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R. Bracke and M. De Clercq

Stringent policy control and effective negotiated environmental agreements: counterproductive forces ?. R. Bracke and M. De Clercq. Content. Introduction The model Policy implications Conclusions. R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff. Introduction.

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R. Bracke and M. De Clercq

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  1. Stringent policy control and effective negotiated environmental agreements: counterproductive forces? R. Bracke and M. De Clercq

  2. Content • Introduction • The model • Policy implications • Conclusions R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  3. Introduction R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  4. Trends in instrument use SOFTLAW HARD LAW • regulations • market based instruments • Unilateral commitments • voluntary schemes • Negotiated agreements R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  5. Environmental policy instruments Voluntary approaches C&C MBI Unilateral commitments Voluntary schemes Negotiated agreements EMS Labels R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  6. Policy process regulator regulator companies companies TOP DOWN Based on coercion CO-OPERATION Based on partnership R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  7. NEA enthusiasm • “Environmental agreements have an important role to play within the mix of policy instruments sought by the Commission” (EC, 1996) • “The increase in the use of voluntary approaches since the beginning of the 1990s is mainly due to the favourable attitude of both industry and public authorities towards these instruments” (OECD, 1999) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  8. NEA evaluations • “environmental effectiveness of negotiated agreements appears rather modest” (OECD, 1999) • “negotated agreements seem to perform poorly due to non-enforceable commitments, poor monitoring and lack of transparency” (OECD, 1999) • “It is very difficult to draw general conclusions about the environmental effectiveness of EAs” (EEA 1997) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  9. Policy recommendations • Background legislative threat (policy mix) • Strengtening the desing of NEA • Quantified targets • monitoring • Control and enforcement • Sanctions for non-compliance R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  10. Legislative Threat • The legislative threat option has been ginven much attention in the literature but • Executive (environmental agency) versus legislative power • Agreements are especially interesting policy instruments where other instruments are not feasible (e.g. economic or political motivations) • Integrating a legislative instrument may tackle the advantage of fast and flexible policy making by negotiated agreements R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  11. Control and enforcement policy Binding agreements Second generation agreements with quantified targets, strong provisions concerning monitoring, control, enforcement…. Concluded in a policy framework Gentleman’s agreements non-binding agreements that do not provide for sanctions in case of non-compliance (ELNI, 1998). vague non-quantified targets and no credible and efficient monitoring and reporting requirements (OECD, 1999) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  12. Examples • guidelines • EC, 1996 ‘Communication…’ • OECD, 1999 • Legal framework • Flanders (1994) • Denmark (1992) • Administrative guidelines • The Netherlands (1996, updated 2003) • Portugal (1995) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  13. Policy outcome • Denmark: only 1 agreement • Flanders: (only) 7 agreements in 10 years time (long and difficult negotiation phase; 2 outside the framework) • Netherlands and Portugal considered more successful R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  14. Aim of the paper • Develop a simple model to analyse the impact of a more “stringent control and enforcement policy” on the acceptance and compliance decision • First time the compliance decision is taken into account R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  15. The model R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  16. The setting: pollution abatement L • 0 ≤ L ≤ M: Pareto-optimal pollution reduction level (level in case of legislative intervention) • 0 ≤ α ≤ M: pollution reduction level of an environmental agreement • Linear abatement costs C(α) = xα 0 α M R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  17. Decision tree Non-acceptance acceptance pC(L) Non-compliance compliance Possibility of abatement cost for L cF C(α) Possibility of being fined Abatement cost for α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  18. Uncertainty • When the acceptance decision has to be made, there is uncertainty about the compliance decision (e.g. new abatement technology, price of emission credits, profit levels, strictness of control…) • Here we assume there is no uncertainty about the abatement cost, but only uncertainty about the futureability/willingness to pay the abatement cost (future profit levels are uncertain and exogenous) • Thus acceptance decision taken with imperfect information; compliance decision taken with perfect information R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  19. Acceptance decision • Acceptance if the expected cost of non-acceptance is higher than or equals the expected acceptance cost or if With • α/M being the chance of non-compliance • 1-(α/M) being the chance of compliance (the higher the target α, the higher the chance of non-compliance and vice versa) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  20. Expected acceptance cost Mx/4 cF M/2 M α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  21. Expected acceptance cost curve Cα cF M α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  22. Expected acceptance cost curve • The expected acceptance cost curve always has a downward sloping part if • This implies that the cost for non-compliance should be below the abatement cost for achieving a zero pollution level (acceptable condition) • Downward sloping part is explained by the fact that the decline in expected abatement cost is not completely compensated by the increase in the expected non-compliance cost R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  23. Acceptance decision Cα pC(L) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  24. Compliance decision • Decision with perfect information • Compliance if the abatement cost is below the non-compliance cost or if • F instead of fine think of loss of confidence from authorities, public image, administrative trouble… R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  25. Compliance decision C(α) cF Cα α cF/x M R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  26. Policy implications R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  27. Policy options • Background legislative pressure (p): • only influences the acceptance decision • Higher p leads to a larger range of acceptable agreements • Control and enforcement regime (c): • Higher c leads to a higher compliance range • But decreases the range of acceptable agreements (increases the expected acceptance cost) counterproductive effect R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  28. Evaluation indicators • Acceptance rate (AR): percentage of agreements of all possible agreements that will be accepted • Compliance rate (CR): percentage of agreements of all acceptable agreements that will be complied with • Compliance range: percentage of agreements of all possible agreements that will be complied with (acceptance rate = acceptance range) Successful agreement: agreement that is accepted and will be complied with R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  29. Three settings • The impact of the policy change depends on the initial level of p and c • Three settings will be distinguished • Legislative threat = E(non-compliance cost) • Legislative threat < E(non-compliance cost) • Legislative threat > E(non-compliance cost) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  30. (1) pC(L) = cF pC(L) = cF α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  31. Evaluation of setting (1) • Acceptance range = compliance range • Compliance rate = 100% (no unexploited agreements) • Distinction between ‘sanction’ for non-acceptance and non-compliance is redundant and we arrive at the analysis of Segerson and Miceli (1998 in JEE&M) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  32. Policy options in setting (1) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  33. (2) pC(L) < cF cF pC(L) α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  34. Evaluation of setting (2) • Compliance range is larger than the acceptance range • 100% compliancerate • unexploited agreements: agreements that would be complied with but that are not concluded R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  35. Policy options in setting (2) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  36. (3) pC(L) > cF pC(L) cF α R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  37. Evaluation of setting (3) • Acceptance range consists of two intervals • The compliance rate is below 100%; i.e. there are agreements that will be accepted but not concluded (also in the first range) • This might be worse than the previous situation as • There is no use in concluding agreements that will not be executed • Not concluding an agreement leaves open the opportunity of other policy actions R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  38. Policy options in setting (3) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  39. Evaluation summary R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  40. Optimal policy options • Policy measures that bring the legislative threat in line with the control regime increase the range of successful agreements • Creating a background threat and organising a monitoring and control are two different things and done by different actors • Threat: legislative power, convincing, • Control: stimulation, coordination, practical implementation … ‘keeping the agreement alive’ R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  41. Conclusions R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  42. conclusions • Model to analyse acceptance and compliance decisions of companies in NEAs • Model can explain the decline in the use of NEA in Flanders and Denmark due to the introduction of NEA design-guidelines • ‘First best’ when background legislative threat equals the expected non-compliance cost • Only policy changes that bring both more in line increase the range of successful agreements R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  43. conclusions • However, creating a policy environment for concluding agreements is not the same as a control and enforcement regime • Background threat: legislative power, stimulate business to take up responsibility, create incentives… (e.g. Netherlands) • Control regime: environmental agency, set up monitoring systems, discuss actual implementation problems, coordinate… (e.g. benchmarking agreements) R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

  44. Questions…Remarks…Suggestions… R. Bracke and M. De Clercq GIN 2006, 2-5 July, BRASS, Cardiff

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