Avenhaus, R.

Hoepfinger, E.

Häfele, W.

von Winterfeldt, D.

International Institute for Applied Systems Analysis (IIASA)

ill"/llllllilllllllllllllllllllllllllllllllllllllllllllll111111/1111111/111111111111111111111111111111111111111111III11111111111111111111111 i II'm' II, ' '11IProcedures -for theEstablishmentof StandardsD.v.Winterfeldt,R.Avenhaus,Yl Hafele,E.HopfingerEXECUTIVESUMMARYPrepared forthe Stiftung VolkswagenwerkAdministrative Report-,AR-78-3ASeptember 1978Energy Systems ProgramI,II International Institute for Applied Systems Analysis I !A-2361 Laxenburg, Austria Telephone: 02236/7521'0 IiII! Ii iI111 i1I11IIi111I!III ii111I1 i1II1I1I11111 i11I11 !II1111111 ii!I!i11I1III11111 !1I11I1111111111 i11111 11ii:i!I!1III1 !I~I i111II1!111111111iII: IPROCEDURES FOR THE ESTABLISHMENTOF STANDARDSEXECUTIVE SUMMARYD. v. WinterfeldtR. AvenhausW. HafeleE. HopfingerSeptember 1978The views and conclusions expressed in this report are the authors'alone and should not be ascribed to the National Member Organi-zations, Council, or other staff of the International Institute forApplied Systems Analysis.AR-78-3AEXECUTIVE SUMMARYThe increased public awareness of the risks and hazards ofmodern technologies has led to a variety of regulatory actionsto reduce detrimental effects of development and productionprocesses on human health, safety, and psychological well-being.These regulatory actions incl~de market approaches (incentives,taxes), standards, and direct intervention. Among these regu-latory tools standard setting has emerged as the most practicaland commonly used means for reducing risks and hazards ofenvironmental pollution. Since the late sixties environmentaland regulatory agencies allover the world have issued numer-ous standards, for example on S02 emissions from coal firedpower plants, on ambient BOD (biological oxygen demand) levelsin rivers and lakes, on noise levels from trains and aircraft,or on radiation losses from nuclear plants. What emerged onthe one hand as a powerful and practical tool for environmentalmanagement, on the other hand became a major constraint forindustrial operations and a driving force for technologicaldevelopment. Especially in the energy sector standards beganto shape long- and short-term decisions, ranging from operationaldecisions about singel plants to long-term planning decisionsabout optimal energy mixes. The influence of standards onenergy systems development has been studied within IIASA'sEnergy Systems Program for example for radiation standards,S02 standards, particulates, etc. But standards also had moresubtle effects, which were not always intended and seldom fore-seen. Car emission standards turned out to increase fuel con-sumption, a fact which was particularly highlighted during theenergy crisis. Restricting pollution from one source (forexample, hydrocarbon emission from cars) tended to producemore pollution of another kind (for example, sulphuric acidmist). Restricting risks of one kind (for example, populationrisks) tended to increase risks of another kind (for example,occupational risks).When in the mid-seventies these adverse effects and incon-sistencies of standards were felt, government officials,environmental managers, and researchers began to ask newchallenging questions: How well do standards fulfill the roleof mediating between environment and development interests?How much do standards cost the economy, and how much does thepublic benefit from standards? And finally: How good areregulatory procedures for the establishment of standards? Theanswers seldom turned out to be encouraging. Environmentalmanagers and researchers are especially critical of the qualityof standard setting procedures. Anecdotal evidence of arbi-trary numerical standard levels are not uncommon. But if suchirrationalities are obvious and easy to discard, the under-lying reasons for the seemingly poor quality of standard settingprocedures lie in the enormous difficulties which standardsetting agencies typically face:-2-There usually exists a substantial uncertaintyabout the effects of pollutants on human healthand well-being. Experts often differ widely intheir estimates or are unwilling to make judg-ments because of a lack of information;standards have to be set in the light of con-flicting objectives such as environmental, eco-nomic, engineering, and political objectives.Many of these objectives are hard to quantify,and few are commensurable;The regulator is seldom a single decision maker,but usually various administrative units and ex-perts interact in the decision making process,often confronting each other with different valuesand opinions. In addition, different groups withconflicting interests are affected by standards;Effects of pollution and regulations are distributedunevenly over time. Crucial trade-offs have tobe made between costs and benefits today and costsand benefits in the future.Realizing these difficulties the Volkswagenwerk Foundationproject on "Procedures for the Establishment of Standards" wasinitiated in 1975 as a joint effort of the Nuclear ResearchCenter, Karlsruhe, FRG, and the International Institute ofApplied Systems Analysis, Laxenburg, Austria. The objectivesof this research were to analyze existing procedures for stan-dard setting, and to develop new techniques for improving stan-dard setting procedures. An initial literature survey soonrevealed that such a project stepped into relatively unexploredterritory, and progress was therefore necessarily slow, partic-ularly in the initial phase of the study. Several possibleresearch directions were identified:legal studies;environmental economics;policy analysis;cost-benefit analysis;simulation and simulation gaming;decision theory;game theory.Based mainly on the expertise of the researchers involved in thestudy, several initial decisions for shaping the research weremade: First, standard setting procedures were to be studied atthe hand of actual cases in close cooperation with environ-mental decision makers. Second, two main lines of researchwere to be performed: policy analyses of past or ongoingstandard setting processes with a largely problem oriented anddescriptive focus; and development and application of decisionand game theoretic models for standard setting with a morenormative emphasis.The policy analyses were meant to provide the case materialto describe how standards are presently set, to identify problemareas in standard setting, and to provide inputs to the decisionand game theoretic models. A policy analysis framework waselaborated and applied to two standard setting cases: chronicoil discharges from North Sea oil production platforms, andnoise standards for Shinkansen trains in Japan. In each casein-depth interviews were held with the main participants in thestandard setting process focusing on the three main actor groupswhich the policy analysis framework identified as the keyactors in standard setting: the regulator group, the developer(producer) group, and the impactee group.The two cases turned out to be quite different in character.Chronic oil discharges were essentially set on the basis ofequipment availability, costs, and performance. The reasonfor this technical orientation in standard setting was thatbiological information on the effects of low -level hydrocarbonconcentrations in the seas is still very sparse. Noise stan-dards for Shinkansen trains, on the other hand, were set almostexclusively on the basis of noise complaint relationships withthe intention to set the noise standard at a level where thenumber of complaints remains small. Available technical andcost data were more or less ignored. This difference reflectsdifferences in the national definitions of standards and thelegal basis on which standards are issued. While chronic oildischarges in the United Kingdom were set on the basis of the"best practical means" principle, noise standards in Japan wereset as environmental quality standards, i.e., targets ordesirable goals for the future without direct binding force.Other definitions include, for example the "best applicablemeans" definition used in Norway, or the "best availabletechnology" definition used in the U.S. Such definitionstogether with the different institutional setups and politicalconstraints in standard setting procedures appear to shapethe outcome of standard setting procedures substantially.A decision theoretic model was developed that directlyrelates to the given standard setting cases of chronic oildischarges and noise. The model is a one-stage three-decision-maker model which comprises the decision making of a regula-tor, a developer, and an impactee unit. The purpose of themodel is to provide a structure, a language, and quantificationand analysis tools for regulatory agencies to use when perform-ing standard setting tasks. The model assumes that the regu-lator announces his standard r, and then determines an optimaldecision d(r) of the developer in response to the standard. The-4-impactees in turn are assumed to respond to the developerdecision d(r) with an optimal response a[d(r)]. This tripleof decisions, together with the associated utilities UR, UD, andUA accruing to the three decision units, allows to explore therelative benefits of standards from the point of view of allparties affected before actual decisions are made.This model was applied to setting chronic oil dischargestandards for North Sea oil production platforms. A detailedexpected utility model was constructed to determine the optimaltreatment response of the developer (oil company) to a standardset by the United Kingdom's Department of Energy, consideringequipment cost and performance, and probability estimates ofpossible detections of regulation violations and sanctions.Results include that the developer response to standards iscontrolled by cutoff points along the standard measure. Thesecutoff points are determined almost exclusively by the perfor-mance uncertainty of equipment, and the regulator's monitoringand inspection procedure. Penalties and risk attitudes incor-porated in the developer model did not change the cutoff pointssubstantially. Further analyses of the three utility functionsof the regulator, developer, and impactee show that there aremany dominated standards, where the regulator's utility domi-nates the utilities of the developer and the impactee. Thisresult is typical when the regulator's decision (i.e. thestandard) is discrete, and the impactees are consideredsufferers. Non-dominated standards tend to cluster aroundcutoff points. Another result is that a standard is not equalto a standard. Standards with the same numerical value canhave quite different economic implications, depending on exter-nal conditions (performance uncertainty of the treatment) andthe monitoring and inspection procedure of the regulator.The multistage nature of standard setting processes with thepossibility of learning and adaptation and the possible multipleinteractions between the decision makers were not explicitlyconsidered in the decision theoretic model. In order to over-come these limitations a multistage game theoretic model wasdeveloped which is also based on the three generic decisionunits. In contrast to the single-stage decision model, how-ever, the game theoretic model treats multiple stages in whichthe transitions from one stage to another are probabilistic,either because of probabilistic changes in the environment, orbecause of probabilistic responses of the players involved inthe standard setting. The purpose of the game theoretic modelis to parametrically explore the possible futures of standardsetting procedures under given solution concepts. The modelwas applied to C02 standards and to noise standards for Shinkan-sen trains. Since the model uses highly aggregated and simpli-fied utility functions and transition probabilities, no precisebehavioral implications or recommendations can be drawn. How-ever, the model results do provide a structure for exploringextreme reactions of the players and reactions to regulation(for example, compromise offers for noise standards to avoid-5-a law suit). In addition the model points out differences inthe optimal strategies depending on the game theoretic solu-tion concept (for example, equilibrium points, or Paretooptimality), and allows the regulator to explore consequencesof his regulation and the reactions of players under differentsolution concepts.The results of these studies were presented together withresearch approaches of other environmental study groups ata workshop held at the International Institute for AppliedSystems Analysis at Laxenburg in May 1978. The purpose of thisworkshop was to identify major problem areas in standardsetting, to review the usefulness and limits of formal approachesto setting standards, and to make recommendations to regulatoryagencies about improvements of standard setting.Uncertainty, conflict, and institutional constraintsemerged as the main areas of regulatory concern in standardsetting. Particularly the problems of evaluatinq research, ofquantifying and summarizing information in a format useful forregulatory decision making, and of conflicting opinions andvalues were identified as the main obstacles in standard setting.In addition the statutory framework for standard setting, inter-national and national regulations, and institutional constraintswere considered by regulators to be limiting factors in standardsetting, which often force the regulator to make legalisticand political decisions rather than decide on the basis ofscientific evidence.Our studies identified several possible uses and limita-tions of the three analytical approaches (policy analysis,decision theory, game theory) used. A summary of the mainconclusions is shown in the Table following. The last row inthe Table indicates where in the standard setting process suchapproaches could be used to improve standard setting. Of course,these recommendations to use policy analysis, decision theory,and game theory in standard setting procedures are not meantto be exclusive. Other approaches such as cost-benefit analy-sis, gaming and simulation models should be further explored.In addition the question of institutional changes matching suchmethodological improvements arises. For example, decision andgame theoretic models could be used on an experimental basisin "standard setting laboratories", in which regulators,developers, and impactees would interact at the hand of modelsbefore they take their final decisions. Other institutionalinnovations such as science courts and public participationshould also be considered in the light of the methodologiesavailable. The problem of striking a match between methodologicalimprovements in decision making and the institutional and politicalreality (as well as necessary changes in institutions) could bea major focus of such future research.USESANDLIMITATIONSOFPOLICYANALYSIS,ANDDECISIONTHEORETICANDGAJ1ETHEORETICAPPROACHESTOSTANDARDSETTING11I,ItIUSELIMITSRECOMMENDEDUSEINSTAN-DARDSETTINGPROCEDURESPOLICYANALYSIS-tocreateawideper-spectiveofstandardsettingproblems-tocreateproblemstructure,toiden-tifygroupsinvolved,alternatives,andnecessaryinformation.-mainlydescriptiveandqualitative-problem,notsolu-tionoriented-possiblemisper-ceptions-inthep~e~standardsettingphasefor:-structuring;-sortingoutobviouslyunsat-isfactoryalterna-tivesDECISIONTHEORETICt-l0DELS-tostructuredecisionproblems-quantifyintangiblesanduncertainties-tomaketrade-offsexplicit-forconflictandsensi-tivityanalyses-static,limitedfeedbacks-problemsofinter-grouptrade-offs-problemsofquanti-fyingpoliticalobjectives-inthestandardsettingphase,afteracleardecisionproblemhasbeenformulatedfor:-evaluatinginformation;-quantification;-trade-offsandsensi-tivityanalysisGAMETHEORETICMODELS-tostructuredynamicdecisionprocess-toexploreparametric-allythefutureofstandardsettingpro-cesses-toidentifysensitivedecisionpoints-highlyabstractand-aggregatedutilityfunctionsandtrans-itionprobabilities-arbitrarinessofsolu-tionconcept-inthestandardsettingandpost-standardset-tingphasesfor:-simulationoffuturechanges;-sensitivityandcon-flictanalysesI C1' I\.I1IIi

Procedures for the Establishment of Standards. Executive Summary

Abstract

Similar works

Full text

Available Versions

International Institute for Applied Systems Analysis (IIASA)