Environmental management systems and community participation: rethinking chemical industry regulation.

Author:Gunningham, Neil A.



This article provides a brief introduction to the chemical industry, its economic contribution, and its environmental problems. The article identifies the key features of the industry that are likely to influence the possibilities for regulatory design. The main components and limitations of current regulatory regimes in North America, Western Europe and Australia are summarized. The main task of the article is to highlight the design of regulatory policy in harnessing a broader mix of instruments and institutional actors that are tailored to the particular circumstances of the chemical industry.

The problems focused upon are necessarily a subset of the environmental problems confronting the chemical industry as a whole. Point-source pollution and chemical accidents, have been the major environmental concerns with which the industry is associated.(1) The chemical industry is, by a large margin, the most polluting industry sector both in the United States and in a number of other countries. Solutions to problems in the chemical industry have resonance far beyond the chemical industry itself.



The chemical industry,(2) is a key manufacturing sector in most of the industrialized world. It transforms natural raw materials, such as metals, minerals, coal, oil, natural gas, vegetable oils, and animal fats, into thousands of organic chemicals for commercial use. The chemical industry produces tens of thousands of products including raw and basic or intermediate materials for other industries, and finished products for industry, construction, service, agriculture, business, and individual consumers.

During the early part of the 20th century, the industry expanded into explosives, synthetic dyes, pharmaceuticals, and petrochemicals, and diffused chemical industry products into many other industrial sectors. In so doing, it has come to play a dominant role in the manufacturing sector of most developed and many developing countries. More recently, the industry's trend is away from bulk chemicals towards higher added value products including pesticides, herbicides, dyestuffs, and biotechnology applications.

Almost all of the largest chemical companies are transnational. Most of these companies expanded from their original base in North America or Western Europe to establish substantial foreign subsidiaries. This expansion was particularly evident from the second half of the 1980's until the 1991 - 1992 recession, during which period companies opened new markets and built new plants, especially in the Asia-Pacific region. During the same period world gross output in chemicals grew from US $744 billion to US $1.136 trillion.(3) The industry also includes many smaller operators. These include specialty chemical manufacturers, distributors, and others to whom chemicals are supplied (e.g. upstream suppliers and buyers for manufacturers downstream).

The chemical industry is a keystone of the U.S. economy. It is also a leading industry in Western Europe, where it accounts for an estimated one-third of the world turnover of chemical production and thirty-seven percent of the total European trade balance of manufacturing.(4) In Australia, the chemical industry similarly plays an important role, both as a key supplier of raw materials to the overall manufacturing industry and to key export industries such as agriculture and mining.

The chemical industry is a major source of environmental pollution. It is the United States' largest consumer and generator of highly toxic chemical substances.(5) Roughly half of all releases and transfers reported through the Toxic Release Inventory ("TRI"), and eighty to ninety percent of hazardous waste generation reported through the Resource Conservation and Recovery Act, can be attributed to the industry.(6) These figures represent three times that of the next major contributor to pollution - the metal industry. The U.S. chemical manufacturing facilities also dominate the list of individual facilities ranked highest for the largest total emissions of hazardous waste.(7) Worldwide the chemical industry has an equally disturbing environmental profile.(8)

The industry is not only a very substantial contributor to point-source toxic chemical pollution but is also, in its capacity as a supplier of intermediate products to other sectors, the most important developer/vendor of toxic chemical products. Although the latter role has not received significant attention, the chemical industry is a contributor to ozone layer depletion and the enhanced greenhouse effect. Its activities have implications for toxic waste management, the transportation of hazardous materials, and the safety of foodstuffs.(9) Finally, the threat of accidents and explosions exists at chemical facilities. These events can inflict serious damage on local communities as well as on the broader environment.

The threat of such damage, and the consequences of dramatic and highly publicized chemical accidents, evoked public outcry and industry response.(10) For example, in 1984 at Bhopal in India, at least 2,000 people died and approximately 200,000 were injured when twenty tons of lethal methyl isocyanide escaped from a Union Carbide chemical plant.(11) A number of other serious accidents have occurred in a wide range of other countries.(12) Responding to public concern, both about point-source emissions and accidents, the chemical industry has significantly improved its environmental performance during the last decade. Since 1987 the United States chemical industry claims to have reduced releases of toxic chemicals to the environment by forty-nine percent.(13) The industry has also reduced disposal in deep wells by forty-six percent and off-site transfer for treatment and disposal by fifty-six percent. A survey by the United States Chemical Manufacturers Association ("CMA") showed reductions by its member companies of sixteen percent for releases, fourteen percent for underground injection, and twenty one percent for transfers - excluding transfers for recycling and energy recovery.(14) The industry claims that its environmental control actions have necessitated capital expenditures for pollution abatement and control totaling over US $22 billion since 1973.(15) The U.S. industry claims that total chemical industry pollution abatement spending in 1993 was US $4.4 billion. In the year 2000, the CMA, using Environment Protection Agency ("EPA") figures, estimates that the industry will spend roughly $6 billion in complying with environmental regulations.(16)

European chemical companies have similarly responded to environmental concerns with substantial expenditure on improved environmental performance. The Commission of the European Union estimates that environment related expenditures in 1992 amounted to 3.5 percent of the turnover of the chemical industry in the European Union.(17) In the United Kingdom the share of capital spending on environmental protection rose from eight percent in 1990 to fourteen percent in 1992.(18) The pattern of expenditure in Australia is similar.(19)



The chemical industry has a number of important characteristics crucially important to designing an appropriate regulatory regime. First, most chemical industry pollution is point-source pollution (e.g. from smokestacks or other discharge points) or is the result of chemical accidents. Both sources are readily identifiable by regulators and the community. It is accordingly difficult for the industry to deny the connection between its activities and the environmental consequences of these activities. It is also relatively easy for regulators to monitor and take action against unlawful emissions or other illegalities by chemical companies.

Second, there are many differences among chemical producers. These differences have considerable implications for regulatory design. The limited number of large, mostly transnational companies, is the dominant group. These companies all have high public profiles and reputations that are important for them to protect. As such, they are extremely vulnerable to adverse publicity, to shaming at the hands of public interest groups and others, and to other informal sanctions beyond those imposed by conventional command and control regulation. However, a large number of smaller players are also involved in the industry. They are particularly difficult to regulate. These players essentially fall into two groups, with some limited overlap: (i) the specialty chemical manufacturers (usually producing small volumes of a wide variety of specialty chemicals as demand dictates); and (ii) the distributors, suppliers, and buyers of wholesale chemicals. These groups have very different characteristics from the large companies and are likely to respond to very different pressures and incentives. Significantly, with the exception of some distributors and specialty chemicals companies, they are commonly unsophisticated and in some cases economically marginal. In most cases they trade with, and are to some extent dependent on, the large companies.(20) Both groups of small players present particular problems to regulators.(21)

Third, the long-term viability of the industry probably depends (and is perceived by most large companies to depend) upon gaining and maintaining the public's trust. At present, the entire chemical industry suffers from a negative public image. This image can only be improved (and with it the long term fortunes of the industry itself) by a substantial improvement in the environmental performance of the industry as a whole. Given the transparency of chemical industry pollution, described above, only demonstrable environmental performance, and not merely better public relations, can deliver improved public trust and credibility.

Fourth, the industry itself is mature and stable. Similarly, given the substantial...

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