An old Chinese adage says that you kill a chicken to scare the monkeys.

Environmental compliance works only if there are serious economic consequences for a company violating discharge standards, says Daniel J Dudek, chief economist at the Environmental Defense Fund (EDF), a leading NGO headquartered in the United States that was founded in 1967.

"In the US, a company that violates a discharge permit will be subject to a civil penalty of up to $25,000 per day for each violation until it comes into compliance," he says.

"A big company with 10 or more discharge violations will face millions of dollars of penalties. The discharge permit is designed to create a strong economic incentive for companies to comply to standards."

A discharge permit is a legal document between companies and the federal Environmental Protection Agency (EPA) or state regulators. It specifies standards that companies have to meet, and includes specific monitoring and reporting requirements.

Companies themselves take measurements and report the data to the EPA or state on a monthly basis. Companies that exceed permitted discharges have to report immediately or be subject to criminal penalties.

"If the penalty is lower than the cost of compliance, the company doesn't have an economic incentive to do it," says General Counsel of EDF James T.B. Trip.

"In that case, even if a company wanted to be a good corporate citizen and spend money on pollution control because it's the right thing to do, it would be at a serious economic disadvantage compared to its competitors making the same things but don't do it," he adds.

"I think it is useful for China to understand how enforcement works in America."

The Clean Air Act (CAA) was passed by the Congress in 1970 and the Clean Water Act (CWA) two years later.

Under the CWA and CAA, the EPA may delegate permit programs to a state only if it shows that it has adequate enforcement authority and administrative capacity. But the EPA evaluates how the state operates the programs. If it doesn't operate them properly, the EPA will take back control.

If a company is not in compliance, the EPA can enforce requirements to buy and install pollution control equipment. The company is usually allowed three or six months to do that and during the period it is required to pay financial penalties.

"With these penalties and enforcement, the number of non-compliance companies cases dropped significantly," says Dudek. "In the early days, people tried to test the law, and figure out if they could escape the law, but now they understand that is impossible. American companies that violate the discharge permits are hit hard with big fines."

"There is a market based approach for the legislation," he adds.

He says that 1970s CAA did not clearly address the problem of acid rain from sulfur dioxide (SO2). It established the emission standard to protect people's health, but it only addressed the amount of maximum SO2 emission per day instead of the total emissions.

In 1988, acid rain was a top concern for the cabinet of George Bush after he was elected as a president.

Two years later, in CAA amendments, the government did attempt to tackle the problem through a market-based approach. Companies tried to lobby against the passage of the law, but at the same time thought about how they might benefit from it.

Before the law was passed, companies were worried that the law would destroy their industry. But after it was passed and implemented, they said it was acceptable.

"Also, we find when you convince companies that they must obey the law, they will develop new ideas to more efficiently control pollution emissions," says Deduk.

EDF partnered with British Petroleum to develop the world's first internal greenhouse gas trading system introduced more than 10 years ago under the Kyoto Protocol. BP asked their employees to contribute ideas about how to find reductions. The company shared some of the benefits with the employees who developed a successful idea.

At one plant BP owned in Huston, someone came up with an idea about changing to a new type of valve on the piping in the plant to reduce leakage. The cost of the investment was repaid in six months as the material leaking was not only the pollution but also a valuable product.

"So solving problems is not complicated like going to the moon," says Dudek. "Just thinking about the problem is like my daughter doing her homework. If you do not do it, it will never happen."

"I think that is a very key point for China to be an innovative country. I look forward to seeing China becoming more efficient at pollution control."

(China Daily 12/08/2007 page3)