Supply Chain Environmentalism and the "First 90%" Rule

The "First 90%" Rule

In 1970, Congress passed the Clean Air Act.  Without any real engineering plan behind its numbers, government decreed that in 5 years the emissions coming out of cars should be 90% cleaner than they were.  And as it turned out, this worked.  The automobile industry was able to implement improvements that drastically improved air quality across the world.  I don't think the original goal was quite reached in 5 years, but it didn't take all that much longer than that.

In the 40 years after this success, the EPA continued to make the requirements for automobile emissions stricter and stricter.  More and more engineering effort has been required to meet increasingly strict standards.  However much money was originally spent researching, designing and retooling in order to meet the original emissions standards, surely at least an order of magnitude more has been spent in meeting the further emission goals of the EPA.  And the results have been forthcoming, however whereas the original effort yielded a 90% decrease in emissions, the subsequent efforts have had a harder time eking out improvements.  In terms of total percentage of emissions reduced, all those subsequent efforts have yielded about 1/10th the reduction of the original smog reduction campaign, with an end result that cars today produce about 98% fewer emissions than did their '60s counterparts.

What I am trying to establish here is not that the EPA's increasingly strict standards were necessarily pointless--I put a very high premium on clean air myself, and I think I prefer to live in a world with 98% fewer emissions compared to the '60s as opposed to only 90% fewer.  However, it is clear that in this particular case, environmental regulations have been subject to a law of diminishing returns.  The first and easiest improvements that were made were the cheapest to do and also the most impactful.  Subsequent improvements were more costly and of less impact, though not useless.

This law of diminishing returns is not guaranteed to be the case for every type of environmental regulation, but I strongly suspect that it does hold for most types of environmental regulation.  And this has some very important implications for the manufacturing and energy production industries.  It should cause us to be circumspect about applying too-stringent environmental policies on industrial sectors that are apt to move to areas of least resistance.

Energy Production

One great example is fracking.  Energy is a fungible good, and therefore energy production is a very mobile industry.  If a country doesn't produce the energy it needs itself, it will import it from somewhere else.  The means of producing energy vary greatly in how bad they are for the environment.  Coal, for example, is much worse than oil or natural gas, all things taken into consideration.

Fracking stacks up very well against coal as a cleaner energy solution.  It's much better than coal--but it's not zero-impact.  It does have environmental costs.  From what I've read, the worst of the environmental costs can be mitigated with some fairly simple regulation, but even with this "low hanging fruit" regulation implemented, fracking is definitely going to have some environmental impact.  And so some people are against fracking entirely in the United States and want it completely banned.

But the impact of a complete ban against fracking would clearly and necessarily be an increase in the use of coal and oil fired power plants; this is inevitable.  It would also clearly increase the US total reliance on imported energy--and the places from which we import oil and gas do not give anything like the same consideration to the environment as we do.  For the sake of small improvements to the environment specifically in the States, we would be increasing the total harm to the environment world-wide.  Some people are just fine with this trade-off; I am not.  I think we should accept a lesser good in order to avoid a greater evil.

Manufacturing

Likewise, factory manufacturing has largely left the United States.  This is largely due to the average wage of Americans compared to other parts of the world, but it is also due at least in part to stricter environmental regulations.  Factory manufacturers have been acting in a very predictable way here; they compete with each other in terms of driving down cost of production.  The ones that survive, therefore, find areas with cheap labor and lax regulations on how rigorously they have to deal with the byproducts of manufacturing.  Our minimum wage laws and environmental regulations therefore do not have the effect of eliminating dirty factories staffed by impoverished workers; rather, they push that reality to other places of the world where we don't have to see it happening.

Manufacturing in China, in particular, has been a grotesque confluence of capitalism and communism.  Capitalism's blindness to consequences apart from the bottom-line and Communism's innate brutality and willingness to subject both man and nature to social engineering has produced a slow-motion humanitarian and ecological horror story.  Because China really doesn't give a c**p about the environment, as the clouds of pollution regularly infecting its skies attest.  They are not doing even the lowest cost mitigation work in order to achieve that first 90% of environmental benefit.

Solution?

What I believe we should be aiming for, then, is some way to impose minimal environmental and humanitarian standards upon our basic factory manufacturing supply chains, across the globe.  Increasing environmental standards on manufacturing in the US or in Europe is probably pointless and quite possibly even counter-productive.  We might even look to decrease our own standards slightly, if it could reduce exportation of manufacturing to third-world areas.  What is far more important for the environment as a whole is some way of getting that first 90% improvement on the bulk of manufacturing.

This is obviously very difficult to achieve.  These countries that have no regard for basic human rights or basic environmental cleanliness are also pretty much all willing to lie and cheat on everything they do, economically.  For the automobile industry, we were able to make global improvements by imposing standards on what is produced.  We can test cars that are manufactured in China and empirically determine how well they do on emissions.  We can't directly test a batch of chemicals shipped from China to see how clean was the process by which they were produced.

If we find a solution for this problem, it will probably include some requirement of openness and willingness to be inspected by impartial investigators . . . and this sort of thing has proven very difficult to make workable in the past, given unscrupulous sovereign nations who have a vested interest.  This is a strong motivation for us to favor nations as manufacturing partners who do not own their own manufacturing industries.  It will be much easier for us to demand accountability and good practices from factories, say, in Mexico where the owner of the factory is not a government with a vested interest in controlling a target percentage of world production capacity.  What this argues for is some type of tariff on goods produced from socialist states--a "freedom index" tariff of some sort.

Finally, I think it is very important for the sake of any effort to clean up the supply chain that we eschew environmental extremism.  It has been the nature of the environmentalist movement for some time that it lets the perfect be the enemy of the good; for the sake of a much cleaner manufacturing supply chain, we should very vigorously fight that tendency.  Let's work on making the supply chain "OK" rather than "pristine", because moving it to "OK" from "horrible" is going to be work enough for a lifetime.  Let's remember the importance of that first 90%.