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This paper provides taxonomies and models, in order to contribute in including the economics of environmental voluntary agreements (VAs) into the standard framework of the economics of the environment.

Environmental voluntary agreements try to remedy market failures differently from traditional regulatory and economic instruments. In fact, they are based on the exchange between the P.A. and firms and on the design of a framework of incentives to parties in a context of negotiation and cooperation. Efficiency and effectiveness of VAs depend on specific features, which can be evaluated only by a case by case analysis. VAs can effectively be included in the tool-kit of the environmental policy-maker if some conditions regarding their design and implementation are respected, in order to limit the risks of regulator capture and free riding.

This paper provides an overview of various forms of self-regulatory practices the private sector has been applying in recent decades. It also presents the main drivers stimulating business to take up self-regulatory measures, and vehicles for establishing better corporate environmental behavior, with special attention to multi-stakeholder dialogue.

The paper analyses whether voluntary agreements with polluters (VAs) are able to achieve an efficient level of environmental protection when they are obtained under the legislative threat of an alternative stricter policy option. We develop a model in which the threat is a pollution quota. The threat is the outcome of a rent-seeking contest between a green and a polluter lobby group influencing the legislature. We show that a VA systematically emerges in equilibrium and that it leads to a more efficient level of pollution abatement than the legislative pollution quota. However this level is lower than the first best level of environmental protection. The paper also discusses various VA design aspects.

Environmental voluntary agreements with industries are becoming a popular alternative to traditional regulation. One reason may be that such agreements increase implementation cost efficiency. On the other hand, models of the political economy of environmental voluntary agreements point out that efficiency reducing agreements are also possible under certain conditions.

In this paper we interpret empirical evidence from case studies of environmental voluntary agreements using one such policy formulation and implementation model. When our sample is interpreted in this light the data suggests that environmental voluntary agreements may often be chosen in order to shift the responsibility for implementation to industrial organizations that are less sensitive to criticism from powerful environmental interest groups. When this explanation of an environmental voluntary agreement applies, the model predicts that the agreement will be less cost effective and achieve lower environmental performance than the traditional regulatory alternative which would otherwise have been adopted.

Although our findings are not conclusive nor necessarily representative they do suggest the worrying possibility that many of the environmental voluntary agreements being established today achieve lower environmental performance less cost effectively than the most likely traditional regulatory alternative.

The European Community starts using the instrument of voluntary environmental agreements in the late 1980s. In 1996, a Commission Communication takes stock of existing experiences and outlines ideas for a more consistent Community approach. In 2002, the Commission issues a second Communication, this time dedicated exclusively to environmental agreements at Community level. It builds on comments and requests put forward by the Council and the European Parliament. The Communication takes account of the specific legal and institutional constraints at EU level and proposes a set of criteria as well as procedural steps. It also details the concepts of self-regulation and co-regulation. Together with an interinstitutional agreement, it paves the way for the further use of the instrument at Community level. As of today experiences with environmental agreements at Community level are still limited, but encouraging.

The use of voluntary approaches to achieve environmental improvements has grown dramatically in the United States (U.S.) since they were first introduced thirteen years ago. As of 2004, there are over 50 voluntary programs in the U.S. at the federal level alone. These programs take a variety of forms, from large, cross-industry efforts to reduce global climate impacts to smaller, “boutique” efforts aimed at specific industrial sectors. Other voluntary approaches used in the U.S. include negotiated agreements, industry-initiated unilateral commitments, and state and regional voluntary initiatives, but these tend to be used less regularly.

Despite the diversity of voluntary approaches in the U.S., they often pursue common, and sometimes overlapping environmental objectives and use similar methodologies to achieve such goals. While most voluntary initiatives in the U.S. state an explicit environmental goal, they may also have less direct policy objectives such as enhancing innovation or increasing awareness of environmental issues.

Many argue in favour of the increased use of voluntary approaches in environmental policymaking on the basis of environmental effectiveness, economic efficiency, reductions in government administrative, monitoring and enforcement costs, increases in environmental awareness, and encouragement of innovation. Few programs have been evaluated properly on the basis of these objectives, however. The empirical literature sheds little light on the value of voluntary approaches in achieving goals set by U.S. environmental policy. The difficulty in evaluating voluntary approaches lies in sorting through the myriad of programs, identifying a discernible environmental goal, gathering adequate data for analysis, and measuring achievement of the environmental goal relative to a reasonable baseline scenario.

Interest in the use of so-called voluntary approaches to supplement or replace formal environmental regulation is on the rise, both in Europe and in the United States. These approaches fall into two general categories: (1) industry-initiated codes of good practice focusing on environmental management systems or performance goals, and (2) negotiation between government and individual firms (or industry sector trade associations) focusing on regulation or compliance. This paper addresses the latter. In the United States, the motivations for engaging in such negotiation are manifold and sometimes contradictory. They include desires (1) to facilitate the achievement of legislated environmental goals by introducing flexible and cost-effective implementation and compliance measures, (2) to negotiate levels of compliance (standards) fulfilling health-based legislative mandates, (3) to negotiate legal definitions of Best Available Technology and other technology-based requirements, and (4) to weaken environmental regulation. In the United States, administrative agencies have long been experimenting with “negotiated rulemaking as a means of , and the Administrative Procedure Act was amended in 1990 to encourage further use of this process. U.S. agencies have also made frequent use of negotiation as a means of defining responsibilities for individual firms. In addition, the Environmental Protection Agency (EPA) has sometimes acted outside of the authority given to it by its enabling legislation in an attempt to negotiate environmental policy and implementation. Two recent examples are the "Common Sense Initiative," in which EPA attempted broad-based negotiation focuses on particular industry sectors, and “Project XL", in which the agency attempted to negotiate flexible implementation of environmental requirements with individual firms. Although both programs are now moribund, each provides useful lessons for future efforts at environmental negotiation. This paper describes and analyses negotiated agreements in the United States in the context of EPA efforts to ensure environmental protection. These agreements can be described according to the following taxonomy: (a) negotiated regulation (either preceding formal regulation or as a substitute for formal regulation); (b) negotiated implementation (negotiations with an individual firm to establish the timetable and/or the means for meeting a particular regulatory standard; and (c) negotiated compliance (negotiation in the context of an enforcement action in which the firm is out of compliance with an applicable standard and there is an opportunity for extra-statutory environmental gains, such as encouraging cleaner production through the leveraging of penalty reductions). The criteria for evaluation used in this paper include: environmental outcomes, effects on stimulating technological change, time for development (time to completion), ease of implementation (likelihood of court challenge), stakeholder influence (ability of large firms to dominate outcome, environmentalists-industry balance of power), and administrative features.

Energy labelling and minimum efficiency performance standards have proved to be very effective in stimulating energy efficiency improvement in the domestic appliance sector. But standards suffer from long and often difficult implementation periods because of the resistance of the industrial sector. As a consequence, the question has been raised as to whether similar results could not be obtained more easily and at lower cost with voluntary agreements, which offer flexibility margins in the achievement of commitments. This paper analyses the specific advantages of voluntary agreements compared with efficiency standards in the domestic appliance sector. We conclude that voluntary agreements may be an effective instrument in this respect but in certain conditions. The alternative of regulatory measures must remain a credible, realistic threat if voluntary agreements are to have a really significant impact on performance improvement.

In this paper, we focus on the implementation process of environmental voluntary agreements based on a Flemish case study concerning the introduction of the duty of acceptance in Flemish waste policy. At the moment, the duty applies for paper, batteries, vehicles, tyres and electrical and electronic equipment. Producers are obliged to set up free of charge take-back collection systems for the disposal of their products in the post-consumption phase. As such, market failure is corrected by internalising social costs into private ones, respecting the polluter pays principle. For the practical execution of the basic rules laid down in the legal framework, environmental voluntary agreements are concluded with sector associations. The use of environmental voluntary agreements allows producers to fulfil their individual obligations resulting from the duty of acceptance in a collaborative sector-based approach. This entails several operational advantages and allows setting up efficient collection and disposal networks taking into account the specific characteristics of each waste product rather than implementing a uniform system. The paper investigates how the agreements have been negotiated and implemented paying particular attention to the relationship between the underlying environmental legislation and the voluntary character of the agreements. The agreements clearly have a support function aiming to implement existing legislation in the most efficient way. Next to the conclusion, the management of these agreements is discussed. It appears that the policy process entails much more than just fixing overall collection and recycling targets, but should be regarded as an on-going process with evaluations and consultations with all stakeholders. In this regard, the importance of alternative instruments in case of non-compliance to the agreement and back-up policies to create market opportunities for recycled materials is stressed.

Environmental Voluntary Agreements (VAs) were implemented in Portugal for the first time at the end of the 80s, but it was during the 90s that the VAs became an important environmental policy instrument with the creation of the “Environmental Adaptation Contracts”.

At the present moment the Portuguese Environmental Authorities are implementing a third generation Environmental Contracts — Contracts for the Continuous Improvement of Environmental Performance — with the objective of giving support to the companies that are willing to adopt “over-compliance” measures.

In this paper we will review the Portuguese experience with VAs: we will start with an historical review of its implementation and a characterization of the different experiences; we will then, move to a closer analyses of the “Environmental Adaptation Contracts”, presenting a characterization of the contracts, making a comparison with the European experience with negotiated agreements and we will conclude with some comments on its application.

Throughout the text we will use the Portuguese experience as a reference to make a theoretical review of the VAs characterization and to emphasise the factors that motivate public and private participation on this “voluntary” environmental regulation process.