Voluntary Agreements Design Considerations: Monitoring and Enforcement

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Gauging progress in voluntary regimes is difficult for the same reason it is difficult in mandatory regimes: measuring results can be difficult, and making counterfactual comparisons to what would have happened without the voluntary agreements is potentially even more vexing.

Enforcement in the context of voluntary agreements—which, by their very nature, are not technically meant to be “enforced”—usually means that voluntary agreements are backed up by the threat, either explicit or implicit, of mandatory regulation should the desired environmental outcomes not be achieved.  Alternately, public exposure of firms that fall short of their targets can also have an enforcing effect.  Some commentators argue that voluntary agreements are useful only as a transitional mechanism on the way toward regulatory or mandatory economic instruments, while others point out that voluntary agreements can be effective on their own by changing business attitudes and promoting awareness and information-sharing. 

Collecting reliable data and aggregating it in a sensible way remains a key issue in monitoring the progress of voluntary agreements, because both the ability to measure progress and the signaling value of firm evaluations depend on the existence of trustworthy data.  Thus there is an important choice between self-reporting by firms and external certification by a third party (or the government itself), with many commentators arguing that external verification is essential.  The administrative costs of monitoring and the availability and effectiveness of monitoring technology are also important, given that part of the appeal of voluntary agreements is that they are simpler to implement than mandatory initiatives.  Without proper monitoring, the incentive for voluntary emission reductions disappears, and free riding by firms will undermine or halt any environmental progress.

A final issue is the difficulty of measuring the benefits of voluntary agreements as a tool for information diffusion among firms.  Measuring these effects econometrically can be difficult, leading some commentators to argue that focusing too rigidly on measurable outcomes is misguided.