ASK THE LAB EXPERT: Lab Testing Insights from a Public Policy and Economics Professor

Lab businesses that strive to maintain environmental compliance should self-monitor and self-report their environmental waste discharges.

Professor Jay Shimshack shares his expertise on the EPA’s enforcement of environmental compliance. Image Credits: Jay P. Shimshack (jayshimshack.com)
Professor Jay Shimshack shares his expertise on the EPA’s enforcement of environmental compliance. Image Credits: Jay P. Shimshack (jayshimshack.com)

In an interview with Professor Jay P. Shimshack, a professor of Public Policy and Economics at the University of Virginia’s Frank Batten School, he discusses the importance of environmental compliance in light of the recent incident at The Ritz-Carlton Resort, where water testing violations took place.

He goes into greater detail on the Environmental Protection Agency’s (EPA) regulation of standards including the Clean Water Act. The company’s violation serves as an example of the consequences of noncompliance, the importance of properly tracking, and reporting discharges in environmental rules.

Shimshack also advises the EPA, and the EPA recommended him for his comprehensive literature research in search of empirical proof on what works for environmental compliance. According to an EPA spokesperson, his research, inspections and enforcement measures, particularly those involving fines, produce results, including greater compliance at the target facility as well as surrounding facilities.

Q: As an environmental economist, you have extensively researched the effectiveness of environmental compliance measures. How important is water testing in ensuring compliance with regulations like the Clean Water Act and protecting the environment?

A: I think it’s crucial. Facilities are required to track their discharges, or emissions, into waterways and then report those discharges to the EPA, or to the delegated authority like a state or territory. This self-monitoring, or self-reporting, approach to tracking environmental compliance is the dominant way that agencies track compliance with the Clean Water Act. If a facility is not testing its wastewater regularly, there is typically no other way to observe compliance on a restore basis, in this particular context. At that time the EPA and territorial authorities will conduct their own inspections, but those are infrequent.

Q: Could you provide examples of how enforcement actions, such as fines, contribute to deterring violations and encouraging people and companies to maintain water quality and environmental standards?

In broad terms, evidence suggests Clean Water Act penalties deliver results: they promptly correct violations, deter future environmental infringements, and enhance overall compliance, typically linked to improved environmental quality. I will also note that the particular case you called me about doesn’t involve effluent or discharge violations but rather a failure in monitoring and reporting to the relevant agency. Penalties evidently drive immediate compliance, reducing harm and encouraging reporting.

In addition, evidence suggests the Clean Water Act penalties spillover, or at least may spill over, to reduce violations at other facilities that were not sanctioned, potentially influencing other unsanctioned facilities through enhanced regulator reputation. Although the primary evidence pertains to larger industrial and municipal wastewater plants. This situation, while somewhat distinct, aligns with expectations of deterring violations by the sanction facility and possibly by other facilities both now and into the future.

Q: Did you have any initial thoughts or comments when I first heard about the Ritz-Carlton Resort’s violation?

To clarify, this penalty was for noncompliance with monitoring and reporting, somewhat different from directly observed environmental violations. I won’t take a stance on which is better or worse, but it aligns with the primary method of tracking environmental compliance. I suppose one reaction is that the vast majority of Clean Water Act violations are not sanctioned with monetary penalties at all. The penalty included a $30,000 civil fine and $27,000 for environmental projects, which is exceeding the median Clean Water Act administrative penalty, which is often nonexistent. While the penalty is considerably lower than penalties for egregious violations like the Deepwater Horizon oil spill, it’s still significant within the regulator’s typical approach.  I will say, according to EPA records, this penalty reflects years of non-reporting and non-self-monitoring, following several other enforcement actions at both territorial and regional levels for similar reasons.

Q: You talked about the concept of the “spillover effects.” Could you provide a clearer definition and explanation of what it is to the readers and how it is helpful?

A: We often refer to this as one form of general deterrence. That’s where a penalty against one facility would spill over to improve environmental compliance or reuse violations at another facility regulated by the same authority. There are different potential mechanisms, but the basic idea is when the regulator responds and penalizes noncompliance, other facilities may believe that they are also more likely to be subject to penalties for their own noncompliance, should they do so. That’s the notion of general deterrence or the spillover effects.

Q: How can other companies take the incident with the Ritz-Carlton Resort as a learning example for their location involving water testing and environmental awareness.

A: I think other companies can take this as a sign that the territorial authority and the regional EPA will take repeated violations seriously and those can result both in monetary penalties and requirements to return to compliance. But also, that they may result in some reputational impact by publicizing this widely and reporters, like yourself, picking it up and calling attention to these issues.

Q: Have you seen any news articles or coverage of this incident, or similar ones?

There is a frequent attention to environmental monitoring and enforcement that often occurs within trade organizations and media, spanning local, regional, and national outlets.  There was a lot of attention in the past to some clean water act concerns and symposium by the New York Times many years ago. The evidence suggests that facilities are often not well aware of the specific details of penalties and other facilities like themselves, but they are aware that those penalties did occur and often through actions like covered by the media etc. These broad topics continue to gain prominence, particularly in recent times.

Q: You mentioned that violators could possibly receive reputational damage. From an economic standpoint, how do these enforcement actions such as penalties and fines influence companies’ decisions to prioritize compliance and invest in environmental testing measures?

This question is complex. To simplify, when a facility considers the costs and benefits of environmental compliance, penalties create a stronger incentive for investment in compliance and necessary monitoring. Additionally, if these costs involve media attention, it can generate both visible and hidden expenses, further motivating compliance. Lastly, environmental enforcement also provides a reminder and reassurance function that regulators and the general public care about environmental quality and that noncompliance will result in consequences.

Q: In your research, have you found any other innovative approaches or best practices that industries can adopt to actively address compliance challenges and ensure long-term environmental sustainability?

Penalties are the main regulator tool against noncompliance, but other options include compliance and technical assistance to help facilities meet Clean Water Act responsibilities. Public information disclosure and informal enforcement via warnings or calls are also available.  Some cases involve formal enforcement actions without penalties that mandate compliance restoration.  I’ll note in this particular case, those have occurred in the past, and then formal enforcement actions with penalties. This regulatory toolkit, while not particularly innovative, offers various means to promote environmental compliance. In this instance, it represents a more severe response, possibly due to significant noncompliance – specifically, failure to monitor in a timely fashion over at least five years.

Q: And that is related to how the EPA regulates all of the locations and their compliance?

Under the Clean Water Act in most environmental statutes, the primary authority for oversight is delegated to a regional or local authority like a state or territory, and the EPA can remain involved. So yes, this is part of the general toolkit that both, in this case, the territory and or state, or the EPA can use to promote compliance both now and into the future.

Q: Are there any additional details or comments you would like to add to this article?

The one other thing I would say is that supplemental environmental projects, in this case where they were asked to invest in their local community, were part of the settlement was an investment in the local community is quite common. Also, a very frequent part of settlements for civil and administrative penalties under the Clean Water Act.


About:

Jay Shimshack is Professor of Public Policy and Economics at the University of Virginia’s Frank Batten School. He received a Ph.D. from U.C. Berkeley and a B.S. from Cornell University. His major fields are environmental regulation, environmental economics, corporate social behavior, and applied microeconomics for public policy. His academic research has been published in the Journal of the Association of Environmental and Resource Economists, the Journal of Economic Literature, the Journal of Environmental Economics and Management (JEEM), the Journal of Health Economics, the Journal of Law and Economics, Science, and elsewhere. He is a former co-editor of the JEEM. He has advised EPA, FDA, USDA, DOL and other federal agencies; consulted for private organizations; and testified before the US House of Representatives. At the University of Virginia, Jay teaches economics for public policy and benefit-cost analysis. Earlier teaching experience includes statistics and research methods, environmental economics and policy, public service learning, and microeconomics. Between July 2019 and June 2023, Jay served as Associate Dean for Academic Affairs (i.e., chief academic officer) of the UVA Batten School.