Public pressure found to influence whether companies reduce their environmental impact

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The effectiveness of national voluntary programs asking companies to pledge to lower their pollution and greenhouse gas emissions depends on pressure from the public, according to a new study led by a Penn State researcher.

The research, published in the Journal of the Association of Environmental and Resource Economists, found that companies contributing the greatest pollution and emissions were more committed to reducing pollution because they faced greater public scrutiny and risked being labeled as "greenwashers"—entities that make false claims about their environmental impact.

In contrast, the researchers found that companies already contributing smaller amounts of pollution and emissions experienced significantly less public scrutiny, allowing their reputation to benefit from participating in the program even if they weren't actively lowering their pollution rates.

Ruohao Zhang, assistant professor of agricultural economics at Penn State and first author on the paper, said the findings may help inform more effective programs in the future.

"It suggests that public pressure—such as through public scrutiny of firms' environmental performance by the media, nongovernmental organizations and other stakeholders—can be effectively leveraged to complement traditional regulation and may be sufficient to keep firms from free riding in voluntary pollution abatement programs," he said.

As climate change continues to lead to record-breaking temperatures around the globe, pressure is higher than ever for companies to reduce their pollution and carbon emissions, the researchers said. But mandatory regulations can be costly to enforce, making programs that companies join voluntarily an attractive alternative.

For example, the U.S. Environmental Protection Agency in 1991 launched the 33/50 program, under which companies committed to reducing their emissions of 17 harmful chemicals by 33% by 1992 and 50% by 1995. More recently, the EPA established the Green Power Partnership in 2001 to encourage organizations to use green power voluntarily, which helps advance green power markets and reduce air pollution.

However, Zhang said the effectiveness of these programs in reducing pollution has long been debated, and the results of previous studies on the topic have been mixed.

"While most voluntary pollution abatement programs are associated with very limited or no direct financial benefit, they also lack sanctions to incentivize pollution abatement in excess of the mandated level," Zhang said. "We wanted to examine what motivates firms to participate in voluntary pollution abatement and the mechanism through which these programs affect firm environmental performance."

To explore the reasons behind the inconsistent findings about the effectiveness of voluntary programs in the previous literature, the researchers examined the potential differences in participation decisions and environmental performance between major and smaller polluters by analyzing data from the 33/50 program. The full data set included 39,201 annual observations for 8,670 plants across 11 industries, including major pollution sources from chemical, metal and transportation sectors.

They found that overall, the data did not show big differences in the average pollution levels between participants and nonparticipants of the program. Within the program, only the major polluters showed a reduction in emissions compared to nonparticipants. The researchers suggested that this is because those companies started with higher levels of pollution and faced more public pressure to reduce.

Likewise, smaller polluters in the program did not reduce their pollution levels and, in some cases, even increased their pollution. This is due to the absence of public pressure in light of these companies starting with relatively lower levels of pollution, which allowed them to fly under the radar of public scrutiny, the authors noted.

Zhang said the findings highlight how the effectiveness of voluntary pollution abatement programs in lowering emissions depends on public perceptions of the participating firms.

"Greater public scrutiny yields fewer program participants who free-ride on the reputation of the program, thereby increasing its effectiveness in lowering emissions," he said.

The researchers said that in the future, additional studies could more specifically examine the strategic movements of individual plants and explore other factors influencing plant participation and emission decisions in relation to voluntary programs.

More information: Ruohao Zhang et al, Public Pressure and the Heterogeneous Effects of Voluntary Pollution Abatement, Journal of the Association of Environmental and Resource Economists (2023). DOI: 10.1086/726318

Provided by Pennsylvania State University