The TRI and effects on the “Top 10 Polluters”EPCRA Amy NgTRIEconomic Theory David LumCoase Theorem Coase Theorem GraphicallyTheory of Loss AversionLoss Aversion GraphicallyRelation to TRITRI Effect on Pollution Alana LemarchandPrevious Reports, Similar ProgramsTRI Data OverviewPolluter Rank is Relative…The Scorse ReportTop 10: Colorado vs. ConnecticutModel of Impact of Rank on PollutionIllustration of Rank Change EffectEffects on Emissions for Top 100Problems with TRI Milana RuffinProblems with TRIProblems with TRIProblems with TRIProblems with TRIProblems with TRIProblems with TRITHANK YOU FOR YOUR ATTENTION!The TRIand effects on the “Top 10 Polluters”Amy NgDavid LumAlana LemarchandMilana RuffinEPCRAAmy Ng In 1984, thousands of people in India die from toxic air pollution Similar case in W. Virginia Demand for “beyond the fence line”information EPRCA/SARA Title IIITRI EPCRA Section 313: creation of TRI 1990 Pollution Prevention Act GOALS/PURPOSE- empower citizens, give public knowledge, hold companies responsible Annual reports- Scorecard/RTKNET/websiteshttp://www.epa.gov/triexplorer/http://www.epa.gov/enviro/ PBT chemicals- lower thresholds The importance of TRI dataEconomic TheoryDavid Lum Coase Theorem Theory of Loss Aversion Graphical Demonstration Relation to TRI Coase Theorem – Tradable Permits– Basic assumptions: Well defined property rights No/Little Transaction cost Perfect Information– Says that with basic assumptions satisfied, market will reach its own social optimumCoase TheoremCoase Theorem GraphicallyCitizens MCFactory’s MBPollution →$0Social OptimumAdded welfare to citizens with negotiationsAdded welfare to factory with negotiationsQ*Total PaymentTheory of Loss Aversion Kahneman and Tversky 1991 People tend to strongly prefer to avoid losses than acquire gains.– Losses are said to be twice as powerful– Describes risk adverseness Risk adverse people try to reduce their risky behaviorLoss Aversion GraphicallyUtility or Valuation$100 200 400-100-200-400-100-200-300100120140 Expected UtilityRelation to TRI Firms will informally bargain for their interest– Interest being to stay off top 10 Loss Aversion– People tend to spend more effort fighting with high polluting firms than rewarding efficient ones– However, relative valuations are not the same, people can have different valuationsTRI Effect on PollutionAlana Lemarchand Previous Reports, Similar Programs TRI Data Overview The Scorse ReportPrevious Reports, Similar Programs Several studies establish a negative relationship between TRI reporting and stock prices (1995, 1998, 2001) Similar “Right to know” programs have successfully affected firm emissions– Indonesia (2000)– Canada, green consumerism (2002)– L.A. restaurants: decrease of food-borne illnesses (2003)TRI Data Overview The coverage of new firms beginning in 1998 provide “exogenous shock” Emissions had shrunk to 2 billion lbs but jumped to 7 billion lbs with addition of high polluting industries In the 2000-2001 reports, the new firms ended up lowering the “highest polluter”rankings of the existing firmsPolluter Rank is Relative…The Scorse Report Econometric analysis of effect of rankings on emissions of “original” top 10 polluters by state One example compared effect of ranking on emissions in two states– Connecticut: addition of new firms had minimal effect on rankings– Colorado: addition of new firms had significant effect on rankingsTop 10: Colorado vs. ConnecticutModel of Impact of Rank on Pollution ∆emissions = β1RankBase+ β2RankChange+ controls Null hypothesis: β2 = 0 Alternative hypothesis: β2> 0 β1 >0: lower ranked polluters (with greater number rank) have lower incentive to reduce emissions β2>0: lower ranking due to exogenous shock will lower incentive to reduce emissionsIllustration of Rank Change Effect ∆emissions = 1*RankBase+ 6*RankChange+ controls For Firm A ranking changed from 2 to 13: – RankBase= 2– RankChange= 11 ∆emissions =1*2 + 6*11 = 2 + 66 =68 * ∆emissions are in 1,000 lbsEffects on Emissions for Top 100Problems with TRIMilana Ruffin Self-reporting of firms Influence of external factors Dropping ranksProblems with TRI Self-reportingof firms Will they havean incentiveto lie?Problems with TRISelfSelf--reportingreportingof of firmsfirms– No comprehensive auditing system– No penalties for inaccurate TRI reporting Research has shown that firms discloseenvironmental information strategically (Li and McConomy, 1999) In theory, public disseminationmore cost-efficient than CAC regimes In practice, widespread accidental or strategic under-reporting of TRI emissions possible. How?Problems with TRI Redefining activities as „in-process recovery“which does not fall under TRI as opposed to „on-site recycling“ (Natan, Miller 1998) Changes in analytical methods (e.g. monitoring vs published emissions factors) Industry collusion? Might be indicated byconvergence of reported emission quantitiesProblems with TRIExternalExternalfactorsfactors:: Correlation and causality: What about otherfactors? Global market conditions and inputprices Example: Primary US aluminum industrypost-1999 (Koehler, Spengler, 2007). Market pressures (e.g. energy prices) can accountfor emissions reductions, not pollutionabatement investmentsProblems with TRISource: Koehler, Spengler 2007Problems with TRIDroppingDroppingRanksRanks• No major firm wants to be part of the ‘dirty dozen’• BUT: The more a facility’sranking dropped the lessfacilities reduce their emissions. • The dilemma with reputational capital• Solution: Separate lists?THANK YOU FOR YOUR ATTENTION! We have a surprise for you!