The Role of Quality Infrastructure for Sustainable Development

1. The Role of Quality Infrastructure for Sustainable Development Jan Peuckert | Innovation Economics | Workshop, May 28th 2013, Geneva

2. Introduction • Development and diffusion of sustainable technologies are affected by two classical market failures: • (environmental) externalities • information asymmetries about environmental quality • Environmental economics focus on the externality problem (getting prices right) • Internalizing externalities through taxes and environmental regulations • Free-riding problem in the absence of an external authority may be solved by collective action • Both self-governance and regulation rely on sanctioning mechanisms • Information asymmetries can be reduced by Quality Infrastructure improvements • Allow for better governance (enforcement of compliance with rules / regulation) • Create incentives for provision of environmental quality • Steer technological change towards sustainable development

3. Outline • Concept • The National Quality Infrastructure • The International System of Quality Infrastructure • Theory • Economics of Quality Infrastructure Elements • Environmental Quality and Information Asymmetry • Quality Infrastructure as Signaling Mechanism • Need for a Quality Infrastructure of Sustainability • Empirics • Impact of Environmental Quality Infrastructure • Improving the Assessment of Quality Infrastructures

4. concept

5. The National Quality Infrastructure

6. The International System of Quality Infrastructure • Metrology • International Bureau of Weights and Measures (BIPM) • International Organization of Legal Metrology (OIML) • Standardization • International Electrotechnical Commission (IEC) • International Communication Union (ITU) • International Organization for Standardization (ISO) • Accreditation • International Accreditation Forum (FIA) • International Laboratory Accreditation Cooperation (ILAC) • Conformity Assessment • Mainly private businesses: TÜV, SGS, Bureau Veritas

7. Theory

8. Economics of Quality Infrastructure • Swann, P (1999): The Economics of Measurement • Lambert, R (2010): Economic Impact of the National Measurement system • Usuda, T & Henson, A (2012): Economic Impact of Measurement Standards • Blind, K (2004): The Economics of Standards • Swann, P (2010): The Economics of Standardization • Frenzen, M & Lambert, R (2013): The Economics of Accreditation • Nelson, P (1970): Information and Consumer Behavior • Akerlof, G (1970): The Market for Lemons: Qualitative Uncertainty and the Market Mechanism • Viscusi, WK (1978): A note on "lemons" markets with quality certification • Vining, AR & Weimer, DL (1988): Information asymmetry favoring sellers

9. Quality Infrastructure as Signaling Mechanism Product requirements Product characteristics Producer User • Value Chain Measure-ment Standard Product quality Quality Infrastructure Conformity Assessment Metrology Standardization Accreditation

10. Environmental Quality and Information Asymmetry • Environmental claims are often related to impacts (e.g., pollution emissions) of the production process dolphin-safe tuna carbon content of products energy-efficiency of appliances ecological packaging turtle friendly shrimps genetically unmodified food fuel-efficiency of cars durability of goods use of natural materials sustainable landuse for biofuels

11. Need for an Environmental Quality Infrastructure • Need for eco-labels to incentivize environmental performance • Otherwise the consumer / regulator cannot identify environmental quality • Only what can observed can be understood, controlled, predicted and changed • Most of the literature on eco-labels wrongly assumes perfect certification • Certification must be viewed as noisy (Mason, 2006, 2008) • Imperfections justify the need to improve metrology, standardization and accreditation • Measurement: Third party cannot perfectly identify compliance at reasonable costs • Example: Environmental Analytics (air, water, soil) – Metrology in Chemistry • Standardization: Standards may not be perfectly correlated with “environmental friendliness” • Example: Indirect Land Use Change (ILUC) factors in the reporting by fuel suppliers;currently no credible methodology for calculating the full indirect impacts of biofuels • Accreditation: Conflict of interest between consumers and certifiers • Example: Risk of fraud/ doubts about additionality of CDMprojects

12. Empirics

13. Impact of Environmental Quality Infrastructure • Subjective data provided by the WEF:“Complying with environmental standards in your country … 1 = significantly reduces competitiveness, 7 = helps long-term competitiveness by encouraging improvements in products and processes” • We find evidence that, besides regulatory design (regulatory pressure and openness), also the relative intensity of ISO 14001 certification improves the long-term effects of environmental regulation on the competitiveness of businesses

14. Improving the Empirics of Quality Infrastructure • Composite indicator (Liedtke & Matteo, 2011): • capabilities and • international recognition / integration • Metrology • Number of Calibration and Measurement Capabilities (CMCs) in relation to population • Number of Key or Supplementary Comparisons • Standardization and Certification • Number of ISO 9001 certifications in relation to population • Number of Technical Committee (TC) participations • Accreditation • Number of accredited bodies

15. Conclusions

16. Role of Quality Infrastructure for Sustainability • Reducing environmental quality information asymmetries: • Standardization: development of performance-based environmental quality criteria • Metrology: reliable assessment of environmental quality • Accreditation: credibility of environmental quality information • Conformity Assessment: precise and unbiased disclosure of environmental quality • Creationofmarketincentivesfor environmental performance • Influence on the competitiveness effect of environmental regulation (externality problem) • Signaling / monitoring of environmental performance • Response to sophisticated foreign demand / reduction of de facto barriers • Incentives for the development and diffusion of environmental technologies • Long-term effects on innovation (system functions)

17. Thank You!