The Paris Agreement’s management-based approach to climate change will likely face significant challenges.
The Paris Agreement signals an historic global consensus about the problem of global warming. As a solution to a major public problem, though, the Agreement is actually much less historic. It follows an approach that has been widely applied by national and local governments to address less global problems, such as food safety, workplace accidents, and toxic pollution. That approach is called management-based regulation, and what we know about it at the domestic level offers insight into what is likely to follow from the Paris Agreement.
The good news is that management-based regulation, which calls on regulated entities to develop their own plans for solving problems, can sometimes lead to meaningful change, at least in the short term. The bad news is that there are plenty of reasons to doubt that management-based regulation on a global scale will ultimately turn back the tide of climate change.
The reason for concern is not just because, as many commentators have observed in recent weeks, individual nations’ emissions reduction pledges do not add up to what is needed to avoid the 2 °C global temperature threshold. Rather, the worry is that the management-based approach of the Paris Agreement – what is sometimes referred to approvingly as its “bottom-up” orientation – will prove unsustainable.
I have been studying management-based regulation for the last fifteen years, and I certainly understand why the Paris negotiators would take this approach. It is a distinctive strategy that sometimes is the only available option to apply to some of the most challenging public problems. But unlike performance-based regulation, management-based regulation does not impose requirements for the achievement of any specific outcomes. And unlike means-based regulation (also known as technology- or design-based regulation), management-based regulation does not mandate the adoption of any actions that directly lead to improved outcomes.
How, then, could management-based regulation be expected to work to solve serious problems?
It seeks to work by mandating a managerial process. Regulated businesses must undertake self-reflective planning, then follow a framework for reporting progress in implementing their plans, and finally demonstrate a commitment to continuous improvement. In other words, regulated businesses must follow what is commonly referred to as a “plan-do-check-adjust” cycle.
The Paris Agreement contains each of these core elements of management-based regulation. Countries submit their own mitigation plans; they agree to follow certain transparency guidelines in connection with their progress in reducing greenhouse gas emissions; and they commit to taking stock in five-year intervals to strive for improvements. Substitute “nations” for “businesses” and it is clear that this is classic management-based regulation.
Sometimes management-based regulation has been called “enforced self-regulation,” a label that makes some intuitive sense. But that moniker only makes sense when governments require firms to follow their own plans. Not all management-based regulation does that. For example, the Massachusetts Toxics Use Reduction Act (TURA), a prominent management-based model applied to a local environmental concern, simply mandates that large businesses develop plans for reducing the use of toxic chemicals, such as by switching to alternative production inputs or finding ways to minimize waste. Although TURA contemplates that planning will result in reductions in the use and emissions of toxic chemicals, it does not require facilities to make any such actual reductions – nor even to carry out their plans.
Why would lawmakers require businesses to engage in planning but then impose no regulatory duty to follow those plans? Essentially because of faith in the power of planning. Management-based regulation aims to get leaders of organizations to think harder about problems. It seeks to focus their attention and encourage creative problem-solving. It aspires toward innovations that can eventually diffuse throughout industrial sectors. Enforcing firms’ plans would only punish firms for thinking big and setting stretch goals, precisely what management-based regulation aims to encourage.
If this all sounds like too much pie in the sky, management-based regulation has been shown to generate results. An empirical study by Lori Bennear at Duke University, for example, found that states that adopted pollution prevention planning laws like TURA yielded a 30% greater decline in certain kinds of toxic pollution compared with states that did not enact such laws.
That’s the good news. Bennear’s study also points to some of the bad news. The pollution reductions she observed tapered off about six years after the adoption of planning laws. Interviews that my colleague, Jennifer Nash of Harvard, and I have conducted with managers at businesses subject to TURA confirm that the effects of the management-based requirement can wear off within a few years once the easiest, lowest-cost operational changes have been implemented. For quite a few managers we spoke with, the required planning process became largely a paperwork exercise.
What does all this mean for the Paris Agreement and the fate of the planet? If domestic experience with management-based regulation is any guide, we can probably expect some progress to be made in the coming years as the Paris Agreement provides a focal point for leaders around the world. Countries’ bottom-up pledges will indeed likely generate additional attention to promoting energy efficiency and finding better sources of renewable energy. But the kind of substantial commitment needed to produce still more significant emissions reductions will be hard to sustain over the longer term. Absent some pivotal breakthroughs in energy technology, the going will only get tougher.
In the United States, it remains to be seen how the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan, a regulation essential to the U.S. climate pledge to reduce greenhouse gas emissions, will weather legal challenges filed by more than half the states – not to mention the prospect of a Republican winning the White House in 2016. Of course, even if the EPA rule withstands a potential judicial or legislative reversal, it always remains susceptible to the more banal, but no less real, inertia and slippage that can afflict many laws with the passage of time.
Still, the Paris Agreement surely seems to be better than nothing. In that respect, it again bears resemblance to management-based regulation at the domestic level. Policy-makers often turn to management-based regulation when no other alternative exists. If outcomes cannot be measured or enforced, and if businesses’ operations are so heterogeneous that no “one-size-fits-all” action can be mandated, then management-based regulation is almost by definition the only option available, other than maintaining the status quo. Climate change meets these same criteria. Yet the same factors that make management-based regulation attractive also make it inherently difficult to ensure that regulated entities undertake required planning with sincerity, that they set meaningful goals, and that their follow-through proves to be robust. Ironically, the same conditions that lead regulators to opt for a management-based approach in the first place make it hard to ensure that management-based regulation ultimately works, at least after the low-hanging fruit has been gathered.
As much as citizens around the world have rightly applauded their leaders’ responsiveness in Paris to the great urgency of climate change, the “power to change” levels of greenhouse gases does not happen “right here” and “right now,” as President Barack Obama suggested in his remarks at the beginning of the Paris talks. Rather, the power to change can only be realized if resolute action is sustained over time. When management-based regulation goes global, sustained commitment is the only way to safeguard the future.
This essay is part of The Regulatory Review’s four-part series, Will the Paris Agreement Make a Difference?