Command-and-Control Revisited: Environmental Compliance and Innovation in Swedish Industry 1970-1990

This paper addresses the issue of environmental policy instrument choice for achieving deep emissions reductions in the industrial sector. Specifically, it provides: (a) a theoretical review of the conditions under which performance standards can provide efficient incentives for environmental compliance and innovation; and (b) an analysis of the design and the outcomes of the standards-based regulation of industrial pollutants in Sweden during the period 1970- 1990. The empirical findings suggest that the Swedish regulatory approach comprised many key elements of an efficient policy-induced transition towards radically lower emissions in the metal smelting and pulp and paper industries. The regulation relied heavily on performance standards, thus granting flexibility to firms in terms of selecting the appropriate compliance measures, and the standards were implemented in combination with extended probation periods. R&D projects and the new knowledge that was advanced incrementally in interaction between the company, the environmental authorities and the research institutions provided a direct catalyst to the regulatory process. As such the Swedish regulatory approach provided scope for creative solutions, environmental innovation, and permitted the affected firms to coordinate pollution prevention measures with productive investments.