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A Test of the Induced Innovation Hypothesis

Thursday, March 13, 2014 12:39

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Can government mandates cause innovation? The CAFE fuel economy standards are a prime example of Federal attempts to nudge vehicle makers to invest more in R&D for creating more fuel efficient vehicles. In California, there is now a new push for consumer product makers to design safer products. I just received this memo I report below. I have an interest in this subject both as a consumer of such products and two years ago I performed a prospective economic analysis of the likely effects of this regulation.

“Today, the Department of Toxic Substances Control (DTSC) announced three draft “priority products” – consumer goods sold in California that each contain at least one toxic chemical. DTSC is challenging manufacturers to make their products safer – a dramatic change in how consumers are protected from potential toxic harm.

The landmark Safer Consumer Products (SCP) regulations, which took effect Oct.1, 2013, represent a significant shift toward a more protective approach to how California ensures the safety of consumer products. These regulations, coupled with growing consumer demand for products that are safer and better for the environment, are expected to spur product innovations. DTSC selected these priority products because they contain at least one of more than 1,100 toxic chemicals that the Department identified as having the potential to cause significant harm to people or the environment. The products also are widely used and create the potential for significant public exposure to these chemicals.

The three products are:

Children’s foam padded sleeping products containing TDCPP (chlorinated Tris), a flame retardant and carcinogen under California’s Proposition 65 law. Children and infants are especially vulnerable to its carcinogenic and other chronic health effects.
Spray Polyurethane foam systems containing unreacted diisocyanates. SPF systems are used for home and building insulation, weatherization, sealing and roofing. Diisocyanates can irritate the respiratory tract, cause asthma and cancer and are known skin irritants. They are a leading cause of occupational asthma.
Paint stripper containing Methylene Chloride. Methylene chloride is an acute neurotoxin and is carcinogenic. Since 2000, multiple worker deaths have occurred as a result of exposure to stripping agents containing methylene chloride.

DTSC is not banning these products, rather it is starting a process. The first step in this process will be to gain further understanding about the use, manufacture, and sale of these products, as well as emerging science through multiple public workshops and extensive feedback from stakeholders. Information gathered will be used to make a final determination about listing the products. The Priority Products won’t be final until a rulemaking process is complete, adopting regulations to list the products. This process could take up to a year. After that, manufacturers will notify DTSC if they make a Priority Product. Manufacturers who want to sell them in California will conduct an “Alternatives Analysis” to determine if feasible safer ingredients are available.

A presentation from the SCP on these Priority Products will be included at DTSC’s quarterly meeting that will be held Monday March 17 at 9 a.m. in Byron Sher Auditorium in the Cal EPA building, 1001 I St., Sacramento. The public can learn more about the selection of the priority products.”

This regulation poses an interesting test of what are the costs and benefits of product regulation. How much will population health improve by? How nimble are capitalist firms in adapting to new “rules of the game”? Will incumbent firms adapt or will they be replaced by younger startup firms who have the brains and desire to cope with these new rules?

Source: http://greeneconomics.blogspot.com/2014/03/a-test-of-induced-innovation-hypothesis.html

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