may not set a precedent, but an example at best.”[xi] However, this doesn’t mean that the case is internationally irrelevant. “Tribunals and courts in other countries looking at similar issues could find the reasoning persuasive.”[xii] Furthermore, as François Gemene argues while the legal implications of this case are yet small, the political ramifications may be vast.

At first glance, one of the remedies against the escalation of the migration crisis can—paradoxically—be anticipatory migration. In fact, there is sufficient evidence that promoting migration—i.e. allowing temporary, seasonal labour migration of people leaving areas affected by climate change, giving them opportunities to improve their economic situation and to mitigate the risk that they will be induced to relocate—can be an attractive way to diminish the crisis. Besides the fact that allowing for legal immigration will mitigate irregular migration, it can generate a triple-win and be beneficial for migrants, sending countries, and destination countries.

The potential benefits of migration and its positive influence on development are in general well-acknowledged. As Kofi Annan, ex-Secretary-General of the UN emphasized, “The potential for migrants to help transform their native countries has captured the imaginations of national and local authorities, international institutions and the private sector.” Migration is acknowledged as the most effective mechanism to rapidly increase the incomes of poor people. [xiii]

For people affected by climate change, the most important benefit is that labour migration contributes to the adaptive capacity and resilience of places affected by climate change and helps to develop responses against climate change.[xiv] As Adger explains, the capacity of a system to respond to climate change to moderate or avoid its negative consequences is a function of a number of properties, including: financial resources (to pay for adaptation); governance (to steer the adaptation process and how legitimate that process is); information (to anticipate climate risks, devise appropriate adaptations, and learn from their implementation); social resources (to network and form bonds among people and groups so that social responses to climate change are cohesive, equitable, and robust); infrastructure; and technology (to provide tools and crafts that help adapt)[xv]. Migration can therefore make significant positive contributions to many of these determinants of adaptive capacity. For example, remittances increase financial resources, and migrants can increase a community’s access to information and expand social networks. [xvi] In this sense, migration can offer a “brain gain” rather than merely a “brain drain” (ADB, 2012).[xvii] Job opportunities abroad can also help motivate the young to acquire the appropriate skills.[xviii] Furthermore, even short term migration reduces stresses on the environment, and helps mitigate overfishing and water pollution.

However, it is not only the sending countries and migrants which benefit. Differences in the supply of and demand for labour across countries present opportunities for mutual benefits from mobility.[xix] The current world population is projected to increase by 1 billion over the next 12 years and reach 9.6 billion by 2050. This growth will be mainly in developing countries, with more than half in Africa.[xx] Therefore, the growth will mainly take place in the countries which may not be able to offer sufficient resources, infrastructure, and institutes their to populations. At the same time, the working age population in the high-income countries will be declining due to low fertility and aging of the population.[xxi] This will necessitate greater flows of workers from low-income to high-income countries, as the latter seek to maintain the size of their workforces. For destination countries, well-managed migration can help bridge labour market gaps, provide labour to fuel structural economic transformation, drive innovation through migrants’ dynamism, and contribute to social security systems.[xxii]

Therefore, creating migration schemes and expanding existing ones can help the development and adaptation in the countries affected by climate change countries, fill the labour shortages in the developed countries, and diminish the risk of illegal immigration of people living in the regions affected by climate change.

Nevertheless, it has to be acknowledged that promoting migration on the regional level is not a panacea for a global migration crisis. The challenging nature of climate-induced displacement and migration requires complex solution. The negotiations on the international level must continue, and the international community must start acting. However, giving an anticipatory chance to some victims of climate change to migrate can positively contribute to the global solution.