Strengths And Limitations Of Governmental Support For Environmental Technology In Japan Alan S. Miller* and Curtis A. Moore**

Center for Global Change, University of Maryland, College Park, Technology Clearinghouse, McLean, Virginia**

Executive Director,

Maryland,* and Abstract

A. and Moore, C., (1994) Strengths And Limitations Of Governmental Support For Environmental Technology In Japan. Industrial &Environmental Crisis Quarterly, 8(2): 155-169

Miller,

In recent years, Japanese government and industry have initiated a wide range of policies, programs, and investment strategies responsive to the growing agenda of domestic and global environmental problems. For the most part, these actions have not been due to any significant domestic environmental political pressure but primarily because of the perception that

"green" products and manufacturing methods are simply good business. strategies have, therefore, been closely linked to export and foreign aid policies of long-term benefit to the Japanese economy. A strength of the Japanese approach to environmental policy is the government’s ability to bring together a range of business to create a climate for long-term investment in promising new technologies such as fuel cells and electric vehicles. Because this approach is done to advance industrial policy as much as environmental goals, industrial interests are responding to business opportunities, rather than environmental constraints. The Japanese system is, however, not without its own blind spots and limitations. For example, very little has been done to improve the energy efficiency of consumer products, including automobiles, since the mid 1980s. Japanese industry has so far not demonstrated much awareness of concepts like "design for environment" that imply a fundamental reexamination of manufacturing methods and materials. The Japanese response to conservation issues that tend These

not to have technological solutions has also not been as impressive.

or

potential

for business

development

Introduction The governments of

number of countries are developing programs to assist industry in securing an important share of global environmental markets. Chief among these nations, now well-positioned for capture of existing and emerging environmental markets, are Japan and Germany. For a discussion a

155

of the German case, see Moore, 1992. Japan is of particular interest because of the close interaction between government and industry in developing strategies for environmental industries. For development of these issues in further detail, see Miller and Moore, 1992, and Miller, 1991. The Japanese experience presents a challenge to the conventional economic view which asserts that investment in environmental regulation is likely to be contrary to economic growth and international competitiveness. For further elaboration of the economic view that expenditures on environmental protection divert capital and other monetary resources away from more productive investments, and, therefore, must reduce economic growth, see Palmer and Simpson, 1993. One tenet of economists who view environmental expenditures as a negative force in the economy is that the relatively high percentage of U.S. GNP spent on environmental compliance is cause for concern. The corollary recommendation of these &dquo;environmental pessimists&dquo; is the strong suggestion that new spending in this area be limited because of purported deleterious effects on the economy. A view counter to that of environmental pessimists has been articulated by several authorities including Michael Porter, William Cline, and Joseph Romm (Porter, 1992, Cline, 1992, and Romm, 1992). Collectively, they suggest plausible reasons why it may be possible to have environmental protection that advances economic objectives. Porter argues that stringent environmental controls may require the re-engineering of technology in ways that yield cleaner and more productive manufacturing processes. Ironically, halfhearted policies, although politically expedient, may be worse in their effects than anticipated because they result in inefficient, &dquo;end-of-the-pipe&dquo; solutions that cost more, reduce efficiency and contribute to a loss in com-

petitiveness. The example of CFCs and ozone depletion is illustrative of the aforementioned observations. Studies of &dquo;available&dquo; technologies in the early 1980s indicated that there were no real substitute chemicals for CFCs. Environmental necessity-as expressed through several stringent international regulations (see Benedick, 1991 for a discussion of the International Protocol to Ban Ozone Depleting Chemicals-The Montreal Protocol)-led to astonishing technological innovation in less than five years. The outcome is that the world will benefit from a nearly complete, global phase-out of CFCs in less than a decade with no detectable macroeconomic impact. This is a monumental achievement, especially when considering the widespread use of these chemicals in the electronics, defense, refrigeration and other critical sectors of the economy. William Cline’s argument is more direct: countries that correctly anticipate the future direction of global market demand will garner competitive advantage. One likely trend in current markets is increased environmental protection, with the possible inclusion of significant reductions in greenhouse 156

(principally carbon dioxide (COZ) and methane (CH4)), Japan and Europe have already taken steps in anticipation of this demand, each with a responsive suite of policies and domestic requirements. Authorities in these countries cite an eagerness to solidify the position of their economies vis-avis international competition. Moreover, this argument may very well benefit in part from its self-fulfilling quality: large economies can stimulate international environmental agreements through political means; these regimes, in gases

drive demand. One very concrete example of regulation driving markets is the case of German &dquo;take-back&dquo; requirements for makers of automobiles and other durable goods. These laws require that the manufacturer take ultimate and final responsibility for the disposal of these products at the end of their useful lifecycle. The result of this innovative national policy is an unfolding revolution in German manufacturing to allow disassembly and recycling. Those firms that design and implement these processes first will realize competitive advantage, despite short-term costs. In particularly large markets, automobiles being the prime example, the race is quickly becoming global. Large manufacturers know the importance of selling worldwide. Thus, General Motors has already announced plans for car re-design that will meet German requirements. Conversely, countries that ignore these important international environmental forces will find selling products in global markets a difficult endeavor. For example, China and India may not care about the ozone layer, but want to be able to export goods to industrialized countries. Under the Montreal Protocol, their products, if made with ozone-depleting chemicals, could be banned from import. Joseph Romm develops Cline’s work further by noting the traditional importance that defense expenditures have had in the U.S. economy. He observes that we have operated with a form of industrial policy, particularly in these industries and allied sectors, even if doing so was and is not recognized as such. Moreover, these types of government-industry interactions have been highly successful for many technological areas. For example, due largely to defense expenditures and strategic research & development policies, the United States enjoys the best aircraft engines in the world. While the views of Porter, Cline, Romm and other &dquo;environmental optimists&dquo; are seemingly against the grain of traditional economic thinking, it is difficult to evaluate empirically the conflicting views of these observers with their counterparts. We offer the following brief case on Japan in support of the growing number of environmental optimists. Japan has managed to combine environmental objectives with measures supporting technological innovation, and ultimately, enhanced market position. This linkage between economic and industrial policy goals is consistent with the theories advanced by Porter, who argues that &dquo;the nations with the turn,

can

157

rigorous requirements often lead in exports of affected products&dquo; through re-engineering of production methods to produce a better product at less cost (Porter, 1992). Japanese experience demonstrates that technology and innovation can overcome resource and regulatory constraints, as evidenced by that country’s market advantage in fuel cell technology, gas-fired coal plants, new steel mill systems and more. ’ As subsequent text in this paper will detail, the ability of Japan to simultaneously and successfully combine rapid economic growth, stringent (but selective) environmental standards, and impressive reductions in both pollumost

tion emissions and energy

use offers strong case support for environmental At the very least, the Japanese experience calls into question the views held by environmental pessimists. If environmental compliance were so troublesome to economic growth, Japan should not have been able to

optimists.

thrive by selling so much environmentally-derived technological largess to the world. To express the same point using the converse example, if lax environmental standards are uniquely helpful to economies, then its other problems notwithstanding, Romania should be one of the stronger economies in

Europe.

,

There is one important caveat to the Japanese case. Some characteristics of the Japanese model are unique to the culture and traditions of that society, and could not be easily adapted for use in the United States. Some key features would be amenable, however, to the U.S. political system and are being successfully applied in a few instances. This paper presents a brief overview of the Japanese approach to environmental technology. The relationship between government and industry regarding both the development and commercialization of environmental technology is briefly described. Some important advantages to this approach are cited. The conclusion considers the applicability of some aspects of the Japanese system to the United States. Also included is a case concerning fuel cells that provides concrete evidence of several key observations of this paper.

Japanese Government and Industry: Close Environmental Partners &dquo;Japanese industry believes that there is an inescapable economic necessity to improve energy efficiency and environmental technologies, which also reduces costs and creates a likely profitable world market. The potential profit in such a market is limitless.&dquo; Takefumi Fukumizu Chief Representative to the U.S. New Energy and Industrial Technology

Development Organization

158

The Japanese approach to the environment, as in many other areas of national policy, is based on a tradition of deeply interwoven relations between government and industry (Miller and Moore, 1992). These larger traditions are particularly important because of the absence of a strong tradition of citizen activism. There is no Japanese equivalent of the Sierra Club; the largest environmental group has fewer than 50,000 members and does not litigate. Environmental policy, therefore, is tied closely to other national priorities, especially the development of technologies identified by the government as critical for the country’s future economic competitiveness. Some aspects of the Japanese model are clearly ill-suited for adaptation to the United States, where antitrust laws and a traditional wariness of government are inconsistent with so much government direction of the economy. Key features of the Japanese system, however, are much less foreign than is often thought. The extent of government cooperation with defense-related industries in the United States illustrates that such models have been used selectively-and successfully-when national interests were strong enough. It is no coincidence that the United States enjoys a large trade surplus in weapons, over $50 billion from 1985-1989 (Wolf: 1992). The extraordinary success of Japanese technology policy is the outcome of many different strategies, rather than a single model or agency. The Japanese mechanism of integrating environmental and industrial policy incorporates these themes: 1. the basic approach is goal-oriented, long term in outlook and cooperative in nature; 2. government agencies and programs are organized to optimize cooperation both within government and with industry; 3. there is an emphasis on public/private cooperation with government guidance, but responsibility for industry action and commercialization lies in the private sector; and 4. there exists a preference for technological solutions and promotion of &dquo;critical&dquo; technologies rather than attempt at lifestyle Careful

changes. planning is

consistent in the execution of these themes. Moreover,

manages to coordinate or facilitate cooperation between various government agencies, despite frequent, intense turf battles. The list of Japanese governmental entities that work on energy and environmental issues is long and includes the Ministry of International Trade

Japanese government

and

Industry (MITI), the Japan Environment Agency (JEA), the Science and Technology Agency, the Ministry of Foreign Affairs. There are also several government-sponsored organizations that have strong industry participation including the New Energy and Industrial Technology Program (NEDO) and the Research Agency of Innovative Technology for the Earth (RITE). The government’s role is expressed much more often through informal &dquo;guidance&dquo; rather than strict regulation and penalties. Often this guidance or 159

cooperative interaction takes the form of &dquo;signals&dquo; from government to industry of the direction industry ought to take. These signals suggest governnient conclusions about the direction in which

global markets are headbe to communicated ing likely industry directly through extensive personal contacts and more widely through such pronouncements than the regular five-year energy plan. For several reasons, this advice is likely to be heeded (Van Wolferen, 1989) (Upham, 1987). First, policy making is a consensus process, so that industry is directly involved throughout. This relationship is not a one-way flow of information. Industry works with government in the assessment of future business climes, as well as in the development of an appropriate strategy to compete successfully. Second, the government is able to offer considerable rewards to collaborating partners through subsidies and the opportunity to learn from cooperative research and development with competitors. The alternative is potential penalties to those who try to go it alone, as well as unified competition from government-aided competitors. The missions of the quasi-government agencies NEDO and RITE offer further insight into the Japanese way of conducting environmental business. The New Energy and Industrial Technology Development Organization (NEDO) was initiated in the early 1980s for commercial development of new energy technologies that would free Japan of its dependence on imported oil. In 1990, that mission was expanded to cover development of technologies for protection of the global environment. Described simply, NEDO operates by a combination of government funding and staffing in part by corporations. Companies &dquo;loan&dquo; employees to NEDO and similar organizations. By coordinating funds, personnel, and technological strengths of, not only, governmental sectors, but also private ones as well, NEDO has made great strides in developing both new and recyclable sources of energy and technologies to increase energy efficiency. The Research Agency of Innovative Technology for the Earth (RITE), created in 1990, may assume responsibility for some NEDO projects. One of several quasi-government agencies created in 1990 to address mounting global environmental problems, RITE’s mission is to develop the environmental technologies that will be needed in the 21st century. While RITE is charged with this mission of technology development, the Earth 21 initiatives identifying which technologies will meet these future needs were announced by and

are

to

MITI in 1990.

Of particular importance to the ability of Japan to compete in international environmental markets is that country’s domestic environmental policy. While some criticize Japan for their contribution to tropical deforestation, and their unwillingness to protect endangered species, Japan has made important strides in pollution reduction. Japan’s environmental policy has been most effective when government and industry cooperate to find technical solutions to environmental problems. This progress is due largely to 160

strict domestic environmental

regulations. Local authorities often demand than national authorities as a condition for allowing the siting of new plants. (Kopp, Portney and Dewitt, 1992) more

Environmental

Regulation in Japan: Constraints or Opportunities?

roughly the size of California, but without the rich agricultural lands or domestic fossil fuels, Japan substitutes knowledge and ingenuity for resources in order to be competitive. This feat is a direct challenge to conventional economic thinking about sources of competitive advantage: the lack of resources should be a serious handicap because it means other countries can obtain basic commodities for less. Strict energy and environmental regulations, in theory, only exacerbate the problem, diverting capital from more productive investments. Yet by virtually every measure this small nation uses less energy per unit of production-and hence emits less air pollution than any other industrialized nation in history. Environmental regulation in Japan has been shaped by several key events in recent history. Japanese industry grew rapidly during the 1960s with the benefit of low oil prices. Then, shocked by the oil crisis of 1973 when prices rocketed upwards, government and industry undertook massive conservation programs which sharply reduced energy intensity. These programs addressed virtually every aspect of Japanese activity, ranging from home refrigerators to giant steel mills. Conservation began with simple acts-greater use of insulation, for example-but progressed to complex and expensive undertakings such as the development of alternative energy technologies. &dquo;In retrospect,&dquo; says Genya Chiba, who runs the Science and Technology Agency’s Exploratory Research for Advanced Technology (ERATO) program, &dquo;the oil crisis was valuable in that it compelled Japan to draw on both technology and a flexible management system. The crisis and attendant stricture on oil availability, in effect, propelled Japan into an emerging era of conservation and efficiency much faster than nations less threatened.&dquo; In

an area

Twin Benefits: Environmental Benefits and Economic

Savings

By the 1990s, Japanese government and industry had developed a menu of technologies and practices which demonstrated, beyond question, that pollution-even carbon dioxide-could be cut substantially in ways that increased efficiency and lowered costs. These Japanese efforts challenged the conventional wisdom among most American scientists, engineers, and politicians that pollution is the inevitable consequence of industrial productivity. In fact, they suggest that just the reverse is true: the path to true productivity is one where the goal is zero pollution and 100 percent efficiency. These targets insure that industrial activity aims at appropriate goals: clean and increasingly green profits. 161

It is

important

not excel in all

to note that

Japanese domestic environmental policy does

Nature conservancy in Japan is notably weak. This reflects a larger tendency for Japanese inaction on environmental issues where there is no clear technological solution. But the link between energy and environmental policy is extremely strong in this country, resulting in substantial advances in pollution reduction and energy-efficient technologies. Japan, one of the worst polluters in the 1960s is now a world leader in clean air, and consequently, exports large quantities of pollution control equipment. The increased export capability in environmental devices is a direct result from the domestic experience of Japanese countries. Regulations forced Japanese companies to address domestic pollution problems, in effect, serving as a testing ground for larger, global markets. For a country with relatively few resources and a small population, economic success demands aggressive international trade. Perhaps more than any other nation, the Japanese approach to environmental technology is predicated on this link to export opportunities. If U.S. standards require steep reductions in emissions from cars, then Japan will make cars that comply-even if most Japanese car makers are as skeptical about the ability to do so as their U.S. counterparts. Indeed, to facilitate this process Japan adopted U.S. standards (and retained them even when they were weakened in the United States). If German law requires the redesign of products to allow their return to the manufacture for recycling, then Japanese companies can be expected to work with the support of their government to assure they remain able to sell cars in that country.

The

areas.

response to international environmental problems has been them as part of a larger strategy of designing products to meet the demands of world markets. Ozone depletion and global climate change in these terms are much more than environmental problems; they are, in effect, production standards. Adopting consistent domestic standards is essential to helping industry learn what is necessary for global success. To resist and contest these issues in the fashion typical of U.S. trade associations is to risk the loss of competitive advantage for questionable short-term savings.

Japanese

to see

Fuel cells-a case of Japanese industry and government cooperation The case of fuel cells (compact, quiet devices which produce electricity by chemical reaction) illustrates many facets of the strategic partnership between Japanese business and government. Fuel cells are environmentally attractive on several counts. They can produce electricity from a variety of fuels, including currently available fossil fuels and their derivatives like natural gas and methanol. In the future, fuel cells will harness solar or nuclear-generated hydrogen as a fuel source, again producing electricity. Because fuel cells are more efficient than conventional energy technologies, they have the potential to greatly reduce C02 emissions. 162

Furthermore, fuel cells produce virtually

no

sulphur

dioxide

or

oxides of

nitrogen. Unlike most other energy-generation technologies, fuel cells are versatile enough for small, medium, or large-scale applications, ranging from automobiles to central power plants. Because they are virtually noiseless, having no pistons or controlled combustions, it may be possible to locate fuel cell units within cities and neighborhoods, thereby eliminating the need for transmission lines and the attendant land purchase. Fuel cells, like batteries, vary according to the type of electrolyte employed. Fuji Electric manufactures and markets a fuel cell using phosphoric acid called a PFAC unit. This fuel cell is particularly suitable for generating both heat and electricity with natural applications in homes, apartment buildings, hotels, offices and other modestly-sized facilities. In 1989, Fuji Electric had 11,000 kW of fuel cell projects underway in Japan, and thirteen projects in the United States and Europe. The qualities of high energy efficiency and modularity make fuel cells of particular interest to the Japanese who see both domestic and international markets for such an attractive environmental technology. The technology is also at a stage where Japanese skills in size and cost reduction are critical to becoming a competitive energy technology. But while the Japanese now lead the world in fuel cell production and early applications, this technology was

originally a U.S. invention. Fuel cells were developed space program.

in the 1960s

key component of the U.S. General Electric’s proton exchange membrane (PEM) fuel cell as a

powered the Gemini mission series. Why did Japan move aggressively to develop a technology that, despite its early excellent performance in the U.S. space industry, did not receive commensurate attention from the country of origin? In this and other areas of technology, the Japanese continue to demonstrate better ability to move technology from basic research stages through prototypes to the marketplace. Japanese companies, in contrast to most American firms, have longer financial horizons, access to lower capital costs, and a national commitment to the recognition of expanding markets. This national commitment includes a number of government incentives, many of which could be adapted for U.S. implementation: tax breaks, including incentives for technology development, and accelerated depreciation on research and development expenditures; and direct government expenditure on research and development, including a matching grant system. ~

~

Contrasting Corporate Philosophies The contrast in corporate philosophy is evident in the difference in U.S. and Japanese corporate responses to the threat of global climate change. 163

American electric utilities and other large energy users formed a trade association to identify and highlight the risks of &dquo;hasty&dquo; action. Compare the U.S utility reaction with the Japanese response: the Japanese Federation of Electric Power Companies adopted a policy calling for &dquo;studies on a number of diverse measures&dquo; and committed itself to &dquo;contribute at the

international level power production,

through techniques aimed energy-saving technology,

the efficiency of and carbon dioxide reduction at

improving

technology.&dquo; &dquo;Green &dquo; without the chastening of NGOs Corporations in the United States that claim to be interested in the environment are often viewed with skepticism because of the public relations value of such claims. It is worth noting, however, that environmental politics are much weaker in Japan than in the United States. There are many local Japanese environmental groups, but few at a national level and none with any true political clout equivalent to that of U.S. non-governmental organizations (NGOs) such as the Sierra Club or Wilderness Society in the United States. Formation of such organizations requires government approval, and contributions are not tax deductible. There is also much less opportunity to bring environmental lawsuits. Global environmental issues are not a pressing public concern in Japan. Therefore, if Japanese business leaders are more concerned about the environment than their counterparts in the United States, it is because they more clearly see its strategic importance, not

because of consumer demand.

Export preparedness: capturing new markets. It is also

simple matter of altruism that Japan is rapidly increasing environmentally-oriented foreign aid. Japan, for example, has become a major source of help in efforts to improve air quality in Mexico City (Fletcher, 1993). One important benefit to Japan is access to enormous markets for pollution control equipment. Similar overtures are being made to other countries, particularly those in Asia. The logic of increased foreign aid now, and future expanding environmental markets in developing countries seems sound. Industrializing countries with their growing populations will release substantial amounts of carbon dioxide into the air over the next .twenty years. Though several programs, including a MITI International Center for Environmental Technology Transfer, Japan is training developing country participants in energy conservation, pollution control technology and environmental protection regulation. These programs will engender a loyalty to Japanese products and companies, and result in early market captures difficult to emulate. Japan is not the only country involved in environmental regulation, current opportunity, and future profits. Germany certainly operates on this premise. Norway, Denmark, Sweden, Switzerland, the Netherlands, Singapore, and 164

no

coincidence

or

other

industrial powers know that environmental protection is necessity, and the nation that does it best will prosper the most. Interestingly, the United States is noticeably absent from this roster of

emerging

now an

economic

making &dquo;green&dquo; investments. of Japan is particularly significant because of the high degree of government-industry cooperation. Some components of this relationship are applicable to the United States, especially when considering the close strategic ties between the defense industry and government. Broadly described, the Japanese system of cooperation seems more to be one of brokered relationships with government acting as a catalyst. A central strength of the Japanese approach is the creation of a climate for long-term investment in promising new technologies like fuel cells and electric vehicles. While some U.S. government-business interactions share these characteriscountries

The

case

tics, the traditional U.S. response has been to pay for or subsidize programs. The United States stands to benefit greatly from judicious and strategic application of the Japanese technique of bringing together apparently disparate interests in pursuit of a common goal. Alternatives to regulation: some notable U.S. innovations Strong regulations are the foundation for motivating the corporate commitments of resources that will be needed to develop and continually improve the environmental technology of the future. Non-regulatory strategies, however, can sometimes be a surprisingly effective complement, creating incentives much stronger than regulations alone. Beginning in January 1991, EPA launched a program of voluntary greenhouse gas reduction programs.1 Under the Bush Administration, voluntary programs were about the only initiatives likely to be politically acceptable. These programs, however, proved to be wildly successful, and may constitute a significant source of the emission reductions necessary to achieve President Clinton’s promise of reducing U.S. emissions of greenhouse gases to 1990 levels by the year 2000. The &dquo;flagship&dquo; of EPA’s voluntary programs is &dquo;Green Lights.&dquo; In this program, corporations as well as state and federal agencies agree in writing to survey and upgrade the lighting in their buildings with the most energy-efficient systems that are cost-effective. State-of-the-art lighting technology can reduce the use of electricity by over 50 percent. In return, EPA provides technical assistance on lighting technology and financing options and something less tangible but perhaps far more valuable-the public relations benefits of being a &dquo;green lights partner.&dquo; The environmental connection results from the potential for reducing pollution by avoiding energy consumption; lighting accounts for over 20 percent of U.S. electricity consumption, or about 120 million metric tons of carbon emissions. 1

U.S. EPA, "The Climate is Right for Action: Gas Emissions" (ANR-43, Oct. 1992).

Voluntary Programs to Reduce Greenhouse 165

Classic free market theory (accepted by the vast majority of economists) suggest such a program is pointless; if the technology worked and saved money, companies would already be using it. The Green Lights contract is, indeed, a promise to do only what is in a company’s economic self-interest. Yet, in less than two years, EPA had signed up more than 650 participants, including many of America’s largest enterprises, representing almost three billion square feet of building space (over 3 percent of the national total). Participants were expected to reduce their electricity use by over 12 billion kilowatt hours per year, thus saving $870 million. Why is the program so successful? EPA’s experience demonstrates that there are many subtle barriers to pollution prevention and energy efficiency improvements, including difficulties evaluating new technologies and procurement systems that remove most of the incentives for investing in saving energy (e.g., the plant manager pays the higher cost for the equipment but is not permitted to keep the savings from reduced energy costs). The Green Lights program also changes the decision making process from a simple issue of &dquo;how much does it cost?&dquo; to an opportunity to demonstrate environmental leadership. Another variation of the same philosophy is a program EPA calls the &dquo;Energy Star Computer.&dquo; This program seeks to create a market for computers that automatically &dquo;power-down&dquo; when not in use, a technology pioneered for use in portable computers to extend the life of batteries. The technology can be introduced for virtually no additional cost to consumers. Potentially, as much as 80 percent of the power used by personal computers could be eliminated, avoiding much of the rapidly growing use of electricity associated with computers (currently about 5 percent of commercial electricity). The strategy in the Energy Star program is based on letting consumers know which computers contain the energy saving feature through an EPA approved logo. The program is proving so popular that it may become a de facto standard, as the majority of computer manufacturers (by volume) have signed up. EPA has helped to develop one voluntary program with a more direct link to advancing technology, the Super-Efficient Refrigerator Program. This program has also been titled the &dquo;Golden Carrot&dquo; because of its unique incentive features. A minimum energy efficiency standard for refrigerators is already determined by the Department of Energy. The standard, however, is limited to technologies already used commercially. Much better refrigerators could be produced, but manufacturers were reluctant to invest in retooling to make them without assurances that consumers would be willing to pay the modest extra cost. Meanwhile, many utility companies offer rebates and other financial incentives to their consumers for purchases of highly efficient appliances because the reduced demand for electricity avoids the need for much more costly investments in new power plants. 166

with the environmental group, Natural Resources Defense Council, helped bring about an investment pool in which participating utilities coordinated their financial incentives to offer almost $30 million in rebate incentives to the refrigerator manufacturer able to produce and sell units at least 25 percent more energy-efficient than the federal standards. The refrigerators must also eliminate the use of ozone-depleting chemicals found in current models. The winning bidder, picked in June 1992, was Whirlpool; the product they proposed will be the most energy efficient, ozone-friendly, mass-market refrigerator in the world. The Golden Carrot program exemplifies the potential for a win-win alternative to regulation. Whirlpool wins through a subsidy for the manufacture of a refrigerator that will significantly advance the state-of-the-art. The utilities win by delaying the need for costly investments in new power plants. And consumers win through reduced pollution and lower electricity billsover $250 million a year in annual electricity payment, a 10 to 35 percent saving for the average household. The Clinton Administration has recognized the merits of EPA’s green programs and plans to build on them in several ways. The President’s proposed economic stimulus package included substantial increased funds for green initiatives, but the entire package was dropped for lack of Congressional support. The President is supporting changes in procurement regulations that will use the government’s purchasing power to help create markets for recycled paper and other environmental products. The President’s most ambitious green initiative may be his &dquo;green car&dquo; program working with the automobile industry; as of September 1993 the details of this program were still

Together

EPA

being negotiated. Conclusion The Japanese model of government-industry interaction on environmental issues is characterized by several strengths: few resources expended on fighting among interest groups, high (but not universal) technological success rate, and demonstrated competitiveness in important international markets. Endemic limitations to the Japanese approach include weak or ineffectual action on conservation issues and other environmental challenges without obvious technological solutions, and a sometimes slow response to change as demonstrated by the failure to recognize a slip in energy efficiency from 1986 to 1982. can the United States learn from this model? Programs like &dquo;Green and other innovative industry-government programs suggest that this Lights&dquo; country can adapt the cooperative model so common in Japan to its own needs. Widespread adoption of this more interactive approach to solving environmental problems and capturing important technological markets could play a crucial role in future U.S. competitiveness.

What

167

Acknowledgments The authors would like to thank their editors at Beacon Press, Deanna Urmey and Andrew Hrycyna, for continued support and permission to present ideas from their forthcoming book, Green Gold. For technical and editing assistance, Tracey Rothman and Marybeth Shea provided invaluable help. Finally, we thank our colleagues at the Center for Global Change for their many contributions to our emerging ideas on environmental and economics concerns.

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Nisehimura, H.,

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Community: Spillovers, Cooperation, Rivalry, Institutions." University of Chicago Legal F.41 Stewart, Richard B., 1993. "Environmental Regulation and International Competitiveness." 102

168

Yale

L.J. 2039-2106.

Takefumi Fukumizu, "Our Threatened Environment: Challenges and Opportunities," presented at the conference on Clean Air Business Opportunities, sponsored by the South Coast Air Quality Management District, Oct. 1, 1992, Newport Beach, CA. Upham, Frank K., 1987. Law and Social Change in Postwar Japan. Boston, MA: Harvard. Wolfe, M., 1992, Where We Stand. New York: Bantam. Zysman, John, "US Power, Trade and Technology," International Affairs 67, January 1991.

169