ENVIRONMENTAL ENFORCEMENT: ENCOURAGING VOLUNTARY COMPLIANCE WITH ENVIRONMENTAL LAWS
by Professor Marcia Gelpe
William Mitchell College of Law, St. Paul, MN, USA
Bar Ilan University
The Main Purpose of Enforcement is to Encourage Voluntary Compliance
What is the purpose of environmental enforcement? Many would say that the purpose is to stop violations of environmental laws. Others may reply, more simply, that the purpose is to punish violators.
Both of these objectives are justified, but the primary purpose of environmental enforcement lies elsewhere. The main goal of environmental enforcement should to encourage voluntary compliance. That is, enforcement must encourage those subject to the requirements of the laws to comply with those requirements, without interference by the regulatory authorities and without application of enforcement sanctions.
Reasons Enforcement Should Encourage Voluntary Compliance Individuals, companies, and government authorities subject to the requirements of environmental laws should be encouraged to comply with the laws voluntarily for several reasons. First, it is the right thing. It is better to have a law abiding society than one in which the standard of behavior is that you can do whatever you want until you are caught. Second, no enforcement program can rely on catching and stopping violators as the main way of gaining compliance. It is too expensive. The Ministry of the Environment and the local authorities responsible for enforcing environmental laws, and the public, which also has power to bring enforcement actions, will never have sufficient resources to detect all violations and then deal with them through enforcement actions.. Third, it saves public resources if there is voluntary compliance. Even if resources were available for enforcement against every source of pollution, those resources could better be spent on other activities. On a broader scale, if we encourage voluntary compliance, we can minimize the resources needed for enforcement, and increase resources available for other important matters.
Making Sure that Violators are Not Better Off Than Those Who Comply Voluntarily
Once we accept the proposition that the main goal of environmental enforcement should be to encourage voluntary compliance, we can build a philosophy of enforcement. The main point of the philosophy should be to make sure that violators are never better off than those who comply voluntarily with the law. If violators profit from their violations, then violations are encouraged and voluntary compliance is discouraged.
Compliance with environmental laws is costly. Sometimes the cost is modest; sometimes it is extensive. But it usually costs something. A person or a firm trying to decide whether to comply voluntarily with an environmental law will worry about this cost. The firm will consider whether it will be better off complying voluntarily, or better off continuing its operations without change, waiting for the enforcement authorities to step in, and then paying whatever penalty they impose for the violation.
Environmental enforcement must be designed to make sure that a firm that complies voluntarily will spend less resources on compliance than if that same firm waited to be caught. It must always be more costly for a firm to violate and wait until some enforcement action is taken against it, than to comply on its own. This will encourage firms to comply, without any involvement of the enforcement authorities. This aspect of encouraging voluntary compliance affects all those subject to the environmental laws, whether they are individuals, private firms, government companies, or local authorities.
Another aspect of encouraging voluntary compliance affects those firms operating in a competitive market. Such a firm will want to know that spending the money for voluntary compliance will not make it worse off than its competition that does not comply. In fact, it would like to have voluntary compliance provide a competitive edge.
If two firms, X and Y, are competitors in a given market, and X spends money to comply voluntarily with environmental laws, and Y does not comply and does not spend the money, the cost of producing the identical goods will be higher for X than for Y. Firm X will then have either to charge more to its customers, pay its workers less, or take smaller profits. Any of these puts it at a competitive disadvantage, for sales, for labor, or for investors.
Environmental enforcement should impose high enough costs on firm Y to remove from it the competitive advantage it gained through its violations. This will encourage X to comply voluntarily. This is sometimes called ‘creating a level playing field.’
Techniques of Enforcement That Will Encourage Voluntary Compliance
Imposition of fines large enough to capture all economic benefit a violation: As was shown above, anyone who violates an environmental law saves the cost of compliance, at least until the point when compliance is forced on the violator. Enforcement should be designed to capture the savings, and then some.
The savings have several components. Among them are: savings from deferring the necessary capital investment for compliance, the cost of operating compliance technology or a compliance program, and lost profits.
(A good economist should be able to identify all components.)
When a violator is caught, he should have to pay a fine that exceeds the savings he gained from the violation. This must be in addition to any fine or other sanction imposed as punishment.
Limitations on forgiveness of fines: There is a tendency to say to a firm that violates the environmental laws, ‘You should pay a fine. But if you will now come into compliance, we will forgive the fine.’ This tendency is understandable. What the enforcing authority really wants is compliance, not money. The violator may claim that if it must pay a fine, it will have less money to spend on compliance. The money could better be spent complying with the law. This claim is especially strong when it comes from public authorities, which often have severe budgetary constraints.
Enforcement authorities should not accept this claim. The primary responsibility of enforcement is to make clear that you will be better off if you comply voluntarily. If there is no financial penalty for violating, there is a strong incentive to violate the law and wait until you are caught.
Enforcement authorities who would impose a fine large enough to capture the economic benefits of a violation, and then an additional amount as punishment for the violation, may forgive the punishment amount. But the capture amount should not be open to forgiveness.
Limits on payments to violators for complying: Companies that violate the laws should not have the government pay them the cost of complying with the law unless the same payments are made to those who want to comply voluntarily. This must clearly be the case for competitors. If X and Y are in competition, and X complies voluntarily, at its own expense, and Y violates, then later gets the government to pay all or part of its compliance costs, X will be competitively worse off for having voluntarily complied. This must never be allowed.
The issue is harder when dealing with a monopoly. Even then, it is problematic if a party subject to environmental laws gains government funding by violating and waiting. Some may claim that if the violations occurred because the violator was unable to pay the cost of compliance, it is better for the government to pay the cost and get an end to the pollution. This is true. But paying the costs for violators also discourages voluntary compliance. It would be better, if government is going to pay compliance costs. for the payments to be made at the time new pollution control requirements are imposed, so they can be made before violations occur.
Publicity for enforcement actions: Enforcement authorities should try to get a lot of publicity for enforcement actions. This will embarrass violators, and make voluntary compliers look better by comparison. It will also increase awareness of environmental laws, thereby helping voluntary compliance.
Publicity can be in several forms. Governmental authorities may issue press releases. They can also require violators to publicize their own violations and the sanctions they have suffered. Governmental authorities should also notify business organizations of enforcement actions. Those organizations will see that word gets out.
Some may say that publicity will not work; that Israeli firms do not care about getting a bad reputation. Current evidence suggests this is not true. For example, the Electric Company recently embarked on a significant and costly public relations campaign to convince the public that it is a ‘green’ company. Bad publicity can also affect an exporting firm’s status in western markets, and an expanding firm’s ability to obtain investments from environmentally-sensitive western investors.
Environmental enforcement should encourage voluntary compliance. This article provides some specific ways of doing that. Other methods may work, also. The most important thing is that enforcement authorities always take this important goal into account in imposing sanctions for violations.