BUS604: Innovation and Sustainability

Learning Objectives

1. Explain the history of US federal government engagement on environmental issues and how it has changed over time.
2. Understand the most important US government environmental policies.
3. Understand the connections between environmental and energy policies.
4. Compare US policies to address climate change with those in other nations and discuss the implications for sustainable businesses in the different nations.

In the United States, there are many environmental policies, laws, and regulations at the federal, state, and local levels that affect sustainable businesses. Some of these are easy to understand and transparent to a large segment of the population. Others are not. For example, local, state, and federal tax credits (credit against taxes owed) for purchases of hybrid vehicles, home weatherization, and renewable energy use are pretty simple to understand - many individuals and households are aware of these policies, and these policies affect sustainable businesses. In contrast, renewable portfolio standards (see the following for a detailed discussion) are not easy to understand, and only a small segment of the population are aware of these policies".

Environmental policies have developed over time, and they have been supported by both Democratic and Republican administrations in Washington, DC, and also in state houses and local governments across the nation. The start of significant federal government involvement with the environment was the early twentieth century conservation movement, associated with President Theodore Roosevelt. During this period in 1905, the Forest Service was established and it is still an agency of the US Department of Agriculture. The Forest Service acts as a steward over some of the nation's most treasured natural resources. The Forest Service manages public lands in national forests and grasslands. Gifford Pinchot, the first chief of the forest service, summed up the mission of the Forest Service as "to provide the greatest amount of good for the greatest amount of people in the long run".

The origins of the modern environmental movement occurred over half a century later with the publication of Rachel Carson's controversial Silent Spring in 1962, which pointed out the perils of pesticide use and rallied concern for the environment. This was the precursor to what became known in the United States as the environmental decade. On January 1, 1970, President Richard M. Nixon signed the National Environmental Policy Act (NEPA). NEPA created the Council on Environmental Quality, which oversaw the environmental impact of federal actions. Later in the year, Nixon created the Environmental Protection Agency, which consolidated environmental programs from other agencies into a single entity. The Environmental Protection Agency (EPA) is a public authority that can be thought of as assuming some ownership of the atmosphere to help to protect it. The legislation during this period was concerned primarily with pollutants in the air, surface water, groundwater, and solid waste disposal. Air pollutants, such as particulates, sulfur dioxide, nitrogen dioxide, carbon monoxide, and ozone, were put under regulation and restricted use.

The standards that the EPA put into place called mainly for state implementation. Each state prepared state implementation plans (SIPs), requiring EPA approval, and each state had to request permits from the EPA to emit pollution into any surface water. Congress also provided for a massive public works program to assist in the construction of water and waste treatment plants for municipalities. The 1970 Clean Air Act also enacted deadlines and penalties for automobile emission standards in new cars, resulting in the development and adoption of catalytic converters and other new energy efficiency enabling technologies.

Since the environmental movement of the 1970s, the focus of environmental issues has changed. While the initial emphasis was on conventional air and water pollutants, which were the most easily measurable, newer issues are long-term problems that are not easily discerned and can be surrounded by controversy, such as global climate change.

Underlying the policy decisions made by the United States is the concept of risk control, consisting of two parts: risk assessment and risk management. The science behind risk assessment varies greatly in uncertainty and tends to be the focus of political controversy. For example, animal testing is often used to determine the toxicity of various substances for humans. But assumptions made about expected dosage and exposure to chemicals are often disputed, and the dosage given to animals is typically much larger than what humans normally consume. While industry groups tend to take a risk-tolerant position, environmentalists take a risk-averse position, following the precautionary principle.

Another issue is the effect that chemicals can have relative to lifestyle choices. Cancer, for example, typically surface decades after first exposure to a carcinogen, and lifestyle choices can be more important in causing cancer than exposure to chemicals. The governmental role in mitigating lifestyle-choice risks can be very controversial, such as was the case with smoking in the United States and threats to American household use of private automobiles that contribute to pollution that affects population health. The threat to the latter can come if gasoline taxes were to be significantly increased in the United States to levels closer to those in European nations.

Finally, the way that threats are presented to the public plays a large role in whether those threats are addressed or not. During the administration of President Jimmy Carter (1976–80), the United States undertook a risk-averse policy, acting through the EPA and Council on Environmental Quality (CEQ) to research and control the pollutants suspected to cause acid deposition even in the face of scientific uncertainty. The Reagan administration (1980–88) was more risk tolerant. It argued that, given the scientific uncertainties about harm and exposure levels, new expenditures should not be undertaken that could curtail economic growth. During George H. W. Bush's presidential campaign (1988), he called for new Clean Air Act legislation to curtail sulfur- and nitrogen-dioxide emissions. In 1990, after he was elected, amendments to the Clean Air Act were passed that cut emissions by more than twelve million tons per year, set up a market-like system of emissions trading, and set a cap on emissions for the year 2000. These goals were achieved to some degree by the installation of industrial scrubbers.

While the initial costs in cutting emissions levels were expected to be more than $4.6 billion for utilities and a 40 percent rise in electricity costs, the impact ended up being only about $1 billion and a 2 percent to 4 percent rise in electricity costs. Part of the reason for the relatively low costs is the availability of low-sulfur coal and new technologies to cut emissions at lower costs than anticipated.

Since the major environmental legislation of the 1970s was enacted, great progress has been made in some areas and progress has been more limited in other areas. On the progress side, between 1970 and 1996, air pollutants declined 32 percent while the population grew by 29 percent. There has been less progress made in addressing concerns about global climate change as was highlighted in the chapter on the science of sustainability. One reason of this is concern for the potential costs of addressing global climate change.

The overall cost of environmental regulation currently in the United States is estimated to be about 2 percent of the gross domestic product. This is similar to many other countries, but calculating the cost is challenging both conceptually (deciding what costs are included) and practically (with data from a broad range of sources). Critics of environmental legislation argue that the gains made in environmental protection come at too great a cost. The cost of meeting OSHA workplace exposure standards, for example, can be as high as $3 million per life-year for benzene protection in Coke and coal factories or $51 million per life-year for arsenic protection in glass manufacturing plants. The benefits of environmental and energy programs are also hard to fully quantify. So while cost-benefit analysis is important to try to determine the net economic consequence of policies, and it is frequently used, the analysis can be very difficult. The challenges include quantifying all the benefits and identifying all the affected parties.

Sidebar

Cost-benefit analysis is done to determine how well economically, or how poorly, a considered action, such as public policy, will turn out. The analysis finds, quantifies, and adds all the positive factors. These are the benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The difference between the two indicates whether the considered policy is advisable on a net economic basis. The challenge to doing a cost-benefit analysis well is making sure you include all the costs and all the benefits and properly quantify them.

Cost-benefit analysis does not take into consideration the distribution of costs or benefits, does not consider noneconomic factors, nor does it address nonquantifiable factors.

Environmental issues, such as air quality and acid rain, began to influence energy policy in the last decades of the twentieth century, and this is increasingly the case in the United States and other nations. The interaction of climate change and energy production and consumption requires closer links between environmental and energy policies. More recently, environmental and energy policies are also being linked with economic policy (see the following).

The objectives at the intersection of environmental, energy, and economic policies include

• reducing the dependence on impacted energy,
• promoting less energy use,
• increasing the efficiency in the use of energy,
• increasing the share of renewable energy used,
• using innovation to achieve all the previously mentioned goals.

In 2010, reflective of President Obama's interest in policy actions at the intersection of the environment, energy, and economy was his administration's posting on their official website "Clean Energy Economy Fact Sheet," The White House, http://www.whitehouse.gov/the_press_office/Clean-Energy-Economy-Fact-Sheet. of the following:

The nation that harnesses the power of clean, renewable energy will be the nation that leads the 21st century. Today, we export billions of dollars each year to import the energy we need to power our country. Our dependence on foreign oil threatens our national security, our environment, and our economy. We must make the investments in clean energy sources that will put Americans back in control of our energy future, create millions of new jobs, and lay the foundation for long-term economic security.

After a comprehensive energy bill that included a cap-and-trade market on greenhouse gas emissions failed in the US Senate in 2010, President Obama determined that "climate change policy would have to be achieved in smaller chunks".

• a target for power plants to produce mostly clean electricity by 2035 - including power from sources like clean coal and natural gas,
• federal government support, and investment in clean technologies,
• asking the US Congress to eliminate billions of dollars in subsidies for oil companies.

While President Obama directed pointed action at oil companies, in general, he sought a centrist message on energy issues that had sharply divided the discussion on energy, saying nuclear power and two fossil fuels, clean coal and natural gas, would be needed to meet a goal of 80 percent clean energy in fewer than twenty-five years. "Some folks want wind and solar. Others want nuclear, clean coal, and natural gas," Obama said. "To meet this goal, we will need them all and I urge Democrats and Republicans to work together to make it happen".

As of 2012, there was no federal cap-and-trade program for greenhouse gas emissions in the United States; however, as discussed previously, the Clean Air Act amendment of 1990 created a successful federal cap-and-trade program for sulfur dioxide and nitrogen oxides. Three regional cap-and-trade initiatives have started: the Regional Greenhouse Gas Initiative (RGGI) in the Northeast; Western Climate Initiative (WCI) along the west coast; and the Midwestern Greenhouse Gas Reduction Accord (MGGA) in the central United States. The twenty-four states involved in the three initiatives include over 50 percent of the US population and 40 percent of overall carbon dioxide emissions.Based on 2005 carbon dioxide emissions provided by the US Environmental Protection Agency, states that have signed on to participate in a regional cap-and-trade program emitted 2.399 billion metric tons of carbon dioxide out of total US emissions of 5.996 billion metric tons of carbon dioxide.

Table 3.2 Regional GHG Cap-and-Trade Initiatives in the United States as of December 2010

An example of one of the regional initiatives is the Regional Greenhouse Gas Initiative (RGGI), which is an agreement among ten Northeast and mid-Atlantic states to participate in a cap-and-trade program to reduce carbon dioxide (CO2) emissions from fossil-fueled power plants (plants that use coal, oil, or natural gas). The total cap set for the ten states participating in RGGI was initially set at 188 million tons annually. Total annual emissions in the RGGI states cannot exceed the annual cap from 2009 to 2014 and then must fall by 2.5 percent per year through 2018, so that by 2019 they must be at least 10 percent below the projected 2009 level.

A large majority of US states have renewable portfolio standards (RPS) or the equivalent and these standards are helping to drive the demand for new renewable energy. In addition, federal legislation has been proposed that requires electric utilities to meet 20 percent of their electricity demand through renewable energy sources and energy efficiency by 2020, and the enabling policy mechanism in the legislation is a federal RPS. However, currently there is no federal RPS.

Table 3.3 Examples of RPS Legislation by State

Figure 3.3 Map of RPS Activity