Corporate Accountability

Corporate Accountability for Information on Risk

Background

The Issue How much information should manufacturers and industrial operations provide about the potential hazards of their products and wastes? If industry is not required to collect basic information about the extent and consequences of their activities, how will society ensure the production of this information?.

Despite the fact that environmental regulation has grown by leaps and bounds since the 1970's, much of the scientific information needed to ensure environmental protection is missing. We do not know the quality of most of our air, water, or land in the United States, even though the country has devoted hundreds of pages of laws to regulating activities that threaten them. We do not know when we are stressing ecosystems beyond the breaking point, and we do not know how to help the ecosystems recover, even though the effectiveness of some of our federal programs depend on this information. We do not even know how to talk about, much less test for, a variety of invisible hazards associated with household products, pesticides, food additives, and products of biotechnology. This ignorance prevails despite elaborate licensing requirements that purport to protect public health and the environment from precisely these hazards.

The significant gaps in our scientific knowledge are not inevitable; they are the product of policy choices - some intentional, some tacit. Science cannot answer all of the questions we put to it, but modest investments in environmental monitoring and basic scientific research can make headway in isolating environmental and health problems that need our attention. For example, the extent to which an oil refinery is polluting the air or a paper mill is polluting a river and the possible consequences of that pollution can be determined in ways that inform regulatory policy. It seems reasonable that polluters and manufacturers should bear responsibility for providing basic information on the risks and damages that they impose on society. This information on the adverse consequences of industrial activities is in fact part of the external social costs that we try to internalize with regulation.

Left on their own, polluters and manufacturers are unlikely to invest resources in assessing the extent to which polluting activities and potentially harmful products constitute an externality. Information on the harm industry inflicts on health or the environment generally has negative market value: Creation and dissemination of this information does not improve the sales of products. Moreover, tort and environmental law can inadvertently increase, rather than decrease the liability and other penalties levied against firms that publicize the extent of harm they cause. Information that advances our collective knowledge of hazardous products and wastes also has public good qualities since many others enjoy benefits from the knowledge that are not captured by the manufacturer or polluter producing the information. Finally, and most importantly, much of the information regarding externalities is asymmetric. Manufacturers and polluters enjoy superior control over information on the possible harms of their products and wastes and escape accountability by keeping this information secret or making it difficult to access.

Because of these varied disincentives, the environmental laws should require industry to develop information on the extent and adverse consequences of the externalities that they create. Yet current environmental laws generally fail to provide incentives for the production of this basic information. Instead, environmental laws require at most only a partial accounting of the extent of wastes or hazards introduced by industry and generally do not require manufacturers and polluters to monitor the environment or public health to ensure that the hazardous substances and products they produce are safe.

What People are Fighting About

Over the past decade, industry has complained that environmental laws and regulations are not based on "sound science" and that the regulations require far greater protection than is justified by the costs of compliance. Industry fails to disclose, however, that these demands for "sound science" are based in large part on the position that it is the government, and not industry, that should bear the burden of producing scientific information on the environmental externalities created by industrial activities. These groups also fail to point out that without information on the effects of pollution and other environmental externalities, regulation will often fail to appear cost-justified because there is insufficient information on environmental benefits to quantify. In short, industry uses prevailing scientific ignorance about the harms caused by their pollution (and even about how much they are polluting in the first place) to argue that there is no evidence that these externalities impose costs on society.

Despite industry's persistent complaints, environmental laws generally require that manufacturers and polluters minimize harmful activities without an elaborate cost-benefit analysis or science-based justification. (See CPR's Cost-benefit Perspective). Yet, in most of these preventative mandates, Congress neglected to require industry to produce basic information on the existence and extent of their externalities. Manufacturers of new pesticides and a small set of new toxic substances are required to provide information on their safety. Industries that discharge pollution through discrete stacks or pipes or dispose of certain types or amounts of hazardous wastes also are required to provide an accounting of the extent of their polluting activities. Generally, however, industries engaged in producing or disposing of toxins are not required to contribute to the development of information on how these products and wastes affect public health and the environment. Instead, if the information is produced at all, general tax revenues, rather than polluters, finance the research.

Beyond failing to place responsibility on industry to produce information on the existence and extent of the externalities that they create, some laws actually serve to discourage the production of this information. Many laws inadvertently reward ignorance by imposing penalties on polluters or manufacturers once hazardous activities are discovered, but fail to require this basic information as a prerequisite to operation. Thus, facilities that admit to polluting activities are penalized, while facilities that keep this information secret escape enforcement. Recent reforms of regulatory decision-making exacerbate the tendency of manufacturers and polluting industries to be uncooperative in producing information on their externalities. For example, basing decisions on cost-benefit analysis requires quantification of harms, and where quantification is not possible due to scientific uncertainty, such harms are given a value of zero in the numerical analysis. (See CPR's Cost-benefit Perspective) "Sound science" initiatives similarly focus attention away from gaps in information and toward the quality of existing information, and can be read as requiring that a body of scientific information documenting environmental and health injuries exist before regulatory intervention is justified. (See CPR's Data Quality Act Perspective). Finally, judicial review of agency decisions sometimes increases the agency's burden of producing information on externalities, even when the cheapest and best access to the information lies with industry. Each of these developments discourage industry from voluntarily contributing information on externalities, and even when information is available, these approaches give industry incentives to challenge the information that does exist.

When added together, regulatory deficiencies and misguided reforms cumulatively create a situation where: we have little baseline information on environmental quality, products, or wastes; our development of methods for assessing human and environmental harms has been slow and historically under-funded; there is, at best, only partial documentation of compliance with environmental laws and regulations; and in areas where monitoring has been done by public entities, environmental quality is not yet at levels determined to be adequate (air; surface waters; drinking water; etc.).

CPR's Perspective

The environmental laws should embody the principle of requiring polluters and manufacturers to produce information on the extent and effects of their products or waste on health and the environment. Accordingly, CPR believes that the environmental laws and regulations should be adjusted in the following ways:

• Polluting industries should be required to monitor all emissions and discharges based on standardized, validatable tests. Polluting industries should also be required to fund or contribute to the monitoring of ambient water and air conditions, including groundwater monitoring in cases where there have been discharges of hazardous substances onto land.

• Manufacturers of potentially toxic substances, including pesticides, should be required to run a battery of toxicity tests for all products, even for products that have been grandfathered into the program unless the possibility of human or environmental exposure is minimal.

• Research to develop more sophisticated testing methods to determine the extent to which an externality exists should be shared by industry through a tax since this information has public good qualities. Because some of the information is asymmetric, industry's scientists should serve on an advisory board (balanced with public health toxicologists, etc.) to help advise assessment methods.

• Better data property regimes need to be established. Testing methods can be copyrighted and licensed to create a market for better assessment methods. Regulators can require these licensed tests as a condition of establishing compliance.

• More generally and for every environmental program, the information needed to effectuate that program should be mapped. Information best produced by private parties should be identified, and private parties should be required to produce this information with specified protocols. Likewise, information best produced by government should be prioritized and reviewed every other year by Congress. Information that will not be collected or produced should also be acknowledged.

Although there will never be perfect information available to ensure protection of the public health and environment, environmental regulatory programs will stagnate if we continue to ignore the contributions that scientific research can make to understanding the extent and duration of the consequences of industrial activities to health and the environment. Since polluters create the externalities and have superior information about the extent of these harms, they should bear the responsibility of providing preliminary information on the harms that they impose on the public and future generations.