Environmental Management in the 21st Century

• Author: Frank B. Friedman
• Pages: 61-180

Chapter 3:

Environmental Management in

the 21st Century

Throughout the 1980s and 1990s, corporate management became gen-

erally more aware that environmental issues and potential regulatory

constraints required a new approach. Businesses recognized that environ-

mental laws are largely the product of ideas and social forces whose time

had come. Sophisticated businesspeople learned that enforcement of these

laws is important both as a matter of public policy and to prevent competi-

tive advantage for those who ignore the law. They also recognized that the

public and the environment cannot be asked to bear all the risks associated

with scientific uncertainty and that industry sometimes must accept con-

trols before all of the scientific evidence is conclusive. The public is their

customer, and they have to satisfy their customer even when they think the

customer is wrong.

Acceptance of the reality of environmental costs, liabilities, and risks led

to the development and increasing importance of the field of environmental

management. Until 1988, there were no environmental management

courses in business schools. Now many business schools incorporate “envi-

ronmental business” courses into their curricula, as well as consider other

social impact issues.1There is much work in this area as schools, organiza-

tions, and businesses in the United States and abroad seek ways to develop and

implement strong environmental management programs.

Today companies are working to address environmental issues cost ef-

fectively and in a way that makes sense. The costs of environmental pro-

grams are enormous; it is essential that government agencies and compa-

nies work together to make sure that the money is well spent. There are also

a variety of management techniques that companies can use to improve

their environmental performance and control costs. These include synthesis

of environmental and business goals; Total Quality Management; careful,

well-planned downsizing or reengineering; and use of analytical techniques

such as life-cycle analysis, sustainable manufacturing, and full cost ac-

61

counting to improve environmental performance. Sophistication in envi-

ronmental management has grown at the international level, and various in-

ternational entities have developed programs and initiatives to assist envi-

ronmental managers and businesses in making changes and identifying

opportunities to further improve environmental performance.

This chapter discusses the key issues of concern for environmental man-

agers and suggests a variety of techniques that managers and companies can

use to address them.

The Cost of Environmental Protection

The cost of complying with our current tangle of federal, state, and local en-

vironmental laws is staggering. Much of the capital necessary to make tech-

nological changes mandated by environmental standards throughout the

1970s has been or soon will be expended. Issues surrounding compliance

with existing environmental regulations, including those relating to previ-

ous hazardous waste disposal, by now should be identified, and action plans

should be underway. Even so, the 1990 CAAAmendments, the next round

of FWPCA permitting, and resolution of other issues will still require sub-

stantial effort as we seek to address even more difficult areas of environ-

mental protection.2

Although cost estimates must be read with caution,3total annual pollu-

tion control costs in the United States were expected in 1992 to reach $250

billion by the year 2000.4EPAestimated that total annual environmental ex-

penditures in the United States rose from $74 billion in 1988 to $114 billion

in 1992.5From 1985 to 1987, total capital investment for environmental

benefits was between $25 to $35 billion per year, and rose to between $43

and $46 billion per year between 1988 and 1992.6EPA’s estimate of the cost

of complying with environmental regulations in 1997 was $200 billion.7

Some companies8and industries9are hit particularly hard by environmental

requirements. Preliminary figures from an American Petroleum Institute

survey shows that in 1997 the industry spent about $8.1 billion in the United

States, about the same as in 1996. This is about one-fourth the net income of

the top 200 oil and gas companies at that time.10 And according to Forbes

magazine, every American pays, on average, about $450 more annually in

taxes and higher prices as a result of pollution controls.11 For additional dis-

cussion of costs, see Chapter 2.

In 1972, roughly 61 percent of total U.S. expenditure on the environment

was borne by the private sector.EPA posits that the figure increased to about

63 percent in 1992. Many people outside EPA believe these estimates are

very low, particularly considering the projected costs of the CAA Amend-

ments of 1990. For example, some estimate that the cost of the Act’soperat -

ing permit regulations alone will be in excess of $3 billion per year when

62 Practical Guide to Environmental Management

fully implemented, far higher than government estimates. This number, like

any other number related to this Act, is difficult to verify and the numbers on

general costs depend on who is making the claim. Some try to argue that the

benefit is greater than the costs.12 In any event, as a practical matter, compli-

ance with the Clean Air Act is usually a major function for a facility EHS

staff person and also entails significant work at corporate headquarters.

In large part, the increased costs of pollution control can be traced to reg-

ulations designed to reduce the last increments of pollution. Many of the

most cost-effective steps to control pollution have already been taken. As

efforts continue to control smaller and smaller amounts of air and water pol-

lution, costs generally increase. It is always easier and cheaper to control the

first 90 percent than the last 10 percent.

Costs are also increasing as tightened environmental laws eliminate im-

portant “safety valves” that served to mitigate the economic damage caused

by environmental controls. Expansion of RCRA’s programs and defini-

tions, addition of new FWPCA13 requirements, and changes in the CAA

regulatory system may significantly reduce flexibility and increase envi-

ronmental costs.

For example, the 1990 CAA Amendments tightened the regulation of haz-

ardous air pollutants both by increasing the number of regulated chemicals

and by setting a low threshold for what is a “major source.” Amendments to

the Act’s nonattainment program, which applies in areas of the country that

have missed deadlines for meeting national standards for concentrations of

certain pollutants in ambient air, expanded the geographic scope of the

nonattainment controls. The amendments also made the nonattainment pro-

gram more stringent by requiring that more emission reductions from exist-

ing sources offset the emission increases that invariably result from new or

expanded economic activity. In the past, a plant that had to make changes

quickly could do so either because its emissions were not federally regulated

(as was the case with many air toxics) or because it could avoid delay by “net-

ting,” i.e., making reductions that kept its net emissions increase to less than

the regulatory threshold. The 1990 law provides far fewer opportunities for

facilities to find ways to stay in compliance even if they can neither tolerate

delay nor accommodate new controls triggered by changes.

Because of the high costs of environmental controls, it is essential that we

set priorities and ensure that the costs do not exceed the benefits received.

Many environmental laws today employ a sort of averaging; that is, to en-

sure that excess risks (however defined in the particular statute) are elimi-

nated, the law accepts overregulation in some cases. For example, RCRA

imposes similar regulatory standards on entire categories of facilities and

chemicals, although individual facilities vary dramatically in the relative

degrees of risk they pose. The CAA applies “maximum available control

Environmental Management in the 21st Century 63