Cutting costs through outsourcing is one thing. Outsourcing policy is another – and when Congress and federal agencies do it, American businesses and consumers usually wind up paying the steepest price.
U.S. regulators are asleep at the wheel. They are outsourcing policymaking in ways that saddle Americans with costly, counterproductive burdens voters never authorized and can't afford. One blatant example is playing out in Europe, where rogue pseudo-regulators are pushing guidelines that could stifle investments in energy efficiency and jack up the costs of everything from food to fuel.
Members of the mostly unknown International Organization for Standardization (ISO) are working to align their policy framework with the Greenhouse Gas (GHG) protocol. The ISO-GHG standards require manufacturers to measure “Scope 3” emissions. These are emissions from every part of the company’s value chain, including upstream suppliers, downstream consumers, transportation, and logistics service providers—and even indirect uses of the product. Scope 3 tracking requires a massive expenditure of time and resources that could be better spent developing ways to increase consumer satisfaction while reducing the company’s environmental impact.
The ludicrous costs of Scope 3 tracking also disincentivize investors from supporting new businesses entering the market. This benefits the existing market leaders who can afford the additional costs. The higher compliance costs of the emissions tracking system will not just reduce investments in developing new products and more energy-efficient production techniques. It will increase energy prices and almost all other consumer goods as producers pass along the increased cost of production to the consumer.
The winners are businesses in countries with fewer environmental concerns, like China. It will particularly impact America’s energy industry, which has become one of the world’s leaders in energy production and is already suffering from the Iran war. The movement to align the ISO standards with the GHG protocol is an example of the dangers that occur when international bodies abandon their duty to provide objective standards in favor of pushing a political agenda.
This suggests that the ISO is transitioning from a body that provides governments and businesses with policy-neutral information on standards to another international organization touting a radical environmental agenda. Some say that these concerns are overblown since the ISO has no power to force anyone to adopt their standards. However, the ISO’s reputation as a non-biased source of reliable information means their recommendations often form the basis of regulations at both the state and federal level. The ISO’s standards are also used by federal agencies to establish procurement regulations. Meaning they may also be forced into financial disclosure requirements — either by government regulators or by activist shareholders who invest in companies for the purpose of getting the companies to promote a political or social agenda, even if it reduces profits.
Thus, the ISO’s “voluntary” standards can become mandatory without a public debate that examines the benefits and the costs of adopting the standards. For years, the radical environmental movement has worked to dictate new regulations on the economy in the name of preventing global warming and other environmental crises. They haven’t succeeded because of concerns over the economic effects of the environmentalists’ proposal and skepticism regarding the environmental movement’s claims. So now the environmental movement is working with unaccountable bureaucrats (excuse me— I meant “objective experts”) of the ISO to implement the GHG’s proposals.
The main question facing those who would develop emissions standards is how to measure emissions in a practical manner. The GHG (and their new friends at the ISO) favor measuring emissions based on output. This strict output standard ignores the role production scale plays in getting a proper view of a company’s environmental impact. Under the GHG-ISO’s output-based standard, a company could be penalized for increasing emissions because of increased demand for its products, even if the company has improved its efficiency, enabling it to reduce the amount of emissions produced per unit. In contrast, a smaller business may get credit for low emissions even though they produce more emissions per product while producing fewer products than its larger competitors. The output-based measurement may validate claims that the environmental movement is more concerned with punishing successful businesses than reducing pollution.
Congress and American businesses must draw a clear line. Organizations like the ISO should stick to transparent, market-based standards and leave the policymaking to elected officials. Regulators who ignore market realities don't solve problems; they manufacture new ones.
Charles Sauer is the Founder and President of the Market Institute
