Clean manufacturing strategies under the influence of public policy

Summary form only given. A normative model is introduced depicting a firm's decision making regarding the transition of its manufacturing resources toward clean manufacturing (CM). The firm optimally invests in adaptive CM activities (such as environmentally conscious product and process re-design) and reactive CM activities (such as abatement technology) continuously over time in response to two types of public policy measures. One driver for a firm's transition is the environmental cost, expressed as a function of the level of waste generated by the manufacturing processes and the amount of toxicity per unit waste. Another driver for a firm's transition to CM is the transition cost subsidy, offered in relation to the rates at which adaptive or reactive CM activities are pursued over time. It is shown that transition cost subsidies defined by public policy makers directly impact a firm's mix and timing of clean manufacturing activities (CMAs). Therefore, transition cost subsidies are process-oriented. However, it is important to realize that the ultimate improvement in environmental impact depends on the extent to which waste and toxicity are actually reduced. When setting the environmental cost it is left to the firm to identify that mix of activities that leads to the greatest reduction in the environmental cost, either by reducing waste or toxicity or both. Hence, the environmental cost approach to public policy is results-oriented. Essentially, driven by this public policy, the firm freely determines the most effective and efficient mix of CMAs over time to reduce the environmental impact and total cost incurred.