Over the last four years, the Environmental Protection Agency has been putting in place a new, smarter approach to regulating air pollution. If a company can find a more efficient, less costly way of getting the regulatory job done than the EPA’s rules require – which in almost every case it can – the government will let the company do the job its way.

Companies that have tried this new approach have achieved substantial savings, chiefly by “trading” expensive controls for cheaper, often innovative alternatives. For example, the 3M Company plans to save $5 million at its Bristol, Pennsylvania plant next year by using water-based coatings and a new solventless “hot melt” process to reduce emissions more than required on three production lines in return for reduced controls on seven other lines.

Managers should be looking to see how they can benefit from this proven new approach. They can do so confident that it has the new administration’s strong support. One of President Reagan’s first environmental acts was to make it easier for certain large urban plants to make these kinds of trades.

The idea behind controlled trading is very simple. Rules, even the best possible rules, can’t do what the manager on the spot can: find the most efficient way of getting the job done. Rules writers can only produce a series of generalizations that apply regardless of each situation’s particular facts (and that usually also ignore other regulations affecting that case). The more a rules writer tries to adapt a rule to particular circumstances, the more detailed and inflexible it becomes.

Controlled trading gives the manager back to flexibility to find the best way of getting the job done that traditional regulation took away. Instead of simply writing rules and then enforcing them (“command and control” regulation), controlled trading encourages business to propose smarter alternatives before government moves on to enforcement (“command, counterproposal, and control”). This simple change promises to be the most significant innovation since the 1930s in how this country regulates.

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