Office of Technology Assessment at the German Bundestag

Reinhard Coenen • Sigrid Klein-Vielhauer • Rolf Meyer

Environmental technology and economic development

TAB report no. 035. Berlin 1995, 123 pages

Summary

The effects of environmental policy on Germany as a location for industry and business are controversial. Favourable effects of the current policy are claimed to be the high employment generated by environmental protection measures and a leading position in the world market for environmental protection equipment. In addition the quality of the environment as a factor in location and its increasing importance are cited. Finally, it is expected that in future the ecological efficiency of products and production processes will become an increasingly important competitive factor alongside price and functional aspects.

On the other hand, possible adverse impacts of environmental policy for Germany as a location for business are adduced, specifically the additional costs to German industry of environmental policy and the dense coverage of environmental protection regulations, the rapid succession of changes in environmental requirements and the overblown bureaucratic dimension. In the current difficult economic situation there are calls for an environmental policy grace period and deregulation.

In this situation the German Parliament's Committee for Education, Science, Research, Technology and Technology Assessment commissioned TAB in 1993 to produce a TA on the issue »The importance of environmental technology for the economic development of the Federal Republic of Germany". The project was completed in November 1995.

After an initial analysis of existing studies and opinions on this controversy, TAB concluded that the bottom line in environmental policy in both economic and ecological terms could be improved if there was a turn away from the dominant use of additive environmental technologies to increased development and use of integrated environmental technologies. The project accordingly focused on integrated environmental technology, reviewing how the development and use of integrated environmental technology could be strengthened, how barriers to innovation in integrated environmental technology could be dismantled and innovation encouraged, how the planning horizon for environmental policy could be widened, and how promotional instruments could be tailored to integrated environmental technology.

Results

Integrated environmental technology has the potential for enhancing microeconomic and macroeconomic efficiency and the ecology. However, the introduction of integrated environmental technology is often associated with substantial change to existing technology and operating structures and to production processes and products. As integrated environmental technology becomes bound up with in-company innovation cycles, the opportunities for increased dissemination of integrated environmental technology are limited in the short term. In contrast, such technologies are, in the long term, a prerequisite for acquiring or consolidating competitive advantages through a high level of ecological and economic efficiency.

Based on the analysis of barriers to innovation and the discussion of environmental policy instruments in terms of their suitability for promoting integrated environmental technology, a proposal for configuring the general environmental context was elaborated, together with three instrumental options for action. Each of these three options focuses on one of the competing types of instruments (regulatory instruments, economic instruments and voluntary self-restraint). In principle, all three options are complemented by promotional instruments and organisational and informational instruments.

Early knowledge of the environmental policy goals and the normative framework are important prerequisites for incorporating integrated environmental technology into the innovation and investment cycles. The development of long-term environmental policy planning in a discourse with all parties involved could improve the chances of using integrated environmental technology. The approach taken in drawing up the long-term Netherlands National Environmental Policy Plan (NEPP) is a possible model here. The process of formulating such a plan should include as a first stage the development of quantitative targets for reducing raw materials consumption and emissions. These should be oriented towards criteria for sustainable development and particularly cover emissions whose current levels significantly exceed the carrying capacity of the environmental media and ecosystems. The second step would be to develop a social dialogue with all the groups involved who would have to contribute to meeting the set targets (target group approach). This dialogue should lead to consensus on the time frame within which the set goals are to be achieved, on interim goals, on short, medium and long term programmes of measures, the corresponding design of environmental policy to achieve the final and interim goals and the contributions to be made by the individual target groups towards meeting the goals. The third step should be a periodic scientific evaluation of implementation of the plan, with an updating of the plan based on the results of the evaluation.

Within the framework of long-term environmental policy planning, it seems necessary to take a basic position on instruments in Germany in order to end the relatively unfruitful (and in part heated) debate on the instruments of environmental policy or shift this debate to a more fundamental level. Such a position on instruments would also be a major contribution towards increasing planning security. Regulatory instruments, economic instruments and self-restraint must be seen as competing with each other in broad sectors. However, a partial combination of instruments is best suited to making the most of their specific advantages. The instrumental options reviewed below are accordingly »mixed options", although each one emphases one type of instrument.

Prioritisation of regulatory instruments (option 1) would represent a continuation of the present German environmental policy. However, the regulatory code is regarded as one of the key barriers to innovation in integrated environmental technology because of its lack of flexibility, its focus on media and individual pollutants, and the lack of economic incentives to implement environmental technologies which go beyond the standards. Under this option, measures should be scheduled to make the regulatory code more dynamic and flexible. Greater attention should be paid to cross-media aspects. The following possibilities could be considered:

• making environmental standards dynamic through early announcements of future tightening of limits
• extending compensatory opportunities within the regulatory code by including closures and new plants and by allowing compensation between media or substances
• greater attention to cross-media aspects in licencing procedures, and
• regulatory norms for product-integrated environmental protection.

Prioritisation of economic instruments (option 2) highlights solving environmental problems through market mechanisms by attaching prices to what has so far been largely free use of the environment. Internalisation of the costs of environmental utilisation through the imposition of environmental levies or the introduction of tradable emission rights should result in significantly more efficient solutions to environmental problems, compared with the regulatory code. In addition, the use of such instruments is expected to bring greater corporate flexibility in meeting environment policy requirements and provide a dynamic stimulus to implementing solutions which use sophisticated environmental technology. This could improve the chances of using integrated environmental technology. The characteristic context for implementing this kind of option is that many environmental sectors in Germany are already covered by a dense regulatory code whose complete replacement by economic instruments would be indefensible, inter alia for reasons of direct prevention of hazards. Possible starting points for an option favouring economic instruments are:

• areas which are so far policed only lightly or not at all by the regulatory code, or where the code is running into limits, e.g. climate-affecting emissions
• areas covered by the regulatory code where further intensification of preventive requirements is replaced by economic instruments
• the product sector, where product levies can be imposed to create economic incentives to more eco-friendly lifecycle management of products ("chain management").

The economic instruments include environmental levies in the form of taxes and special levies, certification regulations and liability law. In areas with little regulatory supervision, the issue of integrated environmental technology dictates that preference should be given to input levies, e.g. taxes on energy and raw materials, as these cannot be »avoided« through additive environmental technology. In areas already covered by the regulatory code, existing regulations can be supplemented by introducing a residual pollution levy or certification procedures for residual emission levels permitted under the code, which would constitute incentives to remain within regulatory limits. Intensifying liability law could be a stimulus for a general reduction in emissions, promoting the use of integrated environmental technology because of its broad potential for reducing pollution.

Prioritisation of self restraint (option 3) would focus on the principle of cooperation in environmental protection, i.e. cooperation between the state, the private sector and other social groups. Cooperation conventions establishing the rights and obligations of the parties should be given preference over unilateral declarations of self restraint, as they have a more binding effect. An example are the environmental industry agreements and covenants concluded in the Netherlands in implementing the National Environmental Policy Plan. These contracts under civil law are concluded between industries and their member companies on one side and government agencies on the other side. The special feature of these Dutch environmental industry covenants is that in contrast to the self restraint declarations to date in Germany they are not limited to a single substance or specific environmental problem, but cover all the main environmental problems caused by an industry. Besides the advantages of flexibility and preserving corporate freedom of action, which can themselves be regarded as promoting integrated environmental technology, such environmental industry covenants which cover many media and substances provide further stimulus for a holistic ecological optimisation through integrated environmental technology. In principle there is a wide range of areas of application for self restraint declarations, not only in industrial environmental protection but also in product environmental protection. Self restraint declarations which satisfy their objective and operate within the framework of environmental industry covenants would leave no necessity for the introduction or tightening of regulatory and economic instruments. However, such instruments offer possibilities for sanctions in the event of a failure to comply with the agreements. Within this option they can also be used as a supplementary input for areas which cannot be covered by self restraint declarations.

Promotional policy instruments (financial promotion of research and development, demonstration projects and investment in environmental technology) would be an important supplementary element in all three instrumental options. To prevent breaks in the chain of innovation and diffusion and to ensure the application of publicly-promoted environmental technology developments, careful coordination is needed between the various government departments promoting development of environmental technology and the departments establishing the relevant conditions for the use of new environmental technologies. More attention should be paid in the process of programme conception and implementation to involving the target groups for the programmes and other social actors, in order to exploit their technological expertise and improve the match between the development of environmental technologies and the conditions for industrial application.

Other supplementary measures are organisational and informational instruments linked to the ecological ability of companies to change. An important instrument for improving corporate environmental management and promoting the use of integrated environmental technology is the eco-audit. Eco-audits can and should identify need for corporate action and achieve the integration of environmental protection as a strategic element in programmes and as an organisational element in decision-making processes. It is expected that this will promote increased use of integrated environmental technology. Finally, the introduction of ecologically-related product labelling requirements and broad use of ecological symbols can contribute to boosting demand for environmentally sounder products.