The research findings of Philip Powell, an assistant professor of business economics at the Indiana University School of Business in Indianapolis, challenges a stand taken by many environmentalists--that cleaner technology is automatically better technology. In recent years, much discussion and debate on pollution control in industry has concentrated on the use of abatement or "end-of-the-pipe," technology versus cleaner or "beginning-of-the-pipe" technology. For factories and plants that have been built since the passing of the Clean Air Act in the early 1970s, the Environmental Protection Agency (EPA) defines these standards in terms of beginning-of-the-pipe technology, standards that relate to plant design. For older factories, however, the EPA frames standards in terms of the end of the pipe, add-on devices that do not fundamentally affect the plant design.
"My focus is first of all to determine how firms react under these two different types of innovations," Powell says, "and second, to take that understanding to the EPA so that it can use the knowledge when designing environmental policies." Powell describes his conclusions as "counterintuitive." "I think the initial response when considering pollution control is that it only makes sense to make it cleaner from the onset--to have cleaner technology," he says. "But that's kind of what I'm attacking."
The use of cleaner technology can lead to more pollution, instead of less, Powell says, by making overall production more efficient and providing an incentive to produce more. Using automobile design as an example, he explains that a beginning of-the-pipe strategy is to design a car that gets good gas mileage and therefore reduces pollution per mile driven. However, he points out this also makes the car less expensive to drive, which leads car owners to drive more miles and ultimately increases pollution. "You can see this happening at the factory level. You'll have a more efficient plant and they're going to produce more," Powell says. "If your goal is to decrease emissions, then it makes more sense to define standards in terms of end of the pipe, because then you don't create this incentive to increase production."
EPA's insistence upon cleaner technology in today's plants can lead to other problems. In terms of expense, beginning-of-the-pipe standards are considerably more costly. While the use of abatement technologies do not affect the basic production design of a plant, mandated cleaner technologies do. The EPA's regulation of production design from inception to completion gives the firm far less flexibility. Less flexibility is more expensive because companies cannot experiment with new, but untested, design innovations that achieve similar levels of pollution reduction at a lower cost. Micromanagement of design also slows construction of a plant, which ultimately impedes economic growth. These costs are eventually passed on to the consumer. "Because firms are out to maximize profit, they're going to do a much better job than the EPA of putting in production technologies that produce goods or services at the least cost in the market," Powell says. "When the EPA regulates, it inhibits firms' ability to compete pricewise, which hurts consumers."
Powell advocates that the EPA do away with its beginning-of-the-pipe standards completely and allow new plants to adhere to the same standards as the older ones. He notes that we have achieved about a 25 percent reduction in various air pollutants since the early 1970s, and that the majority of that reduction is due to end-of-the-pipe standards. "The bottom line is that the end-of-the-pipe-stuff has worked," he says. "And if it has a decent track record, why not just change the way we approach the new factories?"
Despite his findings, Powell does not believe that technology standards, as a whole, are the most effective way to approach pollution control. Instead, he says, the best approach may be through "marketable permits," which were implemented in limited form by 1990 amendments to the Clean Air Act. Under the marketable permit system, the government sets a total emissions limit for an area, then breaks down that total amount into units. Polluters must buy a permit to pollute.
The question then becomes one for plant managers: how to keep overall production high, while keeping emissions at the allowed level. "This creates an incentive for factories to put control technologies in without the EPA even setting individual plant standards," Powell says. "The higher the price for a permit, the better the incentive to put in a better control measure." This essentially creates a market for pollution, in which the plants better able to afford the control technology, with a lower cost of abatement, will put in better control technology. The less advanced firms, with a higher cost of abatement, will buy the permits. Ultimately, the majority of reduction in emissions will take place in the newer plants, which can better afford it.
The marketable permit system is still in its infancy. Powell says that although it makes sense in theory, "the jury is still out on whether it is going to work in practice."--Shawna Brynildssen
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