Next Generation Compliance and Evidence-Based Policy

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Next Gen innovation must be paired with traditional enforcement and formal evaluation mechanisms to work effectively.

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In a superbly researched new book, Cynthia Giles raises serious concerns about the state of environmental compliance assurance in the United States. Next Generation Compliance: Environmental Regulation for the Modern Era presents compelling evidence that noncompliance with environmental rules is rampant. The book documents how and why standard processes for creating and implementing environmental laws lead to outcomes that threaten human health and the natural environment.

But the book is not all doom and gloom. In my read, the core of the book is Chapter 5: “Next Gen Strategies: A Playbook.” Here, Giles lays out new approaches for promoting environmental compliance. Core strategies include simpler rules with fewer loopholes, compliance as a default, participation by enforcement personnel in rule design, continuous emissions monitoring, modern monitoring technologies, mandatory electronic reporting, third-party verification and auditing, public disclosure, and data analytics.

Next Generation Compliance is destined to become the authoritative work on compliance assurance innovation. It is essential reading for policymakers and scholars working on environmental compliance. Because the book does a masterful job of describing—in accessible language—how laws are created and implemented, it is also a fantastic reference for the general reader interested in any aspect of environmental, health, and safety regulation.

At the same time, I caution that the evidence base for Next Gen compliance approaches remains thin. The evidence that the United States has an environmental compliance problem is undeniable, but the evidence for the specific solutions in the book represents early work in progress. This is not a criticism of Next Generation Compliance, but rather a caveat about the current state of knowledge.

To the extent that we have systematic evidence on environmental compliance assurance, it is that traditional monitoring and enforcement yield results. A large and growing literature uses rich data to assess the impact of agency inspections and fines across environmental compliance domains including air pollution, water pollution, oil pollution, hazardous and toxic waste, and oil and gas storage and transportation. Diverse methods include qualitative approaches, quantitative deterrence measurement, field experiments and randomized controlled trials, and laboratory experiments.

Results from this literature show that traditional inspections and sanctions promote environmental performance. Inspections and fines directly reduce harm, as new information and the requirements of administrative orders and judicial resolutions improve compliance.

On average, inspections and fines also induce specific deterrence, improving future environmental performance at the evaluated or sanctioned facility. Inspections and sanctions generate general deterrence that spills over to improve environmental performance at other facilities in the same jurisdiction. Inspections and fines can even generate beyond-compliance behavior, where fines induce facilities to reduce pollution well below levels required by law.

In contrast to the rich literature described above, our knowledge of the impacts of disclosure, rule design, third-party verification, data analytics, and other Next Gen strategies is limited.

To be sure, these approaches seem to make good sense. A few of the book’s case studies suggest that many of the best ideas can work. And no one is better suited to project what will work in environmental compliance than Cynthia Giles.

But ex ante identification of what works and what does not in public policy is challenging. Incentives, organizational cultures, and behaviors of both regulated communities and regulators themselves are complicated. The United States has a rich history of thoughtful, well-intended policies that have turned out to be ineffective, failed to achieve policy objectives consistently, or even generated counterproductive outcomes. As the old adage reminds us, good intentions do not always lead to good outcomes.

Consider the case of transparency and public disclosure. Intriguing work suggests that social comparisons increase energy efficiency and may reduce pollution discharges from municipal wastewater treatment plants. In this case, households or facilities often improved their own environmental performance after learning about their peers’ behavior.

On the other hand, studies from other domains, such as tax compliance, indicate that compliance disclosure can backfire. Noncompliance can increase when agents learn that others do not comply. The mechanism here is simple, and it boils down to one question: “If so many others are not complying, why should I?”

And many other concerns can arise with disclosure. For example, if information recipients do not trust disclosed data, transparency may have limited effects. Disclosure can also lead to moral licensing, a phenomenon that occurs when parties feel free to do something bad because they have first done something good. Here, parties publicly disclosing negative information about their choices may feel less accountable to stakeholders because they imagine that such stakeholders have been warned adequately.

These examples are simply illustrative, and I am in no way asserting that Next Gen ideas will not work. Indeed, Next Gen strategies offer considerable promise for more effective and cost-effective compliance assurance and environmental protection. However, two of the book’s less central points bear repetition and emphasis.

First, we must not throw the proverbial baby out with the bathwater. Giles does not seem to intend for Next Generation Compliance to be an indictment of environmental monitoring and enforcement, but I fear the book may be read that way by many audiences. We need more resources for traditional monitoring and enforcement, not fewer. This point is especially important as Next Gen tools are often context specific and will take years to implement, even in best-case scenarios.

Second, we must recognize that innovation comes with uncertainty. As Giles notes, any culture of innovation requires a complementary culture of evaluation. Successful Next Gen compliance will require a sustained commitment to formal evaluation, experimentation, quantitative evidence, and evidence-based decision-making.

Next Generation Compliance: Environmental Regulation for the Modern Era is, overall, a triumph. However, we may be well served by viewing it as a starting point for future environmental compliance conversations and not as the final word.

This essay is one of a six-part series on The Next Generation of Regulatory Compliance.