Addressing Global Environmental Challenges: Using Information as a Novel “Local” Policy Approach
BY NICOLE DARNALL
Imagine shopping for house paint. Your local hardware store stocks half a dozen brands that meet your criteria for price and quality. You notice on one can that there is an environmental label. It looks similar to a common nutritional label seen on most food products. The environmental label provides information about the resources and energy consumed to manufacture the paint, in addition to greenhouse gases and toxic waste produced. You then recognize that all cans of paint have this label. Consider how this information might affect your purchasing decision. All else equal, would you choose to purchase the can with fewer environmental impacts?
Consumers often say ‘yes.’ However, because this information is not available, most consumers and investors have difficulty identifying which products are more environmentally friendly than others, and which companies are striving to be green. In instances where companies are self-promoting their environmentally friendly philosophies, individuals generally question the legitimacy of these claims. The US Federal Trade Commission (FTC) agrees, and views the largely unregulated area of “green advertising” as a primary target for consumer deception. In the 1990s the FTC deemed approximately half of the environmental advertising to be misleading or deceptive. Misleading environmental claims are expected to be even greater today given society’s burgeoning interest in environmental issues.
Environmental product labels have the possibility of addressing these concerns by radically changing consumers’ and investors’ purchasing decisions. Today 15 percent of US consumers routinely pay more for green products, and another 15 percent
seek green products if they do not cost more. These numbers would likely increase significantly if valid environmental information was available for all consumer products.
WHAT IS AN ENVIRONMENTAL PRODUCT LABEL?
Environmental product labels convey information about a product’s environmental attributes. These labels contain multi-dimensional summary facts that can be used by consumers in making their purchasing decisions. Equipped with this information, consumers and investors would have the choice to behave in an environmentally responsible way. Individuals who chose to purchase more environmentally friendly products and support the companies that produce them would derive tangible product benefits, but also intangible benefits related to the “warm glow” of helping the environment. At the same time, consumers and investors who do not consider environmental attributes in their purchasing decisions may be persuaded to reassess their position in the future. Even if only a small portion of individuals uses the environmental information in making their purchases, a small portion is all that is needed to radically change companies’ production decisions so that they become more environmentally friendly.
Further, by virtue of having to report the information publicly, companies would be motivated to seek innovative ways to reduce the environmental footprint of their products. A similar situation occurred when companies in North America, Europe and Japan began reporting their toxic releases in publicly accessible databases. Simply reporting their volumes of toxic chemicals and publicly releasing the information created incentives for companies to significantly reduce their toxic pollution.
Unlike eco-seals, which convey information about a single environmental attribute for which the product either qualifies or not, environmental product labels provide detailed information about several product attributes and would be relevant to all products. These labels parallel the information provided on nutrition labels. They involve the disclosure of numerical information about each element such as pounds of greenhouse gases, toxic air pollutants and hazardous waste, or high/medium/low risk in a table of environmental scores.
GLOBAL IMPACTS
The global impacts of an environmental labeling policy, even if only implemented in the US, could have staggering effects internationally. To improve their local image, US companies would put greater pressures on foreign suppliers to improve the environmental quality of their products and production processes. Additionally, foreign companies that sell their products in US consumer markets would have to disclose the environmental impacts of their products. Doing so could put dirtier foreign companies at a disadvantage over cleaner competitors.
ESSENTIAL ASPECTS OF AN ENVIRONMENTAL PRODUCT LABEL
In the absence of a mandate, most companies would not disclose environmental information. Those that did would not do so consistently across companies, products and key product attributes.
A voluntary product labeling program therefore would not be useful at providing consumers consistent information to inform their purchasing decisions. Standardized formats provide the largest benefit to consumers because they increase the number of products or attributes consumers consider in making their product choices and allow for more accurate choice decisions.
Because the environmental information is impossible for most consumers to verify, the success of an environmental label uniquely hinges on companies being able to credibly communicate to the consumer information about their environmental activities. Label credibility should be ensured by using random testing and by levying swift penalties on companies that use environmental product labels to misrepresent their product’s environmental impacts.
HOW GLOBAL MARKETS WILL ADJUST TO AN ENVIRONMENTAL LABEL POLICY
Instituting a US environmental label policy will encourage global markets to reward two types of business. The first type includes companies whose business concepts are fundamentally clean. These companies operate in less stringently regulated industries, but within highly competitive markets and with many competitors that are less environmentally friendly. A standardized environmental label would create an opportunity for these businesses to be recognized and valued appropriately for their green approach.
Global markets would also benefit companies that undertake green production but operate in industries that are under significant external scrutiny for their environmental impacts. While these companies are protecting the environment to a greater degree than their competitors, they endure the same level of external criticism as their industry peers because there is no way to distinguish them. Many of these companies favor policy makers taking a stronger position on environmental protection. For instance, the Business Roundtable, an association of chief executives largely representing multinational corporations, has come forward with a policy statement on climate change. The group advocates pragmatic, proactive solutions to help sustain the economy while simultaneously decreasing greenhouse gas emissions.
Why is the Business Roundtable pushing for a policy solution? One reason is that its member companies are working to reduce their own greenhouse gas emissions, but their competitors are not. By pushing strategically for more stringent regulatory oversight, greener companies can derive a competitive advantage over dirtier competitors that may struggle to meet the new regulatory requirements. While environmental labels would not impose significant environmental requirements outside of simply reporting information, they expose dirtier companies which can put them at a competitive disadvantage. At the same time, environmental labels would insulate cleaner companies from typical criticisms about their industry. This advantage is important because consumers do not shun high-emission industries in favor of brands from sectors that are naturally green. In fact, consumers are ready to credit perceived leaders within these intrinsically higher-emission sectors where the potential for emissions reduction is greatest. Environmental product labels are one way for companies that are clean to get credit for their green production efforts.
PUBLIC COST OF AN ENVIRONMENTAL PRODUCT LABELING POLICY
Improving the flow of environmental information to consumers does do not require companies to install expensive capital equipment and monitoring devices, only to report on activities that many track already. Environmental information disclosure policies therefore are less expensive to regulate compared to other types of environmental policies. They are also cheaper to monitor.
In spite of these lower costs, many companies will suggest that environmental product labels are too burdensome. Industry specialists will provide extensive estimates supporting this case. For instance, during amendment hearings of the US Clean Air Act of 1990, industry specialists offered evidence that the law would increase the price of coal to $1,500 per ton. However, in the first ten years of the program the price per ton did not exceed $200. In responding to industry’s overestimations of the burden changes in the law would impose, then BP CEO Lord John Browne stated, “Every time there’s a new piece of legislation, we say it’s the end of our industry. [We have] an appalling track record in this regard.”
Does industry intentionally overestimate its compliance costs? Not necessarily. It is more likely that industry routinely undervalues its own capacity for innovation. In the wake of the Clean Air Act Amendments, innovation expanded in ways never anticipated, in large part because the legislation offered flexibility to companies in how they met the new requirements.
One of the most attractive features of an environmental label policy is that it encourages innovation, because unlike traditional environmental policies, labels do not specify how—or even that—companies reduce their environmental impacts. Rather, the global market disciplines companies to reduce their environmental footprint. Along the way, some companies will be able to use the environmental label as a branding advantage that invites the patronage of green-minded consumers.
THINK GLOBALLY, ACT LOCALLY
The phrase ‘Think Globally, Act Locally’ characterizes the reasons why environmental product labels are so desirable. Consider your decision to purchase house paint, a cell phone, facial tissue, or many other household goods. What information is available about the environmental impact of these products? It might be a surprise to know that some businesses producing these products are investing significant resources in programs that reduce their environmental footprint.
However, lack of credible market information or no information prevents consumers and investors from considering the environment in their purchasing decisions. Unless these information obstacles are resolved, global markets for green products most likely will not realize their full potential. Using information as a novel public policy approach would make significant strides towards encouraging consumers and investors to consider the environment in their purchasing decisions. It would also promote corporate greening worldwide and help improve the global natural environment.
Nicole Darnall (ndarnall@gmu.edu) is Assistant Professor of Environmental Science and Policy at George Mason University (http://www.gmu.edu/departments/espp/). She specializes in corporate sustainability, environmental policy innovation and the role of external stakeholders in the environmental governance of corporations and government. This research is based on Darnall’s 2008 monograph, What the Federal Government Can do to Encourage Green Production, Washington, DC: IBM Center for the Business of Government. This article was first published in print and citations have been removed due to space limitations, but are available from the author.
