McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 14

Managing Environmental
Quality
This chapter:
Explains how pollution risks are assessed to determine
which are most important to regulate.
Discusses alternative approaches to regulation with
emphasis on new, more flexible initiatives.
Illustrates how many companies are now managed
differently so they can move beyond simple legal
compliance.
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The Commerce Railyards

Opening Case
The city of Commerce, near Los Angeles, is a vibrant jumble
of factories, businesses, and residential neighborhoods.
The city has four railyards and they saturate Commerce with
diesel exhaust.
The people in the neighborhoods near the railyards have an
estimated cancer risk elevation of up to 800 chances in a
million.
The EPA and California regulators have sought emissionreduction measures.
The people of Commerce think that progress in emissionreduction is too slow.
The case of diesel exhaust emission in Commerce is an
example of how regulators attempt to assess pollution risks
and manage environmental quality.
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Regulating Environmental
Risk
The majority of the benefits and costs
produced by Federal regulation are derived
from environmental rules.
For every dollar spent on environmental
regulation the nation gets between $2.15
and $10.52 in benefits.
Environmental expenditures need to be
focused on the highest risks to human
health and the natural environment.

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Elements of Risk Assessment and

Risk Management and Their
Sequence

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Risk Assessment
In theory, risk assessment is a scientific
process leading to an objective, quantitative
measure of the risks posed by any substance.
The EPA and other agencies make a series of
precautionary assumptions based on the
fear that scientific data might understate risks
to human health.
Risks are often overstated to ensure that
public health is protected with a margin of
safety.
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Hazard Assessment
Hazard assessment establishes a link between a
substance and human disease.
Animal testing is one method, with problems:
Scientists rely heavily on strains of rats and
mice genetically disposed to high rates of tumor
production.
In animals exposed to large amounts of a
chemical, tumors can arise from tissue irritation
rather than carcinogenesis.
Animal physiology can be so different from
humans that disease processes are unique.
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Hazard Assessment
(continued)
A second method of identifying hazards is
epidemiological study.
Epidemiological studies have the advantage of
measuring real human illness, but also have
problems.
Low statistical power riddled with uncertainties.
Cancer latency periods so these studies may
not detect harm done by recent exposures.
Data from one population may not predict risk
for another population.

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Dose-Response
Assessment
A dose-response assessment is a quantitative
estimate of how toxic a substance is to humans or
animals at increasing levels of exposures.
For most chemicals, regulators use extrapolation
from high doses to predict the effects on human
populations at much lower doses.
Linear-dose response rate
The EPA makes the precautionary assumption that
risk estimates should be based on the linear curve.
Industry favors the use of sublinear and threshold
models that support less regulation.
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Exposure Assessment
Exposure assessment is the study of how
much of a substance humans absorb
through inhalation, ingestion, or skin
absorption.
To make exposure assessments,
researchers measure activities that bring
individuals in contact with toxic
substances.
Regulators present their estimates as a
distribution of individual exposures.
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Risk Characterization
Risk characterization is an overall
conclusion about the dangers of a substance.
It is a detailed, written narrative describing
the scientific evidence, including areas of
ambiguity.
Risk characterizations are built on scientific
calculations of toxicity, potency, and exposure.
The precision of risk characterizations are
limited.

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Risk Management
Control options
These are alternative methods for reducing
most risks.

Legal considerations
Many environmental laws are specific about
risk reduction required and methods of
achieving it.

Economic and social factors

Risk decisions cannot always be based solely
on scientific findings.
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Cost-Benefit Analysis
Cost-benefit analysis is the systematic
calculation and comparison of the costs and
benefits of a proposed action.
Cost calculations typically include such factors
as:

Enforcement costs
Capital and compliance costs to industry
Potential job losses and inflation
Reduced productivity such as lowered crop yields
or the costs of substitution for a banned substance

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Cost-Benefit Analysis
(continued)
Benefits can include:

Lives saved
Reduced absenteeism from work
Lower health care expenditures
Rising property values
Increase tourism
Heightened aesthetic appeal

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Advantages of CostBenefit Analysis

Forces methodical consideration of
each economic impact a policy will have
on society.
Injects rational calculation into
emotional arguments.
Cost-benefit analysis that reveals
marginal abatement costs can help
regulators find the most efficient levels
of regulation.
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Criticisms of Cost-Benefit
Analysis
Fixing price values of costs and benefits is difficult
and controversial.
Contingent valuation is one method of measuring the
monetary value of ecosystem goods.
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.

Cost-benefit approaches compromise ecosystems

deserving absolute, not conditional, protection.
Benefits and costs of a program often fall to
separate parties.

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The Spectrum of Regulatory

Options

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Command-and-Control
Regulation
One cause of high pollution-abatement costs is
heavy reliance on command-and-control
regulation.
Advantages
It enforces predictable and uniform standards.
There is great equity in applying the same rules to all firms
in an industry.
It produces abatements and it comforts the public to know
that the EPA is watching and regulating.

However, this approach can be inefficient and

increase costs without commensurate increases in
benefits.
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Market Incentive
Regulation
Gives polluters financial motives to
control pollution while giving them
flexibility in how reductions are
achieved.
Environmental taxes
Emission trading (cap and trade)
Carbon offsets
Some environmentalists ridicule carbon offsets

Information disclosure
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Voluntary Regulation
Another way that regulation is made more flexible
is the voluntary program.
When a company signs up for a voluntary program,
there are often reporting requirements, but no
enforcement actions are taken for failure to meet
goals.
Company motives for participating:
Companies believe more regulation is imminent
and want to prepare control strategies now.
Nonregulatory pressures for companies to be
environmentally responsible.
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Managing Environmental
Quality
Environmental management
systems (EMS) have been adopted
by many firms.
The leading international model for
EMSs is ISO 14001.
Actions to reduce environmental
impacts

Precautionary action
Pollution prevention
Product analysis
Environmental marketing
Environmental metrics

Environmental
management
system (EMS)
A set of methods
and procedures
for aligning
corporate
strategies,
policies, and
operations with
principles that
protect
ecosystems.

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

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