Until recently, most environmental regulations took the form of uniform industry standards. However, it is now becoming apparent that these “command and control” style regulations are a costly and inefficient means of achieving environmental objectives. In response, economists and others have devised alternative mechanisms for achieving environmental objectives. Many governments and several private organizations have developed environmental labeling programs.
Concern that national environmental labeling and management schemes might become technical barriers to trade led the International Organisation for Standardisation (ISO) to begin developing international “consensus” standards in the field of environmental management tools and systems. This series of environmental standards is referred to as ISO14000. However, it is not clear that these standards will be a net benefit, environmentally or economically.
• One of the reasons ISO14000 has been suggested as an alternative to the traditional command and control type regulations is that these regulations are an inefficient mechanism for achieving environmental protection. To require compliance with these regulations as part of ISO14000 compliance seems rather perverse. In particular, it is likely to impose marginal costs in excess of the marginal benefits.
• If governments around the world required the firms from which they procured to be registered to ISO14000, then the many firms in developing countries that could not afford ISO14000 registration would be at a disadvantage. ISO14001 would then function as a technical barrier to trade.
• ISO14000 will increase the cost of implementing changes to production processes, since “environmental management” must be incorporated regardless of its effectiveness. As a result, the rate of investment in research and development is likely to fall and fewer advancements in technology will take place.
• By and large, ISO14000 registration will be an overly costly means of achieving environmental improvement for a few firms. As a result, ISO14000 registration is likely to result in the misallocation of resources and, in the long-term, have a negative impact on the environment.
• ISO14000 is inflexible, as criteria take years to develop and are not changed for several years thereafter. As a result, it is likely that scientific developments will overtake the standard. Environmental priorities change over time with the expansion of scientific knowledge and the evolution of societal preferences. Any formalized audit process risks lagging behind these changes.
• The focus of ISO14000 is too narrow. Companies will be encouraged to comply with ISO14001, but not necessarily to think holistically about improving their performance by using resources more efficiently. ISO14000 may crowd out other, perhaps superior methodologies, for developing environmental management programs.
• ISO14000 involves a costly auditing procedure that might actually result in the redirection of resources away from investment in more environment friendly processes. The possibility that governments might require ISO14000 certification is more disturbing and could have a big impact on smaller firms.
• The cost of becoming registered under ISO14000 is high in developed countries. In less developed countries, the cost of registration is likely to be astronomic. The use of ISO14000 as a condition in an international trade agreement would be nothing short of environmental imperialism.
It is very important that ISO environmental standards be voluntary. Any sort of compulsion to implement ISO environmental standards might seriously distort the market and lock in a potentially inferior approach to environmental management. The cost of complying with ISO14000 is likely to vary considerably between industries and firms. Compulsory compliance with ISO14000 would discriminate against firms that were complying with regulations but which had no formal environmental management procedure. In such cases, compliance might mean that resources are diverted away from investments that lead to environmental improvements towards pointless changes to management and accounting procedures.
ISO14000 purports to provide an alternative to regulation, a “market based” solution to environmental problems. At best, it is likely to be little more than an invitation for auditors to make a few more bucks; at worst it will result in environmental imperialism, restricting trade and imposing unnecessary costs on firms in developing countries that will lose out relative to firms in developed countries.