Commentary: Voluntary Environmental Certification

Lead Author: Dr. Jeff Howe

Publish date: 10.31.2005

 

Voluntary Environmental Certification: Is Regulation the Answer?

 

Recently I spoke at an introductory class in the Bio-based Products Department of the University of Minnesota. As part of my presentation I did a quick survey of the group, with some interesting results. Perhaps the starkest of the responses was to the question, “Should environmental concerns be resolved through the free-market system or should they be addressed through regulations?” All 39 of the students responded that regulation was needed to address environmental issues. I wasn't surprised at the answer, only at the unanimity. But does this response make sense, or are these just foolish, inexperienced college students?

 

This question is important, because the basic theory behind environmental certification systems of all kinds is the belief that, given the option, people will ultimately make the appropriate choice, or at least “enough” people will . Three label systems - nutritional, organic, and safety - are examples of different approaches to addressing issues of broad social concern and provide a basis for a discussion of different forms of regulation as a tool for influencing environmental behaviors. From an analysis of these three systems some insight can be gained as to the likelihood of voluntary certification systems will influence consumers to make responsible choices.

 

Nutritional Labels

The Food and Drug Administration (FDA) in the U.S. Department of Health and Human Services has regulated food nutrition labels since 1990. Currently, labels are required for prepared foods such as bread and canned goods, and are voluntary for raw foods such as fresh vegetables and meat. What is unique about the nutrition label approach is that the FDA is controlling the product information reporting process but not the contents! Thus, a product could be 100% saturated fat as long as it was reported on the nutritional label. The assumption, and the goal, is that the label will provide consumers with the information to make an appropriate choice.

 

Organic Labels

Organic labels represent a different approach to labeling. Organic labels are designed to provide consumers with knowledge about contents and the process by which food products were produced. Organic labels are both evaluative and provide a certification that this information is true. Becoming “organic” is voluntary for organizations growing and producing food products. However, the use of the term organic is highly regulated.

 

In 1990, to address the growing number of companies making “organic” claims on food products and following diverse organic certification standards, the US Congress passed the Organic Foods Production Act (OFPA) of 1990. The OFPA required the USDA to develop uniform national standards for agricultural products marketed as organic.

 

Safety Labels

In the U.S. many consumer product groups are required to be evaluated for safe usage and have labels that portray that fact. For example, the Occupational Safety and Health Administration (OSHA) of the U.S. Department of Labor requires that electrical products “be tested by a Nationally Recognized Testing Laboratory (NRTL)” based on usage . [2] Today there are 18 NRTLs recognized by OSHA for testing the 37 OSHA product categories in North America. [3] One of the most familiar safety labels is the UL label of the Underwriters Laboratories. [4] In fact, UL labels are so common today that most people take them for granted and many don't even know what they mean.

 

Formed over 100 years ago, Underwriters Laboratories is an independent not-for-profit product safety testing and certification organization. They have 125 offices in 71 countries, and certified over 71,000 companies around the world through over half a million site-visits in 2004. They are most well known for their electrical appliance certifications, but also are involved in the fire prevention, plumbing, ladder, and a number of other industries. The average home has 125 UL-certified products in it. Overall they certify about 19,000 different product types. [5]

 

Discussion

There are two points of critical interest in this discussion of electrical product labels. One is in the recognition of the breadth of the market firms like Underwriter's Laboratories serve. Remember, UL certified 71,000 companies globally in 2004, and is one of 18 organizations providing this service for businesses selling in North America. Admittedly they may be the biggest. But one competitor, Intertek (ETL), has 35 testing offices worldwide – so they aren't exactly small either! The important point is that the market for product safety assurance testing is HUGE. The implications for the potential demand on other certification systems are that the market for general wood products certification potentially far outstrips that of any current NRTL organization. There is as much wood used in the U.S. today as all steel, plastics and cement combined. Wood certification is complicated by the fact that the wood products industry is generally considered to be significantly more fragmented than the electrical goods industry. There are estimated to be more than 50,000 wood products companies in North America alone selling products from spruce tips to sawdust, paper, lumber, furniture and car parts, ranging in size from single individuals to multi-national organizations.

 

The second interesting point is the fact these highly successful labels such as UL and ETL provide a service that is required, but that the NRTLs compete heavily among themselves. This is similar to the financial system in the U.S., where financial audits may be required in some cases, and there are certifications required to provide that service (e.g. Certified Public Accountant – CPA) but there are many organizations competing to provide it. As a result, if you go to Intertek's website ( www.intertek-etlsemco.com ) you will find that ETL is attempting to compete based on service, performance, flexibility, breadth of offerings and the like. They are not making claims about safety, which is the concern of the individual consumer. Intertek realizes that the consumer doesn't have the ability to compare the relative performance of UL versus ETL (which is safer?). Besides, consumers generally don't care whether they buy UL or Intertek certified products, they just want to be assured that what they buy is safe. Thus, in the case of the safety labels, the free market system is working amongst the certifiers rather than at the consumer level.

 

How well do these three labeling programs work?

Today, food nutritional labels, being mandated, are ubiquitous. However, according to the U.S. Center for Disease Control (CDC), rates for both obesity and diabetes have increased by more than 60 percent since the implementation of the food-labeling program. [6] A study by the Albert Einstein College of Medicine reported in the American Journal of Preventative Medicine indicated that food labels are likely to have had little benefit to cardiovascular health in the U.S. either. [7] Now, it is a bit unfair to paint a negative picture of the food nutrition label with a brush dipped only in the results from the obesity, diabetes, and cardiovascular impact pallet, especially since the goal of the nutrition label was primarily to make it easier for Americans to make healthy choices. And, defenders of nutrition labels could easily argue that although people don't seem to be making healthy choices, this is not the fault of the label. However, this result suggests that a comprehensive product label with no teeth is unlikely to have an affect in changing consumer behavior. In this example, the impact of labeling was that it became easier for Americans to obtain information about the foods they eat, but that such information, for whatever reason, has not had a significant positive influence on the health of Americans.

 

Alternately, organic foods have been around for almost forty years now, but according to the Organic Trade Association still represent a fairly small percentage (less than 3 percent) of the overall market for food in the United States. [8] The growth rate for organic food is significantly higher than for non-organic (8+ percent versus 2-3 percent) particularly within the baby food category (organic growth is 18% here). However, these growth rates are a bit misleading, in that non-organic food is growing at more than ten times the rate of organic in dollar terms ($16 billion per year versus $1.2 billion). Thus organic is a growing niche, but is likely to remain a niche for the foreseeable future. In fact, if organic maintains its rapid average growth rate of eight percent for the next 10-15 years, and non-organic maintains its anemic growth rate of three percent during that time, organic will only have grown to just over five percent of the total by 2020. So it appears that Organic is having real influence in the marketplace, but that this influence is likely to remain limited to a small percentage of the population, and/or a limited number of products, for the foreseeable future. In addition, there is significant concern by some that maintaining even the rapid of growth described above will require compromises that threaten the integrity of “organic.”

 

Clearly, of the three examples discussed here (Nutrition, Organic, and Safety) the safety labels as demonstrated by the NRTL process are the most successful. Safety labels are pervasive, the inspection systems themselves are free-market based (i.e. there is competition), and, perhaps most importantly, people trust the system. Few people in America ever worry about the safety of their purchases.

 

In this safety label model, at some point in the past someone probably asked him or herself the question “isn't safety something people should be concerned about?” And “shouldn't people be willing to pay more to be sure something is safe?” The answer to both those questions could easily be yes, at least for most people. But also it must be noted that at some point certain groups in our society decided that safety was an important enough feature, and the risk was great enough, that we needed to require adherence to certain standards for the greater good. For those special interest groups, e.g. insurance companies and consumer groups, safety inspections provided a service worth the effort and cost. It is also important to point out that, even with an inspection infrastructure in place and active for over 70 years, the Congress still felt it necessary to increase its control over safety issues with the Occupational Safety and Health act of 1970, which created OSHA.

 

Finding solutions for the environment

Today, environmental certification systems are most similar to Certified Organic, without the clarification that the USDA has put on the use of the term “organic.” Environmental certification means different things under different systems. And most of these systems, similar to organic, are aimed at creating a base market that has the ability to influence the behavior of producers in general. However, assuming not every consumer cares enough or knows enough to figure out comparative environmental claims, are the interests of an educated and concerned niche sufficient to resolve environmental issues through voluntary market behaviors? Thus far the answer appears to be “no.” Moreover, based on consideration of the organic industry model and comparison to the infrastructure required by the safety model, it could take hundreds of years to get to the size necessary to address the magnitude of the problem. I'm not sure we have the time or the patience.

 

But, perhaps there is a lesson here for environmental certification as well. Perhaps the environmental concerns are important enough and the risk great enough that some form of requirement (re: regulation) is necessary?

 

So what's the point of all this?

 

Today there is a lot of debate about certification systems. We debate about whose is the best, what specific issue is most important, and how best to implement each little detail. We even debate the types of labels. Should they be product life cycle based, provide a series of informational pieces like the food nutrition label, or incorporate a variety of existing approaches such as recycling, Energy Star and terms like VOC-free? In general a host of options are being explored. Yet the core strategy of using market-based incentives to encourage good environmental behavior is seldom questioned or debated. Yet there is little evidence so far that the market incentives approach can and will work to address issues as extensive and complex as those related to global environmental systems.

 

However, the point of all this is not to question the benefits of environmental certification. These systems play a critical role. The point is to challenge how these systems can be made more effective. At a minimum it is important to ask the question “who are you trying to convince?” Instead of promoting to the consumer, as many preach, perhaps certifying organizations could promote their services primarily to community or governmental organizations. Perhaps this “indirect” approach is best. In recent years the Forest Stewardship Council (FSC), in particular, has gotten a big boost from the LEED program of the U.S. Green Building Council, primarily because the LEED program has received support from communities, such as Chicago, that have recognized the broad societal benefits of building responsibly, and have begun requiring adherence to LEED in certain building programs. There is some evidence that communities (and even states) are looking at putting green attributes into building codes for their regions.

 

Perhaps the ideal voluntary, market-based environmental program for wood products is one that is “kinda” mandatory, through the code system. Code systems don't mandate what is manufactured; they mandate what is used. It is possible that incorporation of certified wood requirements into building codes might find acceptance within industry given that the wood products industry is extremely experienced with building codes, having been involved with them for decades, and particularly through the lumber grading system.

 

Conclusion

There is no question that the food nutrition label has significantly increased the public's awareness of the nutritional content of food products. It is also apparent that, at least so far, it has had little impact on the associated health of the public at large. There is also no question that organic food is a rapidly growing segment of the food products industry, perhaps the fastest growing segment. Yet, even with extraordinary growth projections, in 2007 total organic food and beverage sales are forecast to be equivalent to the annual incremental increase in total non-organic sales. On the other hand, the safety label program throughout the U.S. seems to offer an extremely successful model to emulate.

 

In the future we have the option to rely on the free market system, and use tools like environmental labeling and certification to encourage the appropriate behavior of consumers. Alternately, we could attempt to legislate behavior through our legal system. Yet the best alternative may lie somewhere in between, in a partnership between regulation and environmental certification.

 

The nation's electrical labeling program may offer an excellent example, and, if college students are any indication, most people won't be disappointed by this approach.

 

Dr. Jeff Howe

 

[1] Source: Eunice Kennedy Shriver National Institute of Child Health and Human Development, Food Label, 2005 

[2] Source: www.OSHA.gov

[3] Source: www.OSHA.gov

[4] Source: www.ul.com

[5] Source: www.ul.com

[6] Source: Centers for Disease Control and Prevention, Obesity Trend Maps, 2005

[7] Fang J, Wylie-Rosett J, Cohen HW, Kaplan RC, Alderman MH. 2003. Exercise, body mass index, caloric intake, and cardiovascular mortality. American Journal of Preventative Medicine, Vol. 25, No. 4, pages 283-289.

[8] Source: Organic Trade Association, Industry Flier, 2005