Racing to the Top: How Regulation Can Be Used to Create Incentives for Industry to Improve Environmental Quality
28 Pages Posted: 8 Jul 2015
Date Written: 2014
This essay argues that a race-to-the-top approach to regulation will not only improve some failing regulatory programs but could well be transformative. Such a seemingly modest adjustment in the regulatory endgame - focusing regulators on a “best-in-market” - could effectuate a fundamental shift in the regulatory standard-setting exercise. Instead of ensuring that actors are above the floor, the best becomes the focus and debate centers on why competitors cannot do as well or better than these exemplars. In doing so, the new standard creates a race to the top. In this race, firms benefit from investing in environmental innovation, perhaps for the first time. Front-movers recoup significant regulatory rewards by their foresighted investments, again, a stark contrast with the status quo. And rather than engaging in a collective that resists any form of regulatory intervention, the race-to-the-top approach fractures regulated industry and pits them against each other. In doing this, firms encounter first-time incentives to share with regulators unflattering information on other firms, boast of accomplishments that exceed the collective industry standards, and continue to invest in research for improvement beyond the promulgated standards.
Rather than attempt a systematic overhaul of environmental law in a short essay, this piece examines the race-to-the-top approach in one discrete area of environmental regulation in particular need of repair - the regulation of chemicals and other toxic products. This preliminary assessment of both the merits and practicalities of this approach for toxics control proceeds in five parts. The first section provides background and context on chemical regulation and its well-established regulatory failures. The second section introduces the idea of altering regulatory standards to focus on the best in the market and considers the advantages to that approach. The third section places the idea against other, somewhat similar regulatory programs and from this synthesis identifies design features that appear integral to ensuring the success of a regulatory standard based on the best performers. The final two sections troubleshoot some of the remaining challenges associated with the proposal and attempt to chart a path forward in toxics regulation and beyond.
Keywords: Race-to-the-top approach to regulation, environmental regulation, chemicals, toxics, EPA, regulatory standards
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