Lorna Deans
Cornerstone Seminar IDS101
Dec 21, 2012

The Impact of Environmental Regulation on Small Businesses Small businesses are critical to the U.S. economy. They create about one-half of all private sector jobs and generate more than half of all revenues. It is critical to take into consideration how regulations and litigation impact small businesses. The biggest impact consideration is the financial impact to a companies’ bottom line (RAND Corporation).
The U.S. economy slowly coming out of a recession, small businesses are struggling to overcome imposing environmental regulations from Washington. With record low rates of small business startups, people would argue that these imposing regulations are turning out all positive results. Small businesses unlike their larger business counterparts, cannot afford to hire specialty firms to help them make their way through these regulations. It also takes a lot of time and money to keep up with all the rules imposed on them. Such regulations impose costs on small businesses ranging from capital investments in upgrading current working environments to civil or criminal penalties. An effect of these regulations would be lower hiring projections for the near future. Other effects could be that the U.S. will not see a significant change in the unemployment rates and small businesses will lose out on revenues generated by hiring more employees (Alford).
The definition of a small business is one that employs 500 employees or less. The Small Business Act (SBA) defines a small business as “One that is independently owned and operated and which is not dominate in its field of operation.” This definition does not take into consideration the number of employees. Although regulations that are passed by the U.S. lawmakers are limited to a specific issue, these laws are passed based on the impact of negative consequences from business processes on its employees and the environment. Most laws passed in Washington target larger businesses without much regard to how they impact smaller businesses. These regulations were also wide spread and were uniform across the country. So a law that fits a scenario in the south will not fit for a firm that is located in the north. It is more of a one-size-fits-all approach. There are concerns that some laws place a disproportionate burden on small business. Since compliance costs are not based on the size of a company, they are more expensive for small business than large firms (RAND Corporation). Regulations that are passed are also hard to manage because there is a lack of coordination across government agencies; new agencies operating on top of old agencies and also the fact that state and local agencies are passing regulations. If a business operating in several states it would need help to keep up with these numbers agencies and regulations (Kauffman-Rand Center for the Study of Small Business and Regulation).
Lists of some major federal environmental laws are list in the following table:
Major Federal Environmental Laws

Law Year Enacted or Amended Focus

Clean Air Act Enacted in 1967 as the Air Regulates air emissions
Quality Act and amended in
1970, 1977, and 1990

Clean Water Act Enacted in 1972 and amended Regulates discharges in
In 1977 and 1987 bodies of water

Safe Drinking Water Act 1974 Sets standards for drinking water and discharges into sources of drinking water

Resource Recovery and Enacted in 1976 and Focuses on waste
Conservation Act significantly amended in 1984 disposal into landfills

Federal Insecticide, Fungicide, Enacted in 1947, but amended Regulates pesticides and Rodenticide Act and with major changes in 1972 particular set of chemicals

Toxic Substance Control Act 1976 Regulates chemical use and disposal in general

Comprehensive Environmental 1980 Addresses clean-up of
Response, Compensation, and abandoned or inactive
Liability Act (CERCLA) hazardous waste size

Superfund Amendments and 1986 Amended CERCLA Reauthorization Act and established the toxic release inventory National Environmental Policy 1969 Addresses general
Act environmental policy and practice

Pollution Prevention Act 1990 Addresses general environmental policy and practice

These federal regulations were enacted or amended between the 1960s and 1990s. During the 1990s there were steps taken to help streamline the disjointed environmental programs (RAND Corporation).
Environmental regulations try to lower the negative effects of industrial, manufacturing and any other business procedures on the environment and living beings health. These regulations’ purpose attempts to correct any negative consequences. The Environmental Protection Agency (EPA), state and local agencies and environmentalists have targeted larger businesses initially and then began to target small businesses. Even though emission from just one small business may not be large, but the number of small business across many industries made cause for concern. The question has come up whether the regulatory approach is appropriate for small businesses (RAND Corporation).
Toxics Release Inventory (TRI) program is a paperwork regulation imposed on companies to report emissions into the environment. This is an environmental accounting exercise that small businesses can find confusing if they do not have a hired specialist employed. Many companies across the country do not release anything into the environment but still have to meet the compliance of this reporting requirement. There is some work to provide relief for these companies. The EPA has proposed an alternate year reporting process with hopes to reduce some the paperwork crunch. The operations of the company would not change but pertinent information would still be gathered to report to researchers (Langer).
Companies should be held financially responsible for their violations to regulations, but not if the laws make unreasonable demands. Is it the goal of these regulations to make a place so clean that children are safe to play there (if so costs would be astronomical)? A company should not have to spend additional money after cleaning up a hazardous situation when it was deemed safe for children to play there. For example, the goal of the Clean Water Act, was put in place to end all “discharge of pollutants” into the countries’ waterways. (Nivola)
Enforcement of environmental regulations as well as implementation of laws happens through different ways that vary according to the law and the type of industry. State agencies also play a major role in enforcing these regulations. To accomplish this they monitor the processes of a business and how it complies with regulations. The monitoring process takes a lot of time to collect the data and report back to the various government agencies. If a company is not found to be compliant then they would face fines and implement a process to become compliant (RAND Corporation).
In 1996 the Regulatory Enforcement Fairness Act was passed. This act allows the Small Business Administration to appoint a regulatory enforcement Ombudsman and establish regulatory fairness boards in ten cities across the country. This law allows a small business to file a complaint with the courts if it believes it was “adversely affected or aggrieved” by any regulatory filing. Then a court can decide if the company should not be held in contempt. Any activity by these boards has to be reported back to congress (RAND Corporation).
Another law was passed to help reduce the burden on small businesses in 2002. The Small Business Paperwork Relief Act was passed to monitor the agencies effort to reduce the burden of the many regulations. The Ombudsman has to report to congress its enforcement actions against small business and reduce penalties in some cases. This act also requires federal agencies to review the impact of these laws on small business and to help consider less expensive ways for gaining policy goals (RAND Corporation).
An outside component drawing attention to environmental violations is coming from private citizens. The social value of citizens’ ability to file suit against business is causing some controversy. Many feel that a person’s private suit can be a narrow view of an issue and creating legal fees. The ability to file a private suit has been in place for over 30 years with little evidence the costs associated with them and the outcome of such cases (RAND Corporation)
The government and industry have been working together to develop standards and new guidelines for management of company processes and activities related to environmental performance. These management systems do not set the particular standards but help provide guidelines to manage compliance. For example, the EPA as adopted regulations aimed to prevent accidents from hazardous chemicals. This type of management requires businesses to conduct risk assessment of operations in their facilities. Also to help develop processes to prevent accidents and continuously improve the management of the operations (Coglianese and Nash).
A large financial burden for small businesses can come from litigation. There are liabilities imposed on these firms for violations of environmental laws. A strong example of this is the federal Superfund program. This program imposes strict liabilities and can be enforced retroactively for the cleanup of hazardous chemicals. Small businesses made up the majority of these cleanups (Dixon, 2000). Such environmental violations claims can also make firms modify their practices after incurring hefty fines.
The debate continues on regarding environmental regulations put small business at a disadvantage. The main debate comes from irregularities of the environmental regulations in reference to compliance, the regulations and the enforcement of these laws. Compliance in regards to environmental regulations depends on the firms’ industry. They have to comply with the specific laws geared toward their industry. Firms may have to have a designated person to implement and monitor compliance and act as a point person with the government agencies. The equipment needed to meet regulations requirements can be of significant capital cost to firms thus decreasing their productivity. Compared to a larger firm, cost of output is much higher for a small business. Heavy regulation can also lead to the reduction of newer businesses entering the industry since initial startup costs are higher. Firms that are already established can find the least expensive and most efficient way to meet the compliance requirements of regulations (RAND Corporation).
In the mid-1980’s tiering started taking place. Where some small firms could be exempted from certain regulatory requirements or some laws was not as strict on environmental standards.
According to the U.S. Small Business Administration Office of Advocacy, U.S. EPA has tiered over 50 different regulations based on either firm size or the amount of pollution released (U.S. Small Business Administration (SBA)).
Due to grandfathering provisions included in regulations there tends to be less of an advantage for small firms. In these grandfather provisions larger firms can be exempt from upgrading equipment until they modify their current plants. Since larger firms have more to lose they spend significant amounts of money lobbying Congress to tailor the environmental regulations to cater to their needs. While there may be advantages seen by the small companies, it does not compare to the larger firms’ advantages (RAND Corporation). Other advantages larger firms see is from the enforcement of environmental regulations. The irregularities in enforcement of regulations are due to the larger firms’ political influence. Other irregularities are due to government budget constraints, larger firms tend to see less strict laws imposed on them. Even if enforcement was done equally between larger and small firms; larger firms have more money to defend themselves against litigation in court. They can opt to go to court since these defense costs can be significantly less than complying with environmental regulations. Another advantage large firms recognize is increased market-share due to the fact that they can more easily afford compliance costs (RAND Corporation). In this country laws have been enacted to save the air, water and environmental resources. This country spends $200 billion each year to make sure these laws are carried out. Direct federal grants for compliance to regulations have been replaced with a revolving loan fund which entities can borrow at a low interest rate. The amount borrowed is insufficient to fund capital projects needed to become compliant. With less federal support to pay for the regulations there will be more of an issue with companies not complying (Nivola). With the changing times in this country, regulations should change as well. Laws that worked in the past may no longer work well now and in the future. The laws that were in the past have served their purpose and addressed environmental issues of that time. We now have cleaner water, air and land because of those regulations and we need to now move in a direction that is beneficial for all concerned. The way this county is addressing regulations needs to be more effective for our future. Laws that were passed in the early 1970’s did not take into consideration the businesses perspective. There was a belief that the only way to address environmental issues was for government intervention. New regulations need to build on the foundation of the past but also be able to implement the changes taking place in our society today. Lawmakers should work more to understand the implications on both large and small businesses before imposing more legal constraints. With competing objectives from environmental groups and the business community, policymakers must be able to create a balance that is beneficial to all involved. Better information needs to get to the policymakers for them to understand the financial implications regulations place on small business in this country. More review of the use self-auditing program and initiatives like the Common Sense Initiative should also be considered (RAND Corporation). With more information a better understanding of what modifications can be made to help attract the creation of new small businesses.
Right now in this country there are extremely strong political differences regarding government regulations. The fact that there needs to be a change in our policy making gets lost in the debates over more or less regulations. If a common direction can be reached, this country can move in a direction that is beneficial to small and large firms as well as the environment (Fiorino).

Works Cited

Alford, Harry C. "Regulatory tidal wave is swamping small business; Job creation will pick up when rule-making ebbs." The Washington Times. Washington: The Washington Post, 6 August 2012. Newspaper.
Coglianese, Cary and Nash, Jennifer. Leveraging the Private Sector: Management-based Strategies for Improving Environmental Performance. Washington DC: Resources for the Future, 2006. Print.
Dixon, Lloyd. The Financial Implications of Releasing Small Firms and Small-Volume Contributors from Superfund Liability. Santa Monica, CA: RAND , 2000. Print.
Fiorino, Daniel J. New Environmental Regulation. Cambridge: MIT Press, 2006. Print.
Jones, Laura. "Red tape: The silent killer of jobs; Harper's approach more promising than Obama's." National Post's Financial Post & FP Investing. Canada: National Post, 16 January 2012. Print.
Kauffman-Rand Center for the Study of Small Business and Regulation. "The Impact of Regulation and Litigation on Small Business and Entrepreneurship." February 2006. RAND Corporations. Objective Analysis. Effective Solutions. Web Article. 22 November 2012.
Langer, Andrew M. "Small Firms Deserve Relief." USA Today 11 January 2006. Print.
Nivola, Pietro S., Shields Jon A. Managing Green Mandates : Local Rigors of U. S. Environmental Regulation. Washington DC: Brookings Institution Press, 2001. Print.
RAND Corporation. In the Name of Entrepreneurship? : The Logic and Effects of Special Regulatory Treatment for Small Business. Santa Monica: RAND Corporation, 2007. Print.
Watch, OMB. OMB Watch. 13 February 2002. Website. 7 Dec 2012.