No risk in thinking green

The Greening of Industry
October 31, 1997

Given the fundamental fact that resources for environmental and health protection are limited, how are the priorities for the use of those limited funds to be determined? If governments were benign maximisers of society's well-being, we could simply leave it to the politicians to sort this complex issue out. But governments have their own agendas, and however they start out, those agendas eventually take over: social ideals are replaced by self-serving bureaucratic objectives, and any concept of the rational allocation of scarce money tends to be lost. Priorities are set in response to crises, pressure groups, special interests and those who shout loudest.

It is against this backdrop that efforts have long been made to superimpose a structure of "risk assessment" on the governmental process. Risk assessment involves determining the probability and scale of some adverse outcome, such as the health effects of food contamination or environmental pollution. Risk management is the process of reducing those risks. Risk reduction is not costless, so the generalised rule that emerges is to get the biggest reduction in risk per pound or dollar spent. If we can save an expected ten lives for Pounds 1 million on road safety, but only two lives for the same expenditure on health care, then the money should be allocated to road safety.

It is interesting that the only country in the world to have attempted systematic risk assessment to determine environmental priorities is the United States. The United Kingdom has embarked on something akin to risk analysis with the increasing use of cost-benefit appraisals for new regulations. The European Community has also established regular cost-benefit appraisals of new directives, in keeping with the requirements of Article 130R of the revised Treaty of Union. Now is a good time, then, for Europe to learn about the American experience, and the literature reviewing that experience is growing fast. Notable publications include Adam Finkel and Dominic Golding's Worst Things First, published by Resources for the Future in 1994, and the penetrating analyses by Robert Hahn and hiscolleagues at the American Enterprise Institute. To these can now be added John Graham and Jennifer Hartwell's The Greening of Industry. Graham and Hartwell belong to the Harvard Centre for Risk Analysis, which has also been instrumental in advancing the case for rational policy assessment.

The importance of this book is that it gives empirical evidence for the view that risk assessment improves the environment. This is important because some environmentalists see risk assessment and related disciplines as threats to the environment. The fear is that rational assessment will show that the environment is not worth saving. Of course, risk analysis has problems. The question is whether it has more or fewer problems than any alternative. One senses that, for the critics, the main problem with risk analysis is that it shifts power away from those who pose as society's moral conscience. For the advocates, this must be one of the virtues of risk analysis.

One of the early regulatory activities in the US related to accelerating the removal of lead from gasoline. The Environmental Protection Agency undertook a cost-benefit appraisal independently of any external pressures and prompted largely by beliefs "at the top" of the agency in risk analysis. The benefits in avoided health damages, especially in reduced adult blood pressure, greatly outweighed the costs of phase-out, as George Gray, Laury Saligman and John Graham show in their concise essay. While many claimed the phase-out as their victory, there is no question that the cost-benefit analysis persuaded an anti-regulation administration to undertake it.

If the ratio of benefits to costs for lead control was large, it bore no comparison to that for controlling stratospheric ozone depletion through reduced use of chlorofluorocarbons. James Hammit and Kimberley Thompson tell the story of CFC regulation and the EPA's regulatory impact assessment, which showed benefits to the US alone to be in the trillions of dollars, and costs in the billions. Few benefit-cost ratios can compare with this. Hammit and Thompson suggest that the more qualitative aspects of risk assessment played a central role in driving industrial regulation on CFCs, with the monetised and quantified health impacts playing only a limited role.

The story is complex and included a bid for increased market share by DuPont, the main producer of CFCs in the US. But a point not emphasised by the authors is that clamour for regulation in a context where the costs are low and the benefits huge, as the rudimentary cost-benefit analysis suggested, is easily acceded to. Overt quantification may therefore appear unimportant only because the main players already stood to gain from a win-win situation. Governments protect human health and even the world at no cost, and industry benefits from being a first-mover by switching out of a scientifically untenable technology. Small wonder that the US became the leading source of advocacy for CFC removal in the rest of the world.

Kimberley Thompson addresses the issue of perchlorethylene ("perc") regulation in the dry-cleaning industry. Perc has not been demonstrated to have adverse health effects but may do so, so that the risk assessments very much took on the form of the "precautionary principle", whereby regulation is justified because of the presumption of risk.

Hartwell and Graham deal with the control of fugitive emissions in steel plants. Interestingly, environmental groups used the EPA's cost-benefit analysis in their advocacy of stricter control, while Congress chose largely to ignore the risk assessments when setting its own standards.

Alison Cullen and Alan Eschenroeder contribute a chapter on municipal waste control that raises an interesting issue: health risk assessments helped to tighten regulations on the disposal of waste, but once the new regulations were in place, even greater difficulty was experienced in successfully siting facilities. Risk assessment in this sense serves the function of protecting the environment, but fails to account for generating exaggerated public perceptions of the remaining risk.

Thompson and Graham contribute a final essay on dioxin control in the paper industry. Dioxins tend to prompt fear and trembling as highly toxic and biologically cumulative chemicals. EPA's risk assessment of the chemicals remains controversial and some would argue that it exaggerates the risks from routine exposure. But the sheer notoriety of dioxins probably explains the importance of the risk assessments in forcing reductions in dioxin emissions from the paper industry.

These are fascinating essays, elegantly composed. Yet European readers will be left asking why we cannot find similar appraisals of European regulation. If it is because we have no experience to go on, that would be a worrying thought indeed.

David Pearce is professor of environmental economics, University College London.

The Greening of Industry: A Risk Management Approach

Author - John D. Graham and Jennifer Kassalow Hartwell
ISBN - 0 674 363 2
Publisher - Harvard University Press
Price - £29.95
Pages - 304

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