Regulating Greenhouse Gases by Mandatory Information Disclosure
By Andrew Schatz
INTRODUCTION
Mandatory information disclosure is often heralded as a revolutionary and low-cost environmental policy tool. Governments traditionally use information disclosure to pressure firms to reduce toxic chemical releases into the environment. This Note advocates for governments to expand the scope of mandatory information disclosure beyond toxic chemicals to cover greenhouse gas (GHG) emissions. Mandatory information disclosure will provide consumers, investors, and regulators with more perfect knowledge to assess corporate strategies and liabilities with respect to climate change, thereby giving companies an economic incentive to reduce GHG emissions. While the creation of a Greenhouse Gas Release Inventory (GGRI) should be a first step towards global climate change regulation, it is not the solution, and should serve as a complementary tool to market-based policies.
While some analysts project that information disclosure is the “third phase” in the evolution of environmental regulation, information disclosure in the environmental arena is sometimes described as “piecemeal,” “inchoate,” and “haphazard.” Nonetheless, there appears to be a general consensus that disclosure is a significantly underutilized policy tool that, if properly refined, has the potential to achieve substantial environmental benefits at a relatively low cost.
Mandatory information disclosure has distinct advantages compared to more traditional forms of regulation. In contrast to command-and-control and market-based regulations, information disclosure imposes no required emissions reductions. It only requires covered entities to report their emissions to the government, which disseminates the information to the public and interested stakeholders, subsequently exerting pressure on poor-performing firms. Disclosure is also more politically feasible than direct regulation, because it is framed as a “right to know” law, and is not easily characterized as coercive. Furthermore, it creates incentives for self-regulation not provided by traditional regulatory approaches.
This “regulation by revelation” is enormously successful in the United States, where the Toxics Release Inventory (TRI) requires firms to disclose all toxic releases into the environment. Since 1988, firms reduced toxic chemical releases by fifty-eight percent. This Note analyzes the success and limitations of TRI and other environmental disclosure policies to create a framework for the GGRI. By creating a citizen “right to know” about corporate GHG emissions, firms should seek to voluntarily reduce their GHG emissions to curry favor with investors, customers, and pre-empt more stringent federal and state regulations.
Part II of this Note explores the Toxics Release Inventory as the paradigm case study for mandatory information disclosure. Part III explores both domestic and international uses of disclosure in the environmental policy context. Part IV examines current measures promoting mandatory and voluntary information disclosure of GHG emissions. Part V investigates the business risks and opportunities associated with climate change and federal regulation, focusing on how a disclosure policy might help or hinder specific industries. Finally, Part VI proposes the GGRI as a comprehensive, low-cost measure to promote voluntary emissions reductions, while paving the way for a cap and trade system.
Mandatory information disclosure is often heralded as a revolutionary and low-cost environmental policy tool. Governments traditionally use information disclosure to pressure firms to reduce toxic chemical releases into the environment. This Note advocates for governments to expand the scope of mandatory information disclosure beyond toxic chemicals to cover greenhouse gas (GHG) emissions. Mandatory information disclosure will provide consumers, investors, and regulators with more perfect knowledge to assess corporate strategies and liabilities with respect to climate change, thereby giving companies an economic incentive to reduce GHG emissions. While the creation of a Greenhouse Gas Release Inventory (GGRI) should be a first step towards global climate change regulation, it is not the solution, and should serve as a complementary tool to market-based policies.
While some analysts project that information disclosure is the “third phase” in the evolution of environmental regulation, information disclosure in the environmental arena is sometimes described as “piecemeal,” “inchoate,” and “haphazard.” Nonetheless, there appears to be a general consensus that disclosure is a significantly underutilized policy tool that, if properly refined, has the potential to achieve substantial environmental benefits at a relatively low cost.
Mandatory information disclosure has distinct advantages compared to more traditional forms of regulation. In contrast to command-and-control and market-based regulations, information disclosure imposes no required emissions reductions. It only requires covered entities to report their emissions to the government, which disseminates the information to the public and interested stakeholders, subsequently exerting pressure on poor-performing firms. Disclosure is also more politically feasible than direct regulation, because it is framed as a “right to know” law, and is not easily characterized as coercive. Furthermore, it creates incentives for self-regulation not provided by traditional regulatory approaches.
This “regulation by revelation” is enormously successful in the United States, where the Toxics Release Inventory (TRI) requires firms to disclose all toxic releases into the environment. Since 1988, firms reduced toxic chemical releases by fifty-eight percent. This Note analyzes the success and limitations of TRI and other environmental disclosure policies to create a framework for the GGRI. By creating a citizen “right to know” about corporate GHG emissions, firms should seek to voluntarily reduce their GHG emissions to curry favor with investors, customers, and pre-empt more stringent federal and state regulations.
Part II of this Note explores the Toxics Release Inventory as the paradigm case study for mandatory information disclosure. Part III explores both domestic and international uses of disclosure in the environmental policy context. Part IV examines current measures promoting mandatory and voluntary information disclosure of GHG emissions. Part V investigates the business risks and opportunities associated with climate change and federal regulation, focusing on how a disclosure policy might help or hinder specific industries. Finally, Part VI proposes the GGRI as a comprehensive, low-cost measure to promote voluntary emissions reductions, while paving the way for a cap and trade system.
