*{BUSINESS VOLUNTARY INITIATIVES TO ADDRESS CLIMATE CHANGE [http://www.iccwbo.org/home/environment_and_energy/energy/word_documents/barepfin.doc] A Final Report for Comment February 1999 by ECOTEC Research and Consulting Ltd A Project for ICC, WBCSD, US CIB, Keidanren, WWF and UNEP LIST OF ABBREVIATIONS ADEME French Environment and Energy Agency AGO Australian Greenhouse Office ACEA European Car Manufacturers Association BAU Business as Usual CDM Clean Development Mechanism CEFIC European Chemical Industries Council CFLs Compact fluorescent lamps COP Conference of the Parties EA Environmental Agreement EDF French Electricity Supplier (Electricité de France) EI Economic Instrument EMAS Environmental Management and Audit Scheme EMS Environmental Management System ESAP Environmental Self-Assessment Programme FACE Forests Absorbing Carbon Dioxide Emissions GEF Global Environmentally Facility GEMI Global Environmental Management Initiative GHG Greenhouse gas GHC Australian Greenhouse Challenge Programme ICC International Chamber of Commerce ICLEI International Council for Local Environmental Initiatives ISO International Standardisation Office LTA Long term agreement MOU Memorandum of Understanding NEA Negotiated Environmental Agreement NEPP National Environmental Policy Plan NGO Non Governmental Organisation OECD Organization for Economic Cooperation and Development PELP Poland Efficient Lighting Project PPP Polluter Pays Principle Sep The Dutch Electricity Generation Board SME Small and Medium Sized Enterprise UNFCCC United National Framework Convention on Climate Change UNEP United Nations Environment Programme USCIB United States Council for International Business VA Voluntary Agreement VI Voluntary Initiative WBCSD World Business Council for Sustainable Development WWF World Wide Fund for Nature SUMMARY CONCLUSIONS} *partie=titre The Value of VIs *partie=nil The Value of VIs needs to be seen not only at the level of the VI itself, but also as part of a broader process towards shared responsibility, self-regulation, and indeed towards a new (business paradigm) of pro-active environmental responsibility and (government paradigm) of pro-active environmental stewardship. VIs can offer a valuable instrument for reducing greenhouse gas (GHG) emissions, though VIs on their own are not sufficient to meet the needs for GHG reduction. Important benefits also lie in the role of VIs in institution building (government benefit from co-operation), new technology market development and technology transfer, and in environmental awareness raising (both internally and externally). Furthermore, VIs are valuable in their role of starting or continuing a process, which, if monitored and guided appropriately, can lead to further pro-active initiatives by industry and other sectors of the economy. The key value of the VI instrument, with respect to other instruments, lies in its ability to build on the particular knowledge of each stakeholder (e.g. business) of their capacity to address environmental challenges, here reduce greenhouse gas emissions, and the possible widespread internal adoption of a pro-active environmental culture. This can support the continued process of shared responsibility and development of the VI, and can help lead, if the VI is designed and implemented appropriately, to significant and cost-effective reductions in emissions, reducing the burden on industry while achieving the needed reduction targets. *partie=titre Risks and Rewards *partie=nil Voluntary Agreements offer, in principle, some potentially significant benefits, and also, some significant risks for each of the stakeholder groups. Part of the process of choosing, designing and implementing a VI, is to assess the risks and rewards and ensure that risks are minimised and rewards are obtained. This is an ongoing process, and a particular core element to VIs. The potential and rewards for the stakeholders include: *partie=titre Business: *partie=nil risks include the danger of implementing the VI, but then also facing other instruments in addition, which would increase the burden on industry. This risk can be minimised by ensuring that the benefits of the VI are made clear, and consequently, that there is no further need (where the case) of other instruments. A further risk is the danger of disclosing information to government and NGOs, and indeed to competing industries, on their environmental performance, and by implication, their economic performance. This can lead to threats of sanctions from government, further pressure from NGOs, and competitive effects from their industries. These can be dealt with by ensuring appropriate information dissemination, back by confidentiality mechanisms. The rewards for industry include the possibility of avoiding cumbersome new legislation, or (punitive) taxes, while at the same time using internal – and sometimes external, depending on the VI - knowledge of their particular capacities to address climate change to implement a programme of truly cost-effective measures. To achieve the former, the VI needs to offer a credible alternative to these other instruments. *partie=titre Government: *partie=nil the key risk for the government is that they agree to use a VI as a key instrument to address climate change, and forego the use of other instruments (e.g. taxes), when the VI may not guarantee the types of emissions reductions needed (e.g. for national targets). This risk can be minimised by ensuing on-going political will and collaboration across VI stakeholder groups to ensure that the VI is implemented appropriately (with targets, monitoring etc) and further developments to improve the VI are encouraged. The key benefit for government, is that VIs can help support the process of sharing the responsibility (and accountability) for action, and obtaining support (and results) from industry for initiatives, which the application of taxes or regulation would not have been able to achieve. To ensure that this is the case, continued government involvement is needed to support and encourage the development of the VI. *partie=titre NGOs: *partie=nil a key risk is that of an NGO investing significant resources to a VI, when it is possible, and that the VI will not bring significant benefits in its final application. This also leads to the risk of the VI stakeholders obtaining a “green image” through the association with an NGO, without actually meriting this brand enhancing benefit. Assuming that the VI is designed, implemented, monitored, reviewed properly and that in the event of a VI failure, an “exit the VI process” provision exists, these risks can be minimised. The benefits to NGOs include being able to develop a greater co-operative partnership with sectors of the economy, which can lead to the NGO’s improved knowledge of the real potential to address climate change, and a greater ability to contribute constructively to the environmental initiatives of these sectors. *partie=titre Credibility *partie=nil A key to the success of VIs is their credibility. Many VIs have been criticised as not being credible initiatives - for being mere lip-service to the environmental issues, marketing or public relations exercises, and the targets and actual CO2 reductions representing only “business-as-usual (BAU) initiatives” rather than true incremental activities. In some cases these criticisms are fair, sometimes due to a lack of continued initiatives to make the VIs truly work. Indeed the criticisms should be regarded as an integral element in the VI process, to the extent that any subsequent VI (new or extended VIs) responds to these criticisms. It is essential for a VI’s effectiveness and credibility that VIs incorporate broad participation, monitoring and reporting of effectiveness, and are reviewed and improved as part of an ongoing process of continual improvement in the performance of VIs. Two key risks exist - that companies will gain green credibility without due reason; and that they fail to be credited for bone fide initiatives. *partie=titre Targets *partie=nil Quantitative targets are extremely important for VIs - for credibility, for motivation to implement emissions reductions/energy efficiency initiatives, and for explicit linkage to national strategies to meet national CO2 emissions reductions targets. The targets should represent realistic, but demanding targets (beyond business-as-usual), and ideally involve interim targets, and be updateable in light of progress. Furthermore, ideally VIs would include both sector wide total targets (collective targets), and, where possible, individual (company level) targets. This combination would encourage company participation, and, at the same time, allow efficiency gains by different contributions from companies with varying opportunities for emissions reductions. However, VI with collective (association) targets only are not “ineffective” as such, since they imply a collective liability rule that can possibly enhance inter-firm co-operation, real initiatives by member companies and thus lead to technology transfer and innovation across the firms in the sector(s). *partie=titre Where, When, and How VIs should be implemented ? *partie=nil Instruments available to policy makers include regulatory approaches, market based instruments, voluntary approaches, financial support and subsidies, and market enhancing mechanisms such as the provision of information and training. These all have advantages which make them appropriate under differing circumstances, either used alone or as part of a policy mix. While the choice (and form) of instrument needs to be decided on the basis of the particular requirements of the environmental issues that needs to be addressed and the policy, legal, economic, institutional and cultural contexts, some broad conclusions can be drawn, answering the questions of when and where VIs could usefully be applied. *partie=titre Where - in what context - Institutional, policy, economic and legal contexts *partie=nil *partie=titre The policy context, history of regulation, sector - *partie=nil where there is a history of co-operation between industry and government and this relationship is important to both parties (e.g. Germany, Japan, the Netherlands, Denmark), then VIs have a good starting point from the stand-point of credibility, assuming of course that there is no case of regulatory capture (where the regulator or government follows the industry lead uncritically); *partie=titre Policy context - *partie=nil existing of long term national environmental policy framework - A long term plan with established targets makes a framework within which the division of responsibilities for achieving targets can be divided, through negotiation / discussion. This context increases the likelihood of possible VIs and the success of these VIs; *partie=titre Policy context - *partie=nil where there is no progress using traditional instruments, VIs might offer a new and effective instrument leading, especially when exploring new environmental policy areas as climate change; *partie=titre Institutional and policy context - *partie=nil Where there is already cumbersome regulation, VIs can allow a new approach to meet environmental objectives without further regulatory burdens – especially valuable where significant competition concerns; *partie=titre Industrial Structure - *partie=nil Where there are a limited number of actors, and a homogenous sector where the VI can be tailored to equally address each player without discrimination, and transaction costs associated with reaching agreement and the administration of an agreement (enforcement etc) can be reduced while maximising participation and minimising free riding; where local authorities lack the legislating power to deal with local environmental concerns; *partie=titre Institutional, Economic Context - *partie=nil Where particular burdens exist to a sensitive sector of the economy - e.g. as part of transition to the EU and a new wealth of environmental legislation being transcribed; *partie=titre Sector structure - *partie=nil where there is a strong industry association, or a supply chain with a strong actor who can influence suppliers, then there is the useful potential negotiating partner for the Government for VIs, and will ensure participation within the VI. This will increase the likelihood of an agreement on an VI, and also reduce the likelihood of free-riders; *partie=titre Legal context - *partie=nil where the governments have no constitutional right to draw legally binding VIs (such as in Germany), then the VI might better take the form of a “gentlemen’s agreement”; in other countries the legal climate allows formal legal arrangements for VIs (as in the Netherlands); in yet other countries, the highly involved legal aspects of negotiated agreement and their cost implications, imply that self-declarations and self-commitments with no legal implications, could be a better way of engaging stakeholders into a voluntary initiative (this argument is often tabled for the U.S.). *partie=titre VI Champion – *partie=nil where an individual or organisation exists with a particularly pro-active attitude and can act as a “VI champion”, leading to increased commitment and integration of other companies and individuals to a VI. *partie=titre When? *partie=nil As transitory instruments - where traditional measures do not work or are unlikely to work given new short and medium term burdens (new standards to be met, opening of markets and tough competition, boost the launch of climate change national strategies and motivate industry, etc) but where other instruments would work better in the long run; As long term instruments - where these VIs remain flexible and updateable to reflect the changing opportunities and needs, and whether they can meet long-term targets (such as climate change or indeed targets within long term national environmental strategies such as NEPP and NEPP+ in the Netherlands) offering solutions that reflect a cost effective but real response; As implementation agreements - where VIs are implementing agreements of pre-decided targets, then VIs are generally likely to be attractive, when compared to VIs which set the targets themselves; When there is a significant potential for under-utilised or new technologies - this may underline the hidden win-win benefits, and if the barriers are addressed (e.g. through awareness campaign and benchmarking within an VI) then these technologies can reach their appropriate level of industry penetration and appropriate new markets can be established; When there are important issues that cannot be addressed by traditional instruments - standards, command and control regulation, taxes and fines, subsidies - and the VIs can play a useful complement and/or substitute to these other instruments. *partie=titre How should VIs be implemented? *partie=nil VIs should be implemented respecting all aspects of design and implementation as assessed against good practice guidelines - stakeholder participation, good enforcement mechanisms in place (legal or otherwise), appropriate monitoring, reporting, transparency and public information availability; and with credible and sufficiently demanding targets that can be updated to ensure that there is real progress in addressing the environmental objectives. In sum, VIs should only be implemented where credibility of the instrument can be obtained, and where there is ongoing support for the appropriate use and development of the instrument, leading to the broadening of the ownership of environmental responsibility. See Figure A2. The VI should also be implemented as a process instrument rather than simply as a “one-off fix”, and build on the potential to engage the particular knowledge and motivation within industry to implement emissions reductions measures. A vital process of the VIs, which is not available directly through the use of alternative instruments such as taxes and regulation, is its ability to make use of the particular insights of all different layers within industry, enterprises and plant. Internal communication, consultation and dissemination activities could valuably be integrated into the VI to ensure that all the levels of industry, are aware of the initiative, and, where possible and appropriate, motivated to support the initiative. This is key to ensure that the particular rewards possible from a VI are indeed realised. Ultimately this is a fundamental benefit of VI over other instruments which are less likely to encourage fully integrated shared responsibility. *partie=titre What is the future of VIs? *partie=nil VIs offer a (series of) pragmatic and potentially valuable instruments to help address climate change, and can contribute to the process of sharing responsibility for addressing climate change to key actors throughout the sectors of the economy. To realise this potential VIs need to be implemented only where there is the appropriate need for action, with independent parties involved in the design of the VI and in the definition of its role as complement and substitute to other instruments, and where the appropriate institutional context is in place. Furthermore, the implementation needs to include clear (updateable) targets, transparency, monitoring and independent verification to ensure credibility. Furthermore, VIs of each type should be encouraged - where they offer the potential significant benefits and are more appropriate than alternatives routes - especially where the VIs can develop further as an instrument over time, such that the particular benefits of VIs - of accessing more motivation and knowledge at all levels of the economy - can be realised. To ensure this, there needs be continued political and public support for the further development of the VI process. Even where VIs offer to be a useful instrument, the key to their success lies not only in the appropriate design, but also in ensuring that there are appropriate carrots and sticks for the VI - that is, complementary incentives (both for engagement in the VI and in appropriate implementation of the VI), and complementary threats of penalties or indeed sanctions. Furthermore, it is essential that other instruments - regulation, taxation, technology support programmes, public reporting, EMS implementation, public awareness, self declarations and codes of conduct - are also assessed to see whether they would be appropriate complements in addressing the environmental issue concerned. Finally, the VI is only feasible, where the institutional structures are appropriate. It is helpful, if there is a homogenous industry, with few players, or if there are many players, that an association with significant powers ensures that the companies implemented the required initiatives. This will help ensure that each company carries out the initiatives needed without fear of free-riders with subsequent competitiveness implications. If these conditions are all in place, then the VIs should be able to ensure that most win-win initiatives are implemented and that pro-active environmental action becomes the new business-as-usual paradigm. Furthermore, if the targets are appropriately set, monitored and enforced, then VIs could go beyond win-win initiatives, and prove to offer a serious instrument that can encourage industry to meet key environmental challenges, and VIs might then prove to be an instrument of significant potential for future use in addressing climate change.