Certifiably Sustainable? The Role of Third-Party Certification Systems: Report of a Workshop (2010) / Chapter Skim
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Standardization, Certification,and Labeling--Kira Matus
Standardization, Certification,and Labeling--Kira Matus
Pages 79-104
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This background paper will start by looking at general public policy theory, to help explain how standards, certification and labeling function as compared to other potential policy tools. Then it will address some key issues that have emerged both from the underlying theory and actual empirical experience.
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Therefore, efforts to understand how this kind of information provision works as a policy tool have to take each of these aspects separately, while still understanding how they interact with each other. Implicit in the entire process of standardization, certification, and labeling is a set of underlying goals.
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The four traditional market failures are public goods, externalities, natural monopolies, and information asymmetries.2 2 D
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Governments also regulate certain natural monopolies, such as the provision of water or elec TABLE 2 Generic Policy Solutions Insurance Market Nonmarket and Mechanisms Incentives Rules Supply Cushions Traditional Market Failures Public Goods X X X X Externalities X X X X Natural Monopolies X X X X Information X X X Asymmetries NOTE: Adapted from Weimer and Vining, 1999; pg.
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Standards, certification, and labeling are a set of policy tools which fall under the "Rules" category in Table 2, and are most appropriate for dealing with the problems that arrive from information asymmetries and negative externalities.3 understanding Information asymmetries and negatie externalities The problem of information asymmetries was most famously addressed by Akerlof's "Market for Lemons."4 In one of the classic papers in microeconomics, Akerlof laid out the case where there are two kinds of cars being sold -- cherries (good cars) and lemons (bad cars)
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Organic farming standards are meant to be less environmentally harmful, so foods labeled as certified organic should create fewer negative externalities than conventionally grown foods. What Is the Problem?
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gives more examples of policies in each of the five generic policy types from Table 2. Obviously, there are always more options available to creative policy makers, but this list covers the most commonly used approaches to dealing with policy problems of all types.
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This method of regulation, which has also been referred to as "civil regulation," tends to deal with social and environmental impacts.10 It is closely related to the rise in corporate social 10 D Vogel, "Private Global Business Regulation," annual reiew of Political science 11 (2008)
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Table 4 lists some of the challenges addressed by voluntary regulation that occur in global supply chains. While the forces of globalization have been very successful at promoting a more efficient use of resources for production, they have also increased the complexity of the systems, and produced more difficulties with information asymmetries.
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Voluntary regulation has been popular as a way of reducing risk to individual firms in sectors where the negative behaviors of one or two actors could have severe impacts on a multitude of firms. This is seen to be one of the driving forces behind the American Chemistry Council's requirement that members participate in the Responsible Care program.
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.18 Voluntary regulation: why firms choose to Participate From the example of 33/50 and others, such as Responsible Care and ISO 14000,19 one of the first questions to emerge is why a firm chooses to participate in voluntary regulatory programs. One explanation is that despite the short-term costs of participation, firms are able to reap real economic gains.
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firms may engage in oluntary regulatory programs as a signal to consumers and/or business partners.25 Certain certifications convey a message about the quality of a firm's product or business practices which would otherwise be unknown to the market. This signal may also allow them to extract a price premium, like that associated with organic foods or free trade coffee.
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Table 5 summarizes these challenges, which are explained in more detail below. Determining Effectiveness Empirical evaluations of certification programs have raised a host of important questions, and have highlighted a variety of ways in which these programs can fall short.
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Firms that do not certify may still adopt; and certification does not always indicate adoption of the underlying practices (especially in cases, like ISO 14000, where the certification refers to management systems, and not the actual production) .29 Establishing Credibility Another question that needs to be raised in empirical evaluations of certification programs is the credibility of the standard, and also of the certification.
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This is the kind of behavior that has been reported in cases where firms require adherence to certain labor or environmental codes from their suppliers. The firms can only inspect their suppliers so often, which opens the door for subterfuge -- for example, making sure that no underage 33 Vogel, "Private Global Business Regulation,"King and Lenox, "Industry Self-Regulation Without Sanctions: The Chemical Industry's Responsible Care Program," 698-716.
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They can provide a venue for industry and government to work together constructively, instead of adversarially. On the flip side, some certification schemes, like the Forest Stewardship Council, have been controversial enough to encourage the creation of competing certification schemes.
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Competing Standards and Target Audiences One problem that has emerged is that the increase in popularity of voluntary regulation has led to an increasing number of standards, often in the same or overlapping areas.
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Responsible Care and ISO 14000 originated in existing organizations (the American Chemistry Council and the International Standards Organization)
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Marine Stewardship Council certifications may be an important tool to help manage fisheries sustainably, but they are not a replacement for international fisheries agreements. Rarely is any one policy tool perfect on its own.
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If standard-setting groups are boundary spanners, then, like other boundary organizations, they can be guided by work that has shown that to be effective, they must ensure three factors: salience, legitimacy, and credibility.43 There is a whole literature on institutions and organizations that addresses how to work out processes and procedures for cases such as these, and while outside of the scope of this paper, it should be taken into account. The example of the Forest Stewardship Council shows that participants and structure matter -- criticism of the ability of NGO and environmental interests to outvote economic ones led to the development of competing regimes.44 Goals This institutional step precedes even a formal statement of goals, although there is obviously a shared conception of a specific problem that brings participants together.
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Sustainability is continuous, and a standard that is unchanging could quickly become out of date. For example, the LEED standard has gone through multiple versions to reflect improvements in available technology, and specialization to address the issues specific to different types of buildings (hospitals, schools, houses, commercial spaces, etc.)
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The most familiar labels for most people are ones that are on consumer goods. These are many examples: certified organic, free trade, marine stewardship council, Energy Star, EPA Design for the Environment, etc.
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sheets required for chemicals, which help users of chemicals understand the different hazards associated with the chemicals that they purchase. And since every firm has its own internal set of requirements, goals, and standards, there could be value for them in certification programs whose output is more detailed than a single stamp of approval.
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Empirical experience has shown that while some programs have been successful, there are many challenges in creating effective certification systems. Like any policy tool, they need to be considered along with other policy options.
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The entire process, at the end, should be able to relate otherwise unknown information to the consumers, in order to influence their purchasing decisions and create a market for the labeled products. More research is needed on the best ways to design and implement these systems, and also about their effectiveness vis à vis other policy tools.
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2008. Private Global Business Regulation.
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