Protecting the environment doesn’t need to come at the expense of economic growth, says Marcel Oestreich, a PhD student in the Department of Economics who is trying to find the middle ground between keeping the planet green and keeping businesses out of the red.
Conflict often arises when industries want to protect their bottom line at the environment’s expense and environmental groups want to protect the planet at the economy’s expense. Oestreich says it’s possible for both sides to see eye to eye. “The challenge between those two positions is what really inspires me and drives my interest in this topic.”
As a tree-hugging economist, Oestreich says we don’t need to give up our way of life to protect the environment. Policy change could be the answer. Environmental policies have good intentions, he says, but some policies may be too costly for businesses to implement, resulting in job cuts and higher prices for their products.
“You want firms to develop new technologies and less-polluting ways of producing certain products,” he says. “You want to give them those incentives.”
Another problem with environmental regulatory systems is that they often require companies to self-report their pollution levels, which may result in dishonest reporting, he adds. In an emission tax system, for example, companies weigh the tax rate for disclosing their emission levels, the penalty for undisclosed emissions if they get audited, and the probability of being audited.
Industries would be less inclined to misrepresent their pollution levels if the odds of being audited and the penalty for getting caught were both high. But stiffer penalties could have a financial impact on businesses and lead to layoffs, he says. It’s also impractical for environmental regulators to monitor the pollution output of every company 24 hours a day.
Although companies may not be intentionally misrepresenting their pollution levels to regulators, Oestreich says they may not be putting much effort into their pollution reports, resulting in numbers that are “close enough.” He is working on a game theoretical model based on self-reporting that can be applied to real-life scenarios, such as firms that are required to self-report or voluntarily self-report their pollution levels to achieve certification.
Companies often claim to be environmentally friendly as a marketing tool, but Oestreich says it’s important for those statements to be verified. If the numbers turn out to be false, that could have a negative impact on the company’s reputation. “How close is this number to the truth, and has the necessary audit taken place to check whether or not this number is true?” Green auditing companies can issue certificates to firms whose environmental claims have been proven.
Companies need to have an incentive to be truthful, says Oestreich, giving the example of oil companies that choose not to report small oil spills or leaks for fear of being penalized. Those companies may be inclined to hide such incidents from environmental regulators, who don’t have the resources to check every oil tanker and pipeline.
For companies in the same industry that use similar kinds of abatement technologies, Oestreich says regulators should spend more time investigating companies that claim to have unusually low pollution levels to make sure they aren’t underestimating their figures, instead of focusing on companies that report higher pollution levels. His model shows that such competition in reporting can lead to more truthful reports and less pollution.
As an Ontario Graduate Scholarship recipient, Oestreich came to Guelph two years ago after completing his undergrad in Germany and his master’s degree at York University. He will be working primarily with Prof. John Livernois, chair of the Department of Economics.