Full text of Working Papers (Federal Reserve Bank of Chicago) : Industry Approaches to Environmental Policy in the Great Lakes Region, Working Paper 1993-8

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REGIONAL ECONOMIC ISSUES
Working Paper Series

Industry A pproaches to Environm ental Policy
in the G reat Lakes Region
David R. Allardice, Richard H. Mattoon and William A. Testa

F E D E R A L R ESERVE B A N K
O F C H IC A G O



WP- 1993/8

Industry Approaches to Environmental Policy
in the Great Lakes Region
David R. Allardice, Richard H. Mattoon and William A. Testa*

In trod uction
This paper reviews economic theory and evidence regarding environmental
regulation of the private sector. Private sector involvement, intentions, and
outcomes with regard to environmental regulation have often been viewed as
suspect, although to date the evidence supporting those views isweak. In the
past, business policies toward environmental regulation has been contentious
and hostile. Itis perhaps for this reason that business involvement has been
looked upon with suspicion. Nonetheless, it appears that business policies
have since evolved for the better. In support of this proposition, the paper
proposes a three part typology to describe current methods which industry
uses to provide input to the policy process. The paper also examines specific
efforts underway in the Great Lakes region which demonstrate how firms are
pursuing greater involvement in the environmental policy arena.
Industry involvement in the design and implementation of environmental
policy isincreasing. Faced with stifferglobal competition and a rising tide of
environmental mandates, companies have become acutely sensitive to the
costs of environmental regulation and in response have become more active in
promoting policies that provide flexibility in meeting environmental
regulations and that minimize the costs of compliance. Much of the current
focus of industry involvement places environmental policy in a framework of
technical efficiency. This has several meanings. First, good science should
identify and prioritize the risks to the environment so that, in pursuing the
objectives of a clean and safe environment, resources are not squandered
trying to meet arbitrary standards. Second, companies should be allowed
flexibility in how they reach environmental targets so that economic
disruption is minimized. The old reliance on command and control
environmental policies which often established not only pollution targets but
also prescribed the method and procedures by which industry had to comply,

♦The authors are vice president and assistant director o f research, regional economist, and senior
regional economist and research officer, with the Federal Reserve Bank of Chicago, respecuvely.

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has been exposed as inefficient and too cosdy. Resources were devoted to
perceived rather than real risks and the increased costs often hurt firms in
global competition.
Business involvement and active pursuit of environmental quality isnot a new
phenomenon in the U.S. For example, by the end of the Second World War,
business leaders in Pittsburgh saw that pollution was choking economic
activity and set out to curtail it. Organizations such as the Ford Foundation
and Resources for the Future subsequently funded much of the economic
inquiry into the market behaviors by which these "externalities" were
generated, along with the potential corrections to these social problems.
Today, private industry continues to find itsown solutions to the emission of
harmful wastes. Perhaps more surprising to some, business is increasingly
teaming up with environmental interests in fashioning public policy and
regulation. Nonetheless, despite the new directions of business policy toward
policy efficiency and public cooperation, some observers aggressively
question the resulting "social good" which results in having business as an
active partnerwith environmentalists.

T h e p o litic a l e co n o m y o f b u sin ess in v o lv em en t
Today's conventional view of environmental regulation is the view that a
"social" problem exists with regard to pollution and that the government is
compelled to take corrective action. Left to its own devices, private industry
will ignore environmental costs in choosing among alternative modes of
production. However, thisview also includes the assumption thatgovernment
isignorant of economic principles, so that the corrective rules and regulations
impose very high costs on industry-higher costs than those thatare necessary.
This comes about because the group which has recently provided the most
aggressive leadership, i.e. environmentalists, are able to overwhelm the
producer and other consumer interestgroups who are not so well focused and
organized. Owing to today's re-awakened environmental consciousness, even
the aggressive and self-interested lobbying on behalf of producer interests
fails, in many recent instances, to thwart ill-conceived environmental
regulation.
Accordingly, unnecessarily punitive rules are ultimately
promulgated. These rules are often of the "command and control" type which
impose technical standards on industry processes, and more recently, are also
forcing "up-stream” implementation of pollution prevention technologies into
law in ways that are highly prescriptive. In response to these defects of
regulatory policy, today's business involvement is viewed as a beneficial and

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corrective influence on well-intentioned government policy (of the command
and control variety) which has gone awry.
In contrast to this view, an alternative and somewhat influential body of
thought posits that business involvement in environmental decision making is
anything but impotent or benign. Instead, government regulators (and their
legislative sponsors) are motivated by self-interest,as are business groups. As
a general observation, for example, it has been suggested that the powerful
and unhealthy political prowess of the business sector can be seen from the
fact that the economist's preferred method of controlling pollution, the tax
per unitof pollutant", has been universally ignored by legislators. Although it
ishighly efficient, the "green tax”method charges thebusiness community for
a "right” or "good" which they formerly consumed free of charge (Buchanan
and Tullock 1975). More generally, proponents of the business-as-less-thanbenign regulatory theory believe thatsubsets of business interestscan become
party to winning coalitions. Those business groups that are well organized
and/or highly motivated are able to persuade regulators to implement
environmental schemes which transfer significant sums of wealth in their
direction; economic efficiency in regulation isoften a secondary consideration
to these business groups. Rather, restricting entry of competitors into their
markets and raising product prices are paramount. These groups form
successful coalitions with environmental interests who themselves "win"
something for themselves by achieving their desired environmental goals.
The losers are the dispersed body of consumers who must pay higher product
prices, and also those unsuccessful business interests who lose out in the
political struggle to fashion environmental regulations.
In support of this view, proponents have accumulated some statistical and
anecdotal evidence. Ackerman and Hassler (1981) describe a coalition of
eastern coal producers and environmentalists who put together the 1977
Amendments to the Clean Air Act so as to force continued use of eastern
(high sulfur) coal (through mandated use of scrubbers), while taking steps to
lower emissions in the west. Pashigian (1984) reports that small plants have
been harmed relative to large plants by environmental regulations, thereby
suggesting that large plants may benefit from their concentration of political
power. Another prominent study was conducted by Pashigian (1985) on the
policy of PSD (prevention of significant environmental deterioration) which
was part of the 1977 Clean Air Act Amendments. PSD imposed minimum
national standards to be met in allaircontrol regions. However, those regions
with superior air quality also had more stringent limits placed on them to
prevent deterioration of quality. The author sees these laws as an attempt to

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raise the economic profitsof existing firms (which are located in slow-growth
dirtyairregions) atthe expense of new firms inrapidly growing regions of the
South and West. The authors subsequently marshalled evidence of
Congressional voting behavior which lends support to this notion; the
Northeast Midwest congressional votes tended to carry the day in passing the
legislation. Maloney and McCormick (1982) provided furtherevidence along
these lines that the PSD policy boosted the value of a portfolio of existing
nonferrous metals companies following a favorable court ruling in support of
PSD.
With regard to efficiency, this type of so-called "differentiated regulation”
often tends to retard the goals of cleaner environment. In the latter case of
PSD, in the absence of biased regulation, newer firms and their capital
equipment which would have otherwise been created in industrializing
regions, would have entailed newer and cleaner technologies. In another
example, Gruenspecht (1985) demonstrates how the setting of auto emissions
standards on new vehicles only delayed short run improvement in emissions
by raising the value of and extending the life of the existing fleet of "dirty”
autos.
Itwould be naive
to pretend that business, or any other organized group for that matter, fails to
behave in their own best interests. For this reason, it would be folly for
analysts and policy makers to ignore the self-interested incentives of the
business community as they inject their outlook into the policy discussion,
and as they harmonize their policy goals with those of environmentally
concerned citizens. However, an assessment of the body of studies produced
to date would have to conclude that is far too early to conclude that business
sector involvement in environmental policy has resulted in great waste and
inefficiencies, or, for that matter, the creation and transfer of large rents
between business subsectors or from consumers to business. The most
notable evidence yet produced has been that regarding PSD policy in the
Clean Air Act. However, given the wide spectrum of environmental
regulation, the PSD findings appear to be more of an exception than rule. If
so, how does one account for this instance as occurring? One answer may lie
in the fact that the 1970s, (when PSD was promulgated), was a time of stark
differences in regional performance. Energy producing regions were
prospering while the energy dependent Northeast and Midwest languished.
The New England miracle had not yet occurred; New York was fighting offa
weak economy and fiscal default; and the Midwest auto/steel industries were
taking their firstwave of shocks from high energy costs coupled with foreign
H o w does one assess this critique of business involvement?

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competition. Were itnot for PSD, the incentives for firm relocation to high
quality airregions would have been sharp, and the impact on thelaborforce in
the manufacturing belt acute. Unemployed labor in the manufacturing belt,
with its own inherent waste and inefficiency, would have been much worse
without PSD. Under these conditions, itis perhaps not so surprising that an
effective and workable region-based congressional coalition was formed
along geographic lines.
To
the second prominent example, the decisions to encourage the
scrubbing of high sulfur coal does obviously coincide with the highly selfinterested motives on the part of a particular segment of industry. But here
again, high sulfur/low sulfur coal industries represent a distinct splitbetween
identifiable interest groups. Again, this may be a special case rather than the
norm. In contrast, many other areas of environmental regulation represent
common ground among all business interests. In particular, very high levels
of inefficiency and costs have been imposed on industry by constructing
command and control types of regulation rather than market based systems,
which include the market trading of allowances and permits. Under a system
of allowances and permits, industries have the flexibility to reduce emissions
in their own unique way, and they have the incentive to develop emission
reduction technologies over time in theirin innovative style. Efficiency gains
also result because those firms with high abatement costs can obtain
allowances to pollute, while the necessary abatements become concentrated in
those (allowance selling) firms who can abate pollution most cheaply.
Business involvement in shaping regulatory policy mechanisms has
contributed to the present movement toward the use of market mechanisms.
For example, the S02 abatement reductions required under the 1990 C A A A
move away from the high sulfur bias inherent in earlier Clean Air legislation.
Rather than command and control methods being mandated, allowances for
S02 wiU be traded nationwide. Schemes to trade the precursors of urban
ozone have also been proposed. Economists at the Division of Economic
Analysis and Innovations in the US EPA are estimating and documenting the
potential savings that could be realized from adopting market mechanisms to
abate pollution (where possible) across the entire spectrum of emission
situations. Generally at the present time, the business community is finding
that its interests lie in minimizing regulatory inefficiencies rather than in
creating economic monopolies and rents which would hurt consumers or
competitors. Meanwhile, the fail-safestrategy of the business community lies
in those strategies that set and achieve internal pollution prevention goals

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prior to subjecting itselfto experiences which are best described as regulatory
hell.
A much heightened awareness of environmental problems and processes
among the general public isalso encouraging the business community in these
directions. Brand name firms reap consumer praise and loyalty from being
perceived as environmentally conscientious. Meanwhile, during this present
era of slow job growth, regulators and their legislative sponsors are penalized
for imposing the types of regulation that businesses contend will
unnecessarily stiflejob creation.
But while the climate and conditions are now favorable for heightened
business sector involvement, we also need to be cautious about assuming that
the current state of affairs will continue, or at least continue in its present
form. For one reason, while allowance trading systems have been approved
or initiated, the systems are not yet in widespread use (e.g. S02) or, in the
case ofozone precursors, the system remains tobe designed and implemented.
With regard to policy making itself, the coalitions between business and
environmental interests are as yet very young, and itis not yet certain that the
coalitions will stay intact through the often difficultperiods of actual practice
and implementation. Certainly, policy approaches of the business community
itselfhave taken wide swings in direction inrecent decades.

T he e v o lu tio n o f b u sin ess in v o lv em en t in en viron m en tal p o lic y
Business involvement in environmental policy making has gone through a
series of phases since the 1970s.1 Toner (1990) describes these phases for
Canadian environmental policy as consisting of three periods which also
appear applicable to industry involvement in environmental policy in the U.S.
The first phase, lasting through much of the 1970s, was characterized by
confrontation. Industry viewed much of environmentalism as a fringe
movement and often tried to ignore and openly thwart many of the demands
being proposed by these groups. However, reaching back into the 1960s, the
success of Rachel Carson's best-selling book Silent Spring, had increased
public awareness of environmental dangers so that public support gradually
began to shift toward environmental activism, and significant legislative
action was passed toregulate industrialpollution.
With regard to policy implementation, this was the era of command and
control policy. The two most significantpieces of legislation were The Clean

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Air Act Amendments of 1970 and the Federal Water Pollution Control Act
Amendments of 1972. Both of these sets of amendments established specific
levels of pollutants which firms could discharge and led to the Environmental
Protection Agency having to certify whether a particular pollution abatement
strategy was appropriate. For example, a fierce struggle ensued over whether
electrostatic precipitators were an appropriate technology for reducing
emissions by thermal electric companies during the 1970s. While the EPA
claimed that this was a sensible approach, industry felt that this technology
was erratic and expensive. Aside from the obvious waste of this type of
regulation, having government establish the technology and an arbitrary
standard for emissions did little to provide incentives for industry to develop
theirown methods forreducing emissions.2
During this first phase, industry tended to shy away from becoming directly
involved in theestablishment of environmental standards and instead leftitup
to government to establish both environmental standards and appropriate
technologies for meeting targets. This proved extremely costly for industry.
Industry, rather than government, had the best knowledge of production
technology and by allowing government to establish how pollution targets
should be met, firms were forced to use less than optimal technologies. This
was particularly inefficient because it failed to recognize that the cost of
pollution control not only varied from industry to industry but often within
establishments within the same industry. Depending on the method of
production, the use of a mandated technology to reduce pollution for one firm
might be reasonable while itscost to another firm in the same industry would
be exorbitant. This emphasis on command and control policy also frequently
led to litigation and delays in meeting targets. By failing to participate more
fully and cooperatively at the start of the policy process, industry’s role was
simply to respond grudgingly to government policy and to try and minimize
theircosts of compliance by avoidance and by directlobbying.
The second phase identified by Toner spanned the early 1980s. During this
period industry for the most part got its way. A weak economy, a back-toback recession and a second energy crisis made economic growth and
establishing a secure energy supply of primary importance to policymakers.
Environmental concerns tended to get pushed aside as concerns over
economic growth dominated. For example, the desire for a secure energy
source made itpossible for firms to begin to explore remote geographic areas
which were once seen as environmentally fragile.
Furthermore,
environmental policies were seen as something which would retard economic
growth at a time when growth itself had experienced an unexpected

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disappearance. Given the "command and control" nature of environmental
policy, itwas little wonder that environmental policy was perceived to hold
very steep growth retarding consequences. The perception was still that
growth and a clean environment were naturalrivals.
By the mid-1980s perceptions began to change. As the economy revived,
attention turned to a series of environmental disasters which made itevident
that more had to be done in the environmental policy arena. Industrial
disasters such as Union Carbide's experience in Bhopal, the Exxon Valdez oil
spill in Alaska and the Chernobyl nuclear plant accident increased public
awareness of the potential dangers to the environment. Furthermore, global
environmental issues such as the destruction of the Amazon rain forest, the
depletion of the ozone layer and fears of global warming all put
environmental concerns into the forefront. Renewed interest in emissions
standards and regulations governing all aspects of toxic discharge from air to
water to disposal emerged during thisperiod.
However, what has made this third era different from the 1970s is that
industry is playing a more active role. They are investing far more time,
effort and money into the process of environmental policy making. Part of
thiseffort is to fuse economic growth and environmental protection under one
banner, usually referred to as sustainable development The idea is that
processes can be devised which both permit economic growth and also
accommodate a healthy environment U.S. industry’s interest in increasing its
stewardship of the environment stems from several reasons. First is the cost
of environmental regulation. The U.S. already spends more than any other
nation on environmental cleanup, running atjust over 2 percent of GNP and
rising. To put this in perspective, this figure equates to roughly 40 percent of
U.S. defense expenditures.4 In 1990, total spending for just pollution
abatement and control (in constant 1987 dollars) amounted to an estimated
$81.8 billion.5 Even at the local level the cost of complying with existing
environmental mandates is staggering and has implications for industry. A
recent study on the cost of compliance for existing environmental legislation
for the city of Columbus, Ohio estimated that the city will need to spend
$1,088 billion (in 1991 dollars) over the next ten years. The magnitude of
these costs is obvious when considering that the entire city budget for 1991
was $591 million.6 It is likely that in order to pay for these environmental
compliance costs, local governments will have to pass higher taxes which in
part will have to be absorbed by industry. These high costs are coming at a
time in which industry is increasingly being challenged to be a low cost
producer of high quality goods. By becoming more involved in the policy
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process industry hopes that efficient environmental solutions can be reached
which do not erode the competitive position of U.S. firms. This new era is
typified by industry becoming involved in the mechanics and process of
environmental policy.

A ty p o lo g y fo r industry in v o lv em en t
There are different types of involvement which industry can use in attempting
to influence environmental policy. The forms of business involvement and
approaches to environmental policy are highly diverse, so that a typology
becomes very helpful and insightful. Some forms are highly likely to survive
the test of time. Because of their inherent logic, surely, internal efforts of
firms to eliminate their own emissions and thereby circumvent the web or
potential web of regulation illustrates the former. At the other extreme,
efforts of the business community to form alliances with environmental
interestgroups or with wider groups of stakeholders must be seen as fledgling.
For the purposes of this paper three types of involvement are described with
each requiring differing levels of interaction with other policy actors. These
three types are:
•

establishing company or industry-defined voluntary emissions targets
which exceed currentregulatory standards;

•

increased industry initiated involvement in the regulatory process to
insure efficient implementation of new standards, (while this can include
traditional lobbying itisreally intended to bring industries technical and
production expertise to the regulatory process in cooperation with
regulators);

•

industry led consensus based policy design, involving outreach to all
stakeholders in the community, outside of and often circumventing the
regulatory process.

In considering the first category, often the most accessible measure for
industry isto set internal targets for environmental goals. For example, thisis
the case when firms voluntarily adopt goals for toxins and hazardous waste.
In adapting to such a reduced emissions production process, the firms want to
establish their own timetable for meeting intermediate objectives and to be
able to use the best technology available for efficiently reaching these goals.

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A good example of this is3M's strategy to reduce airemissions by 90 percent
by the year 2000 and solid waste discharge by 50 percent by the year 2000.
3M wants to accomplish this by using the most efficient technologies
available for reaching these environmentally desirable goals while at the same
time reducing the inflation adjusted cost per unit of most products by 10
percent.7 Such an approach allows companies to alter their production
process to meet environmental targets while enhancing (or at least doing
minimal harm) to the company bottom line. Such goals can be facilitated by
taking a "complete lifecycle" approach to designing products. For example,
prior to actual production, AT&T designs products that can be more easily
recycled at the end of their useful life. Through such efforts companies are
able to promote a "green” image and to promote both environmental and
sound industrial policies, often forestalling outside regulation. Since these
processes are internal within companies, they are achieved without significant
directinvolvement of government or environmental groups.
Other internal "green” policies include expanding and elevating the influence
of corporate environmental staffs.8 IBM has created a new position of vice
president of environmental health and safety with a staff of 30 people in an
effortto insure thatcorporate policieson the environment are carried out. The
goal is to prevent plant managers (who may be more interested in production
than prevention) from ignoring corporate standards for pollution control.
Similar offices have been established by DuPont and Polaroid. In the case of
DuPont, the company’s CEO is the chief environmental spokesman. CibaGeigy has set up a special environmental auditing group which reports
directly to the firm's CEO to ensure environmental compliance. These are all
examples of companies setting up internal enforcement mechanisms to insure
that internal pollution control measures are adhered to, thereby forestalling
regulatory intervention.
The second approach in this typology is to become more active in the
regulatory process while also changing the character of the involvement.
Industry has long used lobbyists to represent their views in front of legislative
and executive offices. However the more recent wrinkle is to provide
testimony and input toregulatory bodies by using technical experts rather than
industry spokesmen. The concept is not to try and prevent or reverse
environmental regulation but rather to insure that the regulation takes into
account the available technology for meeting environmental goals. By taking
a more active role at the regulatory level, industry is trying to share what it
knows about the production process with regulators to insure that economic
dislocation can be minimized and reasonable standards can be devised for
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environmental regulation. Ifindustry fads to take the opportunity to share its
technical knowledge during the regulatory process, it is likely that the
regulations may be unduly harsh. Similarly, industry can provide similar
technical guidance at the legislative stage where information pertinent to
proposed policy is synthesized and interpreted. For example, during the
reenactment of the Clean Air Act, the EPA asked the American Electric
Power Institute ifindustry would support the Act ifcertain points which had
previously been supported by industry were included. When industry balked
at supporting the Act, they were closed out of the legislative process and the
reduction of S02 emissions standard was set at a much higher threshold than
had been originally discussed. To insure that such standards are set
responsibly from industry's perspective they must be willing to share their
knowledge of the production process and technology to guide regulators to
provide efficientregulations.
The third level of involvement requires the greatest outreach on the part of
industry. This isthe attempt by industry tobecome involved in environmental
policy at its inception through a program of consensus based policy making.
At this level a process of industry out reach is used to build a cooperative
environmental policy for all stakeholders. An example of this is occurring in
Canada under the name "the New Directions" group.9 In the case of the New
Directions group, environmentalists and business leaders have sat down to
establish environmental goals for the nation. This multi-stakeholder group
has setan agenda which focuses policy on establishing a prioritization scheme
fortoxic pollutants. This should in time be followed by a process forreducing
or eliminating them. The emphasis here is to clearly define die risks of
various toxic emissions and to insure that through the dissemination of good
science, industry and the public can arrive ata consensus on how prioritiesare
set to reduce toxic effectson the environment.
A clear example of the costs of not becoming more involved in thisprocess is
shown in the costs of toxic cleanups as mandated under Superfund and related
state legislation in the U.S. Superfund has already cost the U.S. government
$10 billion in cleanup while companies found liable for contamination have
been assessed $4 billion. This cost has been borne despite the fact that only
63 sites have been cleaned up out of 1,200 on the Superfund list. In the
process, Superfund has vasdy expanded the liability for toxic waste cleanup to
include previous owners, banks and other lending institutions. Because
industry largely failed to try and build a consensus as to how toxic waste
cleanups should be handled and failed to provide information on the actual
extent of contamination and its risks, cleanups have been undertaken at

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staggering costs. Even within the designated Superfund sites, there are wide
ranging and uncertain risks from contamination. Poor communication
between industry and the public has led to perhaps erroneous public
perceptions thatanything short of complete removal of the soil in the affected
site is inadequate. Unfortunately, such a policy may resultin massive cleanup
efforts when a more limited cleanup effort would result in greater overall
health and aestheticbenefitsper dollarexpended. For example, an abandoned
factory located in Holden, Minnesota containing toxic chemical residues
could be sealed off for approximately $71,000. Another $3.6 million would
clean up virtually all remaining residues and bury the remains under a clay
cap. However, theEPA will be spending from $13.6 to $41.5 million to make
the siteimmaculate even though itisunclear whether such an effort is needed
to protect human health.11 Fortunately, industry will have the opportunity to
try and revise the Superfund cleanup guidelines when the program comes
back up for reauthorization in 1994. By applying standards of good science
and building a broader understanding with other constituencies, industry has
the opportunity to help craft a Superfund cleanup provision that provides
greaterbenefits forsociety.12

T h e G reat L ak es as a laboratory fo r industry in v o lv em en t
This three level typology provides examples ofhow industry can influence the
environmental policy process using varying levels of involvement with
outside actors. Environmental policies can be established internally to
forestall action by government; they can be established during the regulatory
process in order to assure that the legislatively established target can be
reached efficiently or they can be established during the inception ofpolicy by
meeting with various stakeholders and establishingconsensus based policies.
Recent developments in environmental policy in the Great Lakes region
provide an excellent example of how industry actions relate to this typology.
The Great Lakes region is a natural laboratory for examining such policy
developments given its heavy concentration of industrial sites and the
existence of a well-defined and well-studied ecosystem. For example, 70
percent of Canadian manufacturing and 60 percent of auto manufacturing is
located in the Great Lakes Basin. At the same time significant environmental
cleanups are already underway in 43 areas. Figure 1 illustrates the relatively
high concentrations of toxic waste, water and airemissions in the region. The
Great Lakes region also provides an interesting policy laboratory since
binational policies are required given the economic and environmental

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integration of the region between Canada and the U.S.. Binational treaties
dating back to the 1909 Boundary Waters Treaty demonstrate the long history
of policy making in the region. The interconnectedness of the Great Lakes
basin as both an economic and environmental resource is well illustrated by
the number of binational agreements which have been crafted particularly
since the 1980s (see table 1).
Additionally, the concentration of industry in the Great Lakes means that
there are some well identified environmental challenges. Great Lakes states
are disproportionately represented among those states with either the highest
or above average levels of toxic waste, taintedwater and polluted air.
Enhancing the potential for effective environmental policy making in the
Great t
is the existence of more than 650 organizations which focus on
the Great Lakes region. They range from the govemmentally established
U.S.-Canadian International Joint Commission which is charged with
resolving boundary water disputes and dealing with water quality concerns to
numerous non-profit organizations such as the Great Lakes Commission, and
the Council of Great Lakes Governors to name just a few. All of these
organizations are actively involved in charting environmental policy for the
region. However, prior to the formation of the Council of Great Lakes
Industries (CGLI) in 1990, there was no organization whose primary interest
was in providing an industry point of view on these issues. The Council was
built on the active interest of firms located in the region to promote an
economically and environmentally viable Great Lakes.
CGLI isdesigned to allow firms to access the policy process atallthree levels
of the typology suggested in this paper. At the first level, the setting of
internal standards by firms, the Council has created a Baldrige-type total
quality environmental management award (TQEM). Just as the Baldrige
Award is designed to recognize firms that integrate total quality into their
management practices and principles, the Council's award recognizes firms
that show a commitment to environmental management The award will
provide industry models and benchmarks for techniques used by firms to
integrate quality environmental management practices. The award fulfillsthis
first level of industry involvement by showcasing internal efforts by
companies to establish good environmental practices. But T Q E M as a
management system in and of itself is of great value, independent of the
award, and the system proposed by CGLI provides a model for T Q E M
implementation. Efforts such as these point the way toward how firms can set
programs which enhance the environment while contributing to company

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economic objectives by producing programs before they are required by
government regulation.13
The CGLI also is active at the second level of industry involvement in the
environmental policy process by offering industry's technical perspective on
regulatory matters. For example, Dr. Grace Wever of Eastman Kodak and the
first president of the Council testified before the International Joint Council
on recommendations to revise the Canada/U.S. water quality agreement in
November of 1991.14 Dr. Wever's testimony provides a good example of
how industry stewardship and increased involvement in thepolicy process can
help reduce misunderstandings and improve policy making. In her testimony,
Dr. Wever noted that voluntary programs such as "Responsible Care" created
by the Canadian chemical industry and adopted by many U.S. firms, have
helped promote the agreement's 1987 goals of restoration and preservation of
the lakes. This testimony also reflects industry's belief that environmental
policy is rarely static and that agreements such as this need to be constantly
updated to reflect the changing knowledge base in the field. Static lists of
objectives for chemicals of concern fail to recognize new understandings of
aquatic ecosystems. Similarly a static goal of zero discharge is not
appropriate ifitis a goal in itself. The concerns should be the protection of
health and the environment guided by a goal of phasing out bioaccumulative
toxic chemicals in applications where the risks outweigh the benefits of
continued use and where acceptable substitute chemicals and/or processes
exist. Providing an industry wide perspective isa new approach. The Council
also works directly as an advisor to both the U.S. EPA's Great Lakes regional
office as well as serving a similar role or joins EPA/Environment Canada
committees.
Finally, the CGLI is trying to reach out to other stakeholders in the region to
develop a consensus on future policy options. At itsfirstannual meeting held
in Rochester in September of 1992, leaders from business, acadpmi^
government and environmental organizations came together to build a better
understanding of policies which can support both a strong industrial base and
a healthy environment. By opening up such a dialog, new policies can be
crafted which have the potential of being in the interests of both parties. An
example of this are the market based emissions trading allowances which are
a part of the Clean Air Act Amendments. While this establishes an
environmentally desirable goal of reducing S02 emissions, itallows this goal
to be reached by allowing firms to trade emissions allowances. To use the
example of the utility industry, this allows firms to meet the more stringent
standards by either switching to a cleaner fuel source, installing pollution
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control devices or buying emission allowances from a clean utility. This type
of policy design is consensus based and can point the way to more efficient
and effectiveenvironmental policy.

C an su ch an approach w ork for G reat L ak es Industries?
Great Lakes industries are making strides toward pollution reduction and
increasing their voice in the policy process. By guiding their environmental
strategies by responsible stewardship of the environment and intelligent
economic decision making, industries in the region are demonstrating credible
programs for meeting environmental challenges in efficient ways. One
excellentexample of thisapproach was a recentjointprojectbetween Chicago
headquartered Amoco and the U.S. EPA designed to find new approaches to
environmental control. The "Yorktown Project allowed the EPA to do
extensive testing foremissions atan Amoco refinery in Virginia. Amoco was
already spending nearly $41 million to meet current EPA regulations,
although the company suspected thatemissions targets could be met more cost
effectively if EPA regulations could be tailored to recognize differences
between industrial facilities. In an unusual move Amoco and the EPA
decided to cooperate and measure specific emissions from sources throughout
the refinery. In the process, Amoco and the agency were able to develop a
consensus on how to handle the emissions.
The findings of the study were surprising. First, it was discovered that the
refinery could achieve even greaterpollution reduction for about $11 millionfar less than $41 million required under current regulation. Second, current
regulations completely ignored a much larger pollution source in the refinery,
which could be corrected for about $6 million. While the process of thejoint
study was at times difficult, itdemonstrated that the goal of fewer emissions
could be met at a lower cost than had originally been mandated through EPA
regulations.15
The following are just a handful of other examples which demonstrate
industry efforts in this area.
•

General Motor's Harrison Radiator facility in Ohio has eliminated the use
of 1,1,1-Trichloroethane in its degreasing operations. This was
accomplished through a material and process substitution and the
elimination of a manufacturing step. While the project cost G M a
$144,000 capital investment, it produced an annual savings of $118,000

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,

and reduced 1,1,1-Trichloroethane emissions by 300,000 pounds per
year.16
•

Illinois' "cash for clunkers" program is a cooperative program between
industry and the Illinois Environmental Protection Agency to remove
high emissions vehicles from the road. This ispatterned after a program
initiated by Unocal Corporation in California where the company paid
$700 per vehicle forpre-1971 cars which were then scrapped.

•

Stelco, a Canadian steel company has had less success recovering the
costs of its environmental programs but ithas stillmade progress in the
area. For example the company now has an acid regeneration facility for
recycling hydrochloric acid used to clean the surface of steel. While the
process allows the company to recover $3.3 million in acid, the
maintenance costof the procedure is$6.3 million.17

•

the pulp and paper industry has aggressively pursued both recycling and
the reduction of mill wastes. The industry is the largest post consumer
recycler in the nation, recovering 30 percent of allof the paper and paper
board in the nation and with a goal of reaching 40 percent by 1995.
During the decade of 1978-87 the industry reduced airborne lead
pollution by 88 percent, sulfur dioxide pollution by 38 percent, carbon
monoxide by 27 percent and particulates by 23 percent. In two years the
industrys bleached pulp mills have been able to reduce dioxin emissions
to 1 percent of the total in the U.S. from natural and man-made sources.
In the Great Lakes, this equates to about 20 drops per year. Similarly on
the Canadian side of the border, 99 percent of the dioxin emissions will
be eliminated by 1993.18

For U.S. industry as a whole, the EPA estimates that the volume of toxic
chemicals released by the 22,650 industrialplants in the U.S. has fallen by 1.3
billionpounds to 5.7 billionpounds a year since the SARA toxic inventory list
was begun in 1987.19

L im itation s to th is approach
Industry led environmental policy making does have its limits. To begin,
even large companies have found it hard to implement stringent
environmental regulations in the face of profit pressures. Individual
production facilities are still going to be more interested in meeting

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16

production targets than even company supported environmental standards.
Without close monitoring, well-intentioned company pollution standards may
be ignored. This monitoring problem isparticularly a dilemma when itcomes
to pollutants from small companies. While large industrial sites are visible
and easy targets for monitoring, smaller operations with less visible emissions
may be able to avoid regulatory scrutiny. Furthermore, these small companies
are unlikely to have the resources to hire environmental managers and to have
the access to the "good science" which is needed to know whether their
pollution levels are a hazard to the environment. However one possible model
for bridging this gap may exist with the National Center for Manufacturing
Science (NCMS).20 In 1991, NCMS launched the Environmentally
Conscious Manufacturing Program designed to bring together a broad range
of mostly mid and small sized manufacturers to solve environmental
problems. The program is already looking at environmentally acceptable
alternatives to the use of lead in solder used by electronic firms as well as
working toward a comprehensive database on the physical properties and
pertinent environmental information on popular solvents. Collaborations such
as these can help small and mid sized companies move toward greener
production even if they lack the resources to set up internal programs by
themselves.
Compliance monitoring costs also provide a hurdle to market-based
approaches. In command and control programs, regulators typically prescribe
the technique for meeting a given standard. Since the ability of the
technology to meet the standard was known, regulators could be relatively
certain that installationof a particularapparatus would lead to compliance. In
contrast by allowing companies to adopt voluntary discharge flexibility in
meeting targets, it is far less certain that a company's internal program will
meet those targetlevels without monitoring ofemissions from point sources.

2<

An additional problem which may make industry led efforts less satisfactory
is a lack of green technologies to replace more established production
methods. For example, consider the printing industry and attempts to
substitute natural inks based in soy beans, and to use less harmful solvents for
cleaning their equipment: in both cases, the green technology could only be
used in a limited number of cases. While soy ink isused by most newspapers,
ithas not proven to be a good substitute in other forms of printing. Similarly
the use of citrus juices to clean presses has proven to be seriously inferior
the use of more environmentally damaging petroleum based products.21
suitable green technology must existforindustry led approaches to succeed.

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17

There isalso an information problem which needs to be addressed. The costs
of environmental control are often hard to measure so that setting appropriate
emissions target levels, tax penalties, or emissions allowances is highly
uncertain. The case ofstabilizingU.S. emissions of carbon dioxide provides a
good example. Two studies looking at the use of a carbon tax to reduce
carbon dioxide emissions by encouraging conversion to cleaner energy
technologies projected the necessary cost of the tax as ranging from only
$6.51 per metric ton of coal to $100 per metric ton.22 $uch a wide disparity
shows how easy it is to arrive at two widely differing costs for the same
pollution control strategy. This points to the need for consensus on estimation
techniques and starting assumptions when establishing environmental control
costs. These disparities become even more pronounced when trying to
determine how much should be spent today to avoid future pollution.
Depending on what discount rate is used, the amount which should be spent
now to avoid future pollution can show a similar range. For example assume
that a particular pollutant will cause $100 million dollars in environmental
damage 100 years from now. Society can either choose to invest in new
technology and prevent the pollution or itcan invest in other aspects of the
economy and hope that a century from now the economy will be richer and
will be able to absorb the $100 million easily. Ifa 10 percent discount rate is
used tojudge the value of investing in pollution abatement to avoid the $100
million environmental problem in 100 years, a totalinvestment of only $7,305
would make sense right now. Spending more would only reduce the
investment which could be made in other valued social goods such as
education without an appreciable benefit However, ifa two percent discount
rate is used, $14 million in expenditures today can be justified to avoid $100
million in pollution expenditures.23
Finally, there isthe critical issue of whether these fledgling alliances between
business and environmentalists, or between business and allstakeholders, will
be able to stand the test of time. While an approach designed to build broad
consensus holds great promise, it is unknown whether stakeholders will be
willing to stay committed to such an approach if they do not get their way.
Finding consensus on some environmental issues has already proven difficult
even when industry has tried to work with other parties. For example, the
April Timber Summit showed that proposals to use low impact logging
techniques were met with opposition by environmental groups who are
opposed to any harvesting of the forest.24 Even industry's own internal
efforts to set emission goals may ultimately prove to be their own undoing.
Legislative and regulatory response to such initiatives has not yet unfolded.
When itdoes unfold, the "reward" for green initiatives may only prove to be
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increased regulatory stringency rather than improved industry profits. This
points out that industry will need to become increasingly savvy m their
dialogues with the public and public regulators.

C o n clu sio n
Business involvement in formulating environmental policy is growing and it
has the potential to lead to more efficientand better environmental regulation.
Organizations such as the Council of Great Lakes Industries provide models
for channeling industry participation and ensuring that economic and
environmental concerns can be successfully merged. While this industry
interest is not without potential difficulties, the outcome can provide greater
benefits than theprevious policy reliance on command and control strategies.

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19

F ootn otes
^See, Glen Toner, Whence and Whither: ENGOs, Business and the Environment,
University, Ottawa, Canada, October, 1990.

Caiieton

^Edwin M ills, The Economics o f Environmental Quality. W.W. Norton, N ew York, 1978
181-223.

pp

^For a discussion of the limitations o f conventional environmental protection strategies see, fv»1*
Case, Emissions Reduction Trading in the Chicago Metropolitan Area , prepared for the Illinois
Environmental Protection Agency, May, 1992, pp. 2-2:5.

^The Economist, "Environmentalism runs riot," August 8, 1992, pp. 11-12.
5Gary L. Rutledge and M aiy L. Leonard, "Pollution Abatement and Control Expenditures, 197290", Survey o f Current Business, U.S. Department of Commerce, Bureau o f Economic Analysis
June, 1992, pp. 25-41.
^Environmental Law Review Committee, Environmental Legislation: The Increasing Costs o f
Regulatory Compliance to the City o f Columbus, Report to the Mayor and City Council o f the
City o f Columbus, May 13,1991.

7Business Week, "The next trick for business: taking a cue from nature," May 11, 1992, pp. 7475.
^Claudia H. Deutsch, "Giving the environment teeth," New York Times, March 3 ,1 9 9 1 , section 3
p. 29.
9for more on the N ew Directions group see, Denis W ilcock, "Living in a goldfish bowl:
environmental consensus building in the ^ s ," Economic and Environmental Challenges to Great
Lakes Competitiveness, Remarks presented at the annual meeting o f the Council o f Great Lakes
Industries, Rochester, N .Y ., September 16,1992, pp. 13-17.
10Michael Fumento,
1991 pp. 1-2.

"Superfund: Hazardous Waste?" Investor’s Business Daily , October 22

* ^Fumento, p. 2.
12Susan J. Sadler, "Enter the world o f CERCLA and leave your rights at the door," Economic
and Environmental Challenges to Great Lakes Competitiveness, Remarks presented at the annual
meeting o f the Council o f Great Lakes Industries, Rochester, N.Y., September 16, 1992, pp. 28^ G race W ever and George F. Voihauer, "Development o f a Baldrige-type total quality
environmental management award for the Great Lakes region," Corporate Quality!Environmental
Management II, 1992, pp. 195-200.
l^Grace Wever, "Policy advice and recommendations on revision o f the Canada/U.S. water
quality agreement," testimony presented before the International Joint Commission Water
Quality Board , November 20 ,1 9 9 1 .
15Caleb Solomon, "What really pollutes? Study o f a refinery proves an eye-opener," The Wall

Street Journal, March 2 9 ,1 9 9 3 , section A, p. 1.
*6p.E. Gerwert, "Pollution prevention initiatives in the automobile industry," Remarks Presented
at the Pollution Prevention Forum, International Joint Committee Biennial Meeting, Grand
Traverse Village, Michigan, September 3 0 ,1991. pp. 6-9.

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^A lexander E. Adam, "Pollution prevention and Us costs in the steel industry in Canada

Remarks Presented at the Pollution Prevention Forum, International Joint Committee Biennial
Meeting, Grand Traverse Village, Michigan, September 30 ,1 9 9 1 , pp. 10-13.
18J Kirk Sullivan, "Environmental alternatives and the pulp and paper industry: an American
perspective," Remarks Presented at the Pollution Prevention F ^
IntemaUonri Jomt
Committee Biennial Meeting, Grand Traverse Village, Michigan, September 3 0 ,1 9 9 1 , pp. 22-24.
19Keith Schneider, "Toxic pollution shows drop in ’89." New York Times, May 17 ,1 9 9 1 , section
D , p. 2.
20 james A. Richter, "Advanced Manufacturing Application and Education Centers", Shaping the
Great Lakes Economy, Federal Reserve Bank of Chicago, 1993. p. 20
21John N . Maclean, "Printers find that going 'green' can get sticky," The Chicago Tribune,
December 2 7 .1 9 9 2 , Section 7 , pp. 1,8.
22Margaret E, Kriz, "The N ew Eco-nomics" National Journal, May 3 0 ,1 9 9 2 , p. 1285.
23Bnice Stokes, "What a difference a discount makes," National Journal, May 3 0 ,1 9 9 2 , p. 1283.
24Charles McCoy, "Cut down”, The Wall Street Journal, April 1,1 9 9 3 , Section A , p. 1.

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21

R eferen ces
Bruce A. Ackerman and William T. Hassler,
University Press, New Haven, 1981.

Clean C o a l/D irty A ir ,

Yale

Alexander E. Adam, "Pollution prevention and itscosts in the steel industry in
Canada," in R e m a rk s P re se n te d at the P o llu tio n P reven tio n F o ru m ,
International Joint Commission Biennial Meeting, Grand Traverse V illage
Michigan, September 30,1991, pp. 10-13.
J.M. Buchanan and G. Tullock, "Polluters' profits and political response:
direct controls vs. taxes,"A m erica n E c o n o m ic R e v ie w , March, 1975, pp. 13947.
"The next trick for business: taking a cue from nature," May
11,1992, pp. 74-75.

B u sin e ss W eek,

Cale Case, E m issio n s R ed u ctio n Tra d in g in the C hica go
IllinoisEnvironmental Protection Agency, May, 1992.

M e tro p o lita n A r e a ,

Claudia H. Deutsch, "Giving the environment teeth," The
March 3,1991, section 3,p. 29.
The E c o n o m ist,

N ew Y o rk T im e s,

"Environmentalism runs riot," August 8,1992, pp. 11-12.

Michael Fumento, "Superfund: hazardous waste?" In v e sto r's
October 22,1991, pp. 1-2.

B u sin e ss D a ily ,

P.E. Gerwert, "Pollution prevention initiatives in the automobile industry," in
International Joint
Commission Biennial Meeting, Grand Traverse Village, Michigan, September
30,1991, pp. 22-24.

R e m a rk s P re se n te d at the P o llu tio n P reven tio n F o ru m ,

Howard K. Gruenspecht, "Differentiated regulation: The case of auto
emissions standards," A m erica n E c o n o m ic R e v ie w , pp. 328-331.
Howard K. Gruenspecht and Lester B. Lave, "The economics of health, safety
and environmental regulation," in H a n d b o o k o f In d u stria l O rg a n iza tio n ,
V o l J I , R. Schmalanese and R.D. Willig, Ed; Elsevier Science Publishers B.V.,
1989, pp. 1508-1550.
P.L. Joskow and R.G. Noll, "Regulation in theory and practice: an overview,"
in S tu d ies in P u b lic R e g u la tio n , G. Fromme, Ed., MIT Press, Cambridge,
1981, PP-1-65.

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22

Margaret E. Kriz, "The new eco-nomics,” N ation al
pp. 1280-1285.

J o u rn a l,

May 30, 1992,

John N. Maclean, "Printers find that going 'green' can get sticky,"
C hica go T rib u n e , December 27,1992, section 7,pp. 1,8.

The

M. Maloney and R. McCormick, "A positive theory of environmental
quality,”Jo u rn a l o f L a w and E co n o m ics, April, 1982, vol. 25, pp. 99-124.
Charles McCoy, "Cut down," The W a ll S treet Jo u rn a l, April 1, 1993, section
A, p. 1.
Edwin Mills, Th e E co n o m ics o f En viron m en tal Q u a lity, W.W. Norton, New
York, 1978.
Peter B. Pashigian, "Environmental regulation: whose self interests are being
protected?", E co n o m ic In q u iry , October, 1985, pp. 551-584.
Peter B. Pashigian, "The effect of environmental regulation on optimal plant
sizeand factor shares," Jo u rn a l o f L a w a n d E co n o m ics, April, 1984, pp. 1-24,
James A. Richter, "Advanced manufacturing application and education
centers," in Shaping the G re a t L a k e s E co n o m y , Federal Reserve Bank of
Chicago, 1993, pp.. 18-23.
Gary L. Rutledge and Mary L. Leonard, "Pollution abatement and control
expenditures, 1972-90," Survey o f C u rre n t B u sin e ss, U.S. Department of
Commerce, Bureau of Economic Analysis, June, 1992, pp. 25-41.
Susan J. Sadler, "Enter the world of CERCLA and leave your rights at the
door," E co n o m ic and En viron m en tal C ha llen g es to G re a t L a k e s
C om petitiven ess, Remarks presented at the annual meeting of the Council of
Great Lakes Industries, Rochester, N.Y., September 16,1992, pp. 28-31.
Keith Schneider, "Toxic pollution shows a drop in ’89," Th e
May 17,1991, section D, p. 2.

N ew Y o rk T im es,

George Stigler.

B e ll Jo u rn a l o f

"The theory of economic regulation,"
Spring, 1971, pp. 3-21.

E co n o m ics an d M anagem ent,

Bruce Stokes, "What a difference a discount makes," N a tio n a l
30,1992, p. 1283.

Jo u rn a l,

May

Caleb Solomon, "What really pollutes? Study of a refinery proves an eyeopener,”The W all S treet Jo u rn a l, March 29,1993, section A, p. 1.
J. Kirk Sullivan, "Environmental alternatives and the pulp and paper industry:
an American perspective," in R em arks P re se n te d at the P o llu tio n P re ve n tio n

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July 1993, WP-1993-S




23

International Joint Commission Biennial meeting, Grand Traverse
Village, Michigan, September 30,1991, pp. 22-24.

F o ru m ,

Glen Toner, W hence a n d W h ither: E N G O s , B u sin e ss
Carleton University, Ottawa, Canada, October, 1990.

an d the E n v iro n m en t,

Grace Wever and George F. Vorfiauer, "Development of a Baldrige-type total
quality environmental management award for the Great Lakes region,"
C o rp o ra te Q u ality/Environm en tal M anagem ent I I , 1992, pp. 195-200.
Grace Wever, "Policy advice and recommendations on revision of the
Canada/U.S. water quality agreement," testimony, In tern a tio n a l J o in t
C om m ission W ater Q u a lity B o a rd , November 20,1991.
Denis Wilcock, "Living in a goldfish bowl: environmental consensus building
in the '90s," E c o n o m ic a n d E n viro n m en ta l C h a llen g es to G re a t L a k e s
C om petitiven ess, Remarks presented at the annual meeting of the Council of
Great Lakes Industries,Rochester, N.Y., September 16,1992, pp. 13-17.

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24

Global/Binational/National Agreements and Acts concerning
the Great Lakes

1909

Boundary Waters Treaty

1912

International Joint Commission established

1955

Great Lakes Commission legislation; Great Lakes Fisheries
Commission established

1966

Sea Grant (NOAA) established

1968

Great Lakes Commission established

1972

Great Lakes Water Quality agreement (solid wastes, oil,phosphorus)

1978

Great Lakes Water Quality agreement (toxics)

1983

United Nations World Commission on Environment and Development

1985
1986

Great Lakes Charter
Oildrillingban agreement; Toxic substance containment agreement,
Great Lakes Survey plan update; Great Lakes Senate task force

1987

Revised Water Quality agreement; Bruntland Commission

1988

Great Lakes Border compact; Council ofGreat Lakes Governors
Economic Development CommissionArade Act; Canada-U.S. Free
Trade Act
TSCA/Great Lakes Research Network; International Joint
Commission Biennial Meeting

1989
1990

International Joint Commission task force and roundtable on virtual
elimination; Council ofGreat Lakes Industries established

1991

InternationalJoint Commission Biennial Meeting; Lake Superior
demonstration project

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25

Figure 1
Toxic waste, water and air emissions in pounds per square mile, 1989
Toxic waste emissions

B ^ m □
Highest Above Average Lowest
average
Toxic water emissions

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26