It is not easy to assess the effectiveness of VAs. The standard approach is first to measure the environmental performance of a group of companies participating in a VA, and then to compare the performance with that of one or more typical non-participating companies. One problem with this approach is the choice bias: it is often the most successful companies that complete a VA. A second related problem is the counterfactual problem: it is difficult to know what a company would have done if it had not joined the VA. Very few studies have attempted to assess VA taking these two questions into account. Studies that do not take these factors into account can lead to an overly optimistic assessment of a VA`s performance. Voluntary approaches to environmental policy, including environmental performance agreements negotiated with industry and public programmes in which companies can voluntarily participate, are becoming increasingly popular in a number of countries. However, the OECD`s work calls into question its environmental effectiveness and economic efficiency. There are cases where voluntary approaches are the only policy option available. This is the case, for example, if there is no authority that could adopt and enforce a “mandatory policy” – that is, a “command and control” regulation or an environmental performance tax. The OECD Guidelines for Multinational Enterprises are a good example. These guidelines are recommendations made by governments to multinationals operating in or from acceding countries. They provide voluntary principles and standards for responsible business conduct in various fields, including employment and industrial relations, human rights, the environment, disclosure, competition, taxation and science and technology.
Voluntary agreements are agreements between a government agency and one or more private parties aimed at achieving environmental objectives or improving environmental performance beyond compliance with regulated obligations. Voluntary agreements play an increasingly important role in many countries in achieving ecological and social objectives. They are popular with those directly affected and can be used when other instruments meet with strong political resistance (Thalmann and Baranzini, 2005). Box 13.5 provides examples of VA. For more information, see Chapter 7, Section 7.9.2. The environmental effectiveness of VAs is the subject of much discussion. Some governments – and industry – believe that VAs are effective in reducing greenhouse gas emissions (IAI, 2002; OECD, 2003c). Rietbergen et al. (2002) examined whether voluntary agreements in the Netherlands have led to energy efficiency improvements that go beyond what would have happened without such agreements. They estimate that, on average, between 25% and 50% of energy savings in Dutch manufacturing are due to the combination of agreements and support measures.
Voluntary Approaches for Environmental Policy: Effectiveness, Efficiency and Use in Policy Mixes provides an in-depth assessment of the use of voluntary approaches, drawing on a series of new case studies and extensive research into the available literature. The analysis focuses both on voluntary approaches that are used in isolation and as part of the policy mix. Darnall and Carmin (2003) review 61 general environmental agreements between governments, industry and third parties, mainly in the United States (see also Lyon and Maxwell, 2000). Overall, their results show that the voluntary programs had low stringency due to limited administrative, environmental and performance requirements. For example, two-thirds did not require participants to create environmental objectives and demonstrate that the targets had been met. Similarly, almost 50% of the programs had no monitoring requirements. Compared to government programs, industrial programs had stricter administrative requirements and third-party programs had even stricter requirements. According to Hanks (2002) and the OECD (2003e), the best VAs are: a clear goal and a baseline scenario; the participation of third parties in the drafting of the agreement; a description of the parties and their obligations; a relationship defined in the legal and regulatory framework; formal arrangements for monitoring, reporting and independent verification of results at farm level; a clear description of the responsibilities that may be funded by the industry itself; obligations towards sole proprietorships and not as sector-specific obligations; References to sanctions or incentives for non-compliance. This article presents taxonomies and models to help integrate the economics of voluntary environmental agreements (VAs) into the standard framework of environmental economics. There is a limited, albeit growing, number of comprehensive reviews of the effectiveness of VA, but any comparison of these reviews and assessments is difficult due to the different parameters and evaluation criteria (Price, 2005). In general, studies on VA design and effectiveness evaluate only one program (e.g..B Arora and Cason, 1996; Khanna and Damon, 1999; King and Lenox, 2000; Welch et al., 2000; Rivera, 2002; Croci, 2005).
Based on his assessment of the French experience, Chidiak (2002) suggests that the reduction of greenhouse gas emissions cannot necessarily be seen as a direct consequence of commitments made under the agreements, arguing that these improvements were in fact largely triggered by other environmental laws and cost-cutting efforts. Johannsen (2002) and Helby (2002) show similar results for programmes in Denmark and Sweden respectively. They note that the reduction of specific emissions is in line with the industry`s construction behaviour, suggesting that the targets set in the agreements were not ambitious enough. In particular, Helby concludes that EKO-Energi, which sought to highlight a new level of best practices and thus pose a challenge to other companies, has been “a very modest success at best”, resulting in a small overall direct effect on overall industrial energy consumption. Interestingly, Chidiak also notes that the agreements have not promoted intra-industry networking and information sharing on energy management, suggesting that their inability to achieve more ambitious goals is due to the lack of a well-articulated policy mix. Other analyses suggest that VA works best as part of a set of policies rather than as a stand-alone tool (Krarup and Ramesohl, 2002; Torvanger and Skodvin, 2002). The OECD (2003e) and Braathen (2005) note that many of the current VA would fare better if there was a real risk that other instruments would be used if the targets were not met. Voluntary environmental agreements aim to address market failures differently from traditional regulatory and economic instruments. In fact, they are based on exchanges between the PA and companies and on the design of an incentive framework for the parties in the context of negotiation and cooperation. The efficiency and effectiveness of VAs depend on specific characteristics that can only be assessed through a case-by-case analysis. VAs can be effectively included in the environmental policy maker`s toolbox if certain conditions are met with regard to their design and implementation in order to limit the risks of regulatory coverage and parasitism. The work examines the use of voluntary approaches in situations where other instruments could have been applied.
It notes that, although the environmental objectives of most voluntary approaches have been achieved, there are few cases where such approaches have contributed to environmental improvements that went beyond what would have happened anyway. The work also shows that the macroeconomic effectiveness of voluntary approaches is generally low, as they rarely include mechanisms to offset marginal costs to be mitigated between all polluters. .
