Can Industry Self-Regulation Impact Climate Change?

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MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
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We asked our panel of strategy experts to tell us how strongly they agree with this statement:

In the absence of a carbon tax, industry self-regulation can help mitigate the worst fallout from climate change.
RAW RESPONSES
WEIGHTED BY CONFIDENCE

Raw Responses

Responses weighted by panelists’ level of confidence

Panelists

Panelist Vote Confidence Comments

R. Preston McAfee

Economist
Profile
Strongly Disagree 9 “There are limited successes of industry self-regulation but none at the scale of climate change.”

Joshua Gans

University of Toronto
Profile
Strongly Disagree 7 “Climate change is both locked-in and on the higher end of projections by scientists. Industry self-regulation can help some things but is like a drop in the ocean in terms of affecting real change.”

Richard Holden

University of New South Wales
Profile
Strongly Disagree 10 “We’ve seen what happens without a carbon tax — a complete failure to address climate change. Industry ‘self-regulation’ also does nothing on the consumer side. A carbon dividend plan, like that of the Climate Leadership Council, is the most pragmatic way forward in addressing climate change and compensating individuals, while maintaining international competitiveness.”

Anita McGahan

University of Toronto
Profile
Strongly Disagree 8 “Despite the very best intentions and the substantial progress that has been made, we are falling behind on critical climate targets. Industry self-regulation will continue to be critical, but we know that it is not mitigating the worst of climate change.”

Olav Sorenson

Yale University
Profile
Strongly Disagree 7

Barry Nalebuff

Yale University
Profile
Strongly Disagree 10 “Given the public-good nature of the problem, it is folly to think that industry self-regulation will solve the problem any more than self-regulation helped mitigate fallout from smoking. Indeed, the oil-extraction industry (much like the tobacco industry) has been engaged in the strategy of fear, uncertainty, and doubt to deny that a problem even exists.”

Steve Tadelis

University of California, Berkeley
Profile
Strongly Disagree 8 “Without enforcement, manufacturers’ incentives to curb pollution do not align with those of society. Carbon emissions is a standard ‘commons’ problem where everyone would be happier with less pollution, but each manufacturer would prefer to pollute in a way that maximizes its own profits, while wishing that others keep cutting back. Consumer boycotts may help, but these also suffer from the commons problem.”

Rajshree Agarwal

University of Maryland
Profile
Neither Agree nor Disagree 5

Ashish Arora

Duke University
Profile
Strongly Disagree 10 “History provides very little confidence that in the absence of regulations, lawsuits, or a tax, firms will be able to agree on mitigating climate change.”

Aaron Chatterji

Duke University
Profile
Disagree 7

John Roberts

Stanford University
Profile
Disagree 9 “The issue is not ‘can,’ which is barely plausible, but ‘will,’ which seems beyond belief.”

Joanne E. Oxley

University of Toronto
Profile
Disagree 8 “Responding to climate change requires a coordinated effort and significant investment. In a competitive environment, it is unrealistic to think that firms can go beyond their own narrow business interests and make the necessary investments to effect change.”

Rebecca Henderson

Harvard University
Profile
Strongly Agree 7 “The private sector as a whole has strong incentives to avoid the worst impact of climate change, and individual firms are increasingly recognizing this and searching out mechanisms that can address the free-rider problem often inherent in acting against climate change. Industry self-regulation is definitely one way in which this is playing out.”

John Van Reenen

Massachusetts Institute of Technology
Profile
Strongly Disagree 9 “Industry does not have the incentives to deal with climate change externalities. We urgently need a carbon tax. But complementing this with R&D subsidies and government regulation also helps.”

Joel Waldfogel

University of Minnesota
Profile
Disagree 8 “Carbon emissions are a global issue, so the solution to this problem requires participation of companies around the world. Even if reputable firms in rich countries were to voluntarily curb emissions, firms in still-emerging economies would likely not voluntarily increase their costs, nor would their consumers be willing to pay extra for clean production.”

Erik Brynjolfsson

Massachusetts Institute of Technology
Profile
Disagree 7 “Climate change is a textbook example of a negative externality. Self-regulation is rarely effective in such situations if industry players are self-interested. That’s one of the most compelling reasons for government involvement, and as Bill Nordhaus and others have shown, carbon taxes are particularly compelling as an approach.”

Daniel Levinthal

University of Pennsylvania
Profile
Disagree 8 “The volunteer approach would require a cooperative equilibrium across many players from a variety of industries — it is hard to see how such an equilibrium could emerge and be sustainable.”

Scott Stern

Massachusetts Institute of Technology
Profile
Disagree 9 “In the absence of an effective price for carbon, industry self-regulation is likely to have at best a very small impact on global climate emissions (even though emissions may go down dramatically in some regions [Europe] or industries [IT]). The problem is that, even if a given group reduces emissions, the overall impact of emissions depends on global output.”

Timothy Simcoe

Boston University
Profile
Strongly Disagree 8 “Industry may be able to help society ‘innovate’ its way out of the worst climate change scenarios, but there is little evidence that self-regulation could provide an effective substitute for environmental policies that come with a credible threat of enforcement. Some industry-led programs may work well when there is ‘demand for green’ — but they will not be enough.”

Bruno Cassiman

University of Navarra
Profile
Disagree 9 “How many examples of optimal self-regulation of an externality do we know?”

Petra Moser

New York University
Profile
Strongly Disagree 10 “Carbon dioxide emissions create monumental social costs, which are not covered by industries that burn fossil fuels. Firms have no incentive to volunteer paying for these costs. In fact, that would be a really dumb business decision. This is a place where ‘self-regulation’ fails, and we need evidence-based government policies.”

Shane Greenstein

Harvard University
Profile
Strongly Disagree 10 “In the absence of regulation or international agreement, there will be no way to stop ‘bad actors’ from taking shortcuts. Even legitimate actors will face strong pressure to gain short-term cost reduction from not preventing polluting. There are an enormous number of historical and contemporary examples. It should be beyond dispute.”

Meghan Busse

Northwestern University
Profile
Strongly Disagree 8 “Past examples of industries who collectively undertook actions that were costly to themselves purely for the benefit of society are pretty scarce. Firms will do things that are profit opportunities or that are required of them. The sheer magnitude of adaptation that is necessary to prevent climate change will only happen if regulations force firms and consumers to do what they wouldn’t otherwise do.”

Kathleen Eisenhardt

Stanford University
Profile
Disagree 8 “Climate change is a commons problem that needs some sort of government intervention — tax, regulation, etc.”

Lori Rosenkopf

University of Pennsylvania
Profile
Disagree 8 “Industry self-regulation can be very effective for new technologies when the industry players have more expertise than regulators (for example, in determining how new lower-cost flight simulation devices can be used to train pilots in novel, better ways). It’s far less effective to rely on self-regulation to curb long-standing practices.”

Richard Florida

University of Toronto
Profile
Agree 4 “My hunch is industry self-regulation is one part. But city governments, especially in the U.S., have shown that they can be a key part of addressing climate goals, particularly when the national government fails.”

Topics

MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
Learn more about this series

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