Policy Framework for Environmental Performance Agreements: chapter 6

When Will Environment Canada Use Environmental Performance Agreements?

Environment Canada will consider Environmental Performance Agreements where these offer the prospect of significant, measurable environmental results. The factors that Environment Canada will consider when determining whether to use an Environmental Performance Agreement include:

• cost-effectiveness;
• supportive policy and regulatory framework;
• capacity of participants; and
• appropriateness.

It should be noted that these factors can help to indicate whether a performance agreement is an appropriate tool, but no one factor, on its own, is enough. Environmental Performance Agreements may be designed for many different objectives - reduction of pollution emissions, broad-based pollution prevention planning, extended producer responsibility and hazardous waste management, etc. - and a situation that is appropriate for one type of performance agreement may not be appropriate for another. Therefore, these factors are intended to provide a summary of issues that should be considered on a case-by-case basis in determining whether an Environmental Performance Agreement is appropriate for meeting the specific objectives/outcomes desired.

Cost-effectiveness

The potential of an Environmental Performance Agreement to secure comparable results at a lower cost is very important. Can companies and government get the same or better results faster and at less cost than may be possible through alternative approaches such as regulatory action? This element includes consideration of the costs involved in negotiating and administering the agreement (i.e., transaction costs).

Environment Canada will attach significant weight in decision-making to cost-effectiveness, in keeping with statements in the Government of Canada Regulatory Policy. That policy states, in particular, that "The government will weigh the benefits of alternatives to regulation, and of alternative regulations, against their cost, and focus resources where they can do most good. To these ends, the federal government is committed to working in partnership with industry, labour, interest groups, professional organizations, other governments, and interested individuals."

Supportive Policy and Regulatory Framework

It is important to have strong policy and legislation in place to address environmental matters, and to have the capacity and willingness to act. The federal Toxic Substances Management Policy and the Pollution Prevention Strategy both support the Canadian Environmental Protection Act, 1999 (CEPA 1999) and the Fisheries Act. The CEPA 1999, in particular, contains obligations for government to act with regard to substances of concern. This policy framework provides significant impetus to take action ahead of regulation and ensures that ineffective action will be followed by development of enforceable measures where substances are found to be CEPA-toxic.

This "regulatory backstop" reduces the likelihood of "free riders" and allows government to intervene where necessary. Depending on the circumstances, Environment Canada can use performance agreements as a complement, a precursor or an alternative to regulations:

• a complement to regulations - In some cases, an Environmental Performance Agreement will formalize a commitment by a firm or an industry sector to exceed regulatory requirements, or to take action on issues that would not be addressed through regulatory initiatives. For example, an agreement could be used to complement existing regulations where the regulations do not or cannot satisfactorily address all of the environmental issues at a particular site or within a given region.
  
  
• a precursor to regulations - While Environment Canada carries out formal risk assessment, or while it identifies, develops and puts in place prevention and control measures, industry sectors or companies that are well placed to address the problem immediately may negotiate an agreement as a means of "staying ahead" of the regulatory agenda.
  
  
• an alternative to new regulations- There may be some issues for which regulation is not the best solution or not immediately contemplated. These issues may be addressed more effectively through an Environmental Performance Agreement.

A regulatory backstop does not exist in all areas where environmental improvements are required or desired. Environment Canada will also consider negotiating Environmental Performance Agreements to address environmental matters where regulation is not an alternative and where these agreements offer the prospects of demonstrable and significant environmental gains.

Capacity of Participants

The existence and implementation of environmental policy within the private sector is an important indicator of capacity and willingness to undertake non-regulatory environmental activities. The development of environmental policy to guide operations, and the use of environmental management systems and pollution prevention planning, are indicators that companies can deliver on environmental protection commitments. As well, at the industry association level, the development and use of voluntary environmental codes for members and the potential for making adherence to these a condition of membership also lend credibility to the promise for success of performance agreements. To meet obligations under an Environmental Performance Agreement, companies need to be able to identify appropriate measures, as well as track, analyze and report on performance. Environment Canada believes that this industrial capacity adds to the potential for success. In some cases, Environment Canada will consider helping prospective participants build the capacity required to participate effectively in an Environmental Performance Agreement.

Appropriateness

Scope of the problem to be addressed:
In addition to the above factors that should be considered when deciding whether to use an Environmental Performance Agreement, the complexity of a problem (one substance of concern or many; one medium or more), the availability of proven solutions, the number and variability of the industry sectors involved, the number of facilities involved, etc., all play a part in determining whether a performance agreement is best suited to effect environmental improvement. Experience has shown that regulation can be very effective at tackling precisely defined problems. Environmental Performance Agreements can also be used effectively in these situations.

As the variables (industry sectors, facilities, substances to be addressed, etc.) increase in number, the transaction costs of regulations can be high. The transaction costs for Environmental Performance Agreements, on the other hand, may be lower than for regulation. Lower transaction costs for all parties are only one consideration, however. The many other factors described in this section are also important in determining whether performance agreements are to be used.

Level of risk posed by the issue:
Environment Canada encourages early action on all substances of concern, especially those that have the potential to be high-risk, and will explore the use of Environmental Performance Agreements as a means of getting early action. This desire to get fast results will not inhibit work on risk assessment of substances of concern and should complement future risk management actions where some of these substances may be found to be CEPA-toxic. Early action through Environmental Performance Agreements may be considered less appropriate where certainty of outcome is the primary consideration. Yet even where a regulation is viewed as necessary, the environmental and health benefits of taking early action (prior to regulation) through a performance agreement may outweigh the costs of implementing both options.

As well, Environmental Performance Agreements show significant potential as tools to motivate behavioural change related to encouraging broad adoption of environmental management tools, such as environmental management systems, pollution prevention planning and life-cycle management. These are low-risk/high-benefit activities that Environment Canada believes should be encouraged through Environmental Performance Agreements.

Environmental track record of the company/sector:
This factor must be considered in relation to the issue at hand. Environment Canada will negotiate with companies where there is high likelihood of good performance. The due diligence and good faith shown by companies, as well as the efforts made to systematically address environmental issues, will be considered. These factors become more significant where the level of risk posed by a substance may be high, or where certainty of action carries a lot of weight.

Level of interest in the sector:
Environment Canada believes that negotiation of an Environmental Performance Agreement requires the willingness of key people or companies within a sector to address the issue at hand. The likelihood that an Environmental Performance Agreement will satisfactorily address an environmental problem increases in direct proportion to the participation of the contributors to the problem. Although full participation in a performance agreement may not be possible at first, Environment Canada will consider the probability of additional participation in deciding whether such an agreement is an appropriate tool.

Likelihood of support from external stakeholders:
Environment Canada believes that, while ultimately the Environmental Performance Agreements will be judged on their results, the support of external stakeholders, such as the community, health, labour and environmental organizations, concerned about the issues being addressed will be very important to the credibility of these agreements, particularly in their early stages.