sign in sign up
<<
Home , Aerosol, DuPont, Freon, Montreal Protocol

BUSINESS STRATEGY AND THE ENVIRONMENT, VOL. 6, 276±286 (1997) THERE'S MONEY IN THE AIR: THE CFC BAN AND DUPONT'S REGULATORY STRATEGY

James Maxwell1,2* and Forrest Briscoe1,2 1Massachusetts Institute of Technology, MA, USA 2JSI Research & Training, Boston, MA, USA

DuPont, the world's dominant CFC of harnessing diversity in industry: some producer, played a key role in the producers stood to gain more from the development of the on envisioned regulations than others. Such Depleting Substances. We argue that industry heterogeneity provides frequent DuPont's pursuit of its economic interests, opportunities for coalitions of `the green along with the political impact of the and the greedy', such as that between discovery of an ozone hole and the threat DuPont and environmental interests. of domestic regulation, shaped the Methods to encourage potential industry international regulatory regime for ozone- winners into supporting environmental depleting substances. International initiatives deserve further attention. regulation offered DuPont and a few other # 1997 John Wiley & Sons, Ltd and ERP producers the possibility of new and more Environment. pro®table chemical markets at a time when CFC production was losing its pro®tability Bus. Strat. Env Vol. 6, 276±286 (1997) and promising alternative chemicals had already been identi®ed. No. of Figures: 2. No. of Tables: 0. No. of References: 33. DuPont's organization and strategy were key to the successful leveraging of the Revised 22 May 1997 Montreal process. For example, the Accepted 24 July 1997 Division had close interaction with public of®cials and external groups, and bene®ted from the input of DuPont's external affairs department. This positioned DuPont to INTRODUCTION exploit the situation when regulatory discussions were stepped up. hen public concern arises over the pos- sible environmental effects of important From a public policy perspective, the industrial chemicals, the frequent Montreal process offers a valuable example W response from industry is that change would be dif®cult. Alternatives may be lacking, and switch- * Correspondence to: James Maxwell, JSI Research and Training ing to them will surely prove expensive for society. Institute Inc., 44 Farnsworth Street, BOSTON, MA 022101211, This makes the last decade of international policy- USA. making concerning chloro¯uorocarbons (CFCs) CCC 0964-4733/97/050276±11 $17.50 extremely relevant. For the ®rst time an entire class # 1997 John Wiley & Sons, Ltd and ERP Environment. of valuable chlorinated chemicals, a billion-dollar-a-

BUSINESS STRATEGY AND THE ENVIRONMENT THE CFC BAN AND DUPONT'S REGULATORY STRATEGY year product, is being phased out world-wide. In 1974, two events occurred that would leave a Understanding how and why these changes took lasting imprint on DuPont's policies toward this place provides insight into the likelihood of changes highly versatile product. The ®rst was a scienti®c for other environmentally troubled chemicals. discovery. In the early 1970s the British scientist The causes of change have been oversimpli®ed by James Lovelock, who had invented an instrument the participants. The diplomats cited a new global for measuring trace amounts of CFCs in the atmo- environmental consciousness. Mustafa Tolba, then sphere, determined that nearly all of the CFCs head of United Nations Environmental Program, released to that date (around one billion pounds) heralded `the beginning of a new era of environ- were still in the atmosphere. Two chemists at the mental statesmanship' (Tolba, 1987; Benedick, 1991). University of California at Irvine, sought to under- However, the corporations involved said they had stand the effects of such a large accumulation of merely `followed the science', only acting on the CFCs in the atmosphere, and suggested a theory issue once the scienti®c uncertainties had been that the released from CFCs could cause reduced suf®ciently. signi®cant reductions in the stratospheric ozone In addition to both these factors, a review of the layer. In a paper published in Nature (Molina and American and international policymaking towards Rowland, 1974), they postulated that CFCs tended CFCs reveals several other intertwined factors of to migrate to the where they under- importance. One critical aspect was the role of went a series of complex chemical reactions that DuPont, the world's dominant producer, and other converted ozone into oxygen. As chlorine was a large chemical producers in the policymaking pro- catalyst, a single chlorine atom could destroy large cess. We argue that DuPont's pursuit of its economic numbers of ozone molecules. If these chemical interests, along with the political impact of percep- reactions led to a breakdown in the earth's protec- tions of the science (the ozone hole) and the threat of tive shield then dangerous levels of domestic regulation, shaped the international reg- radiation could penetrate to the earth's surface, ulatory regime for ozone-depleting substances. The harming human health and the environment. Montreal process has been widely considered as A second key event occurring in 1974 was the offering an institutional blueprint for the responses appointment of Irving Shapiro as the chairman and that will be necessary for addressing other global chief executive of®cer of DuPont. Shapiro, a lawyer environmental problems, such as . We and the ®rst nonmember of the DuPont family to believe that the Montreal protocol process offers les- serve as chairman, brought a new, more proactive sons for international environmental policymaking, strategy towards business±government relation- but not those usually proposed. ships and environmental issues. Shapiro described his experience in governmental relationships as one of the primary reasons for his selection: DuPont confronts an emerging environmental issue I think the DuPont board at that time was very alert and wise in anticipating the As with lycra and , freon was one of DuPont's conditions that were developing in the most successful products that had been produced for country and in saying `We need a different decades following its discovery at kind of leadership. We want a leadership laboratories in the 1920s. Freon had offered clear-cut that understands government and the advantages over other early alternatives used in political conditions in the country and can because it was nontoxic and relatively address itself to some of those issues.' inexpensive to produce. Over the years, its applica- tions had extended from refrigeration to its use as a Shapiro considered the 's tra- propellant in sprays, the cleaning of metals in ditional strategy of public resistance and lobbying the electronics industry, and use in foam blowing for against environmental legislation to be counter- insulation. By the mid 1970s, DuPont remained the productive. He believed that industry needed to dominant freon producer in the world, accounting for work with government to devise policies that more than half of US and nearly a quarter of world served both public and private interests. In his ®rst production capacity. CFCs were a growing com- year of of®ce, DuPont's new chairman confronted modity chemical business in which DuPont's scale calls for a ban on the aerosol uses of one of DuPont's gave it a substantial competitive advantage over its hallmark products, CFCs. rivals. Because of high transportation costs relative to Under the auspices of the Chemical Manu- the price of the product, production was regionally facturers Association, DuPont initiated a research concentrated near large markets. program by academic investigators to obtain factual

# 1997 John Wiley & Sons, Ltd and ERP Environment. Bus. Strat. Env, Vol. 6, 276±286 (1997)

BUSINESS STRATEGY AND THE ENVIRONMENT 277 J. MAXWELL, S. WEINER AND F. BRISCOE evidence to sustain or dismiss the theory. Together These market and regulatory developments had with other companies in the chemical industry, long term consequences for the pro®tability of DuPont contributed some $3±5 million towards a DuPont's CFC business. The fall in US demand for multiyear research program. While this research led to manufacturing overcapacity and was undertaken, DuPont sought to persuade undermined DuPont's and other US producers members of Congress and the regulatory agencies ability to raise prices and improve pro®t margins. that it was safe to delay any regulatory actions for The pressure on prices was so great that prices in 2±3 years until the scienti®c uncertainties could be real terms remained constant for more than a dec- resolved (Dotto and Schiff, 1978). At the same time, ade (Figure 1). DuPont implemented measures to DuPont of®cials pledged that they would cease reduce its manufacturing costs, but they proved production of the suspect chemical `if credible inadequate to restore the business' underlying research demonstrated a signi®cant threat to health pro®tability. In contrast European producers, such or the environment' (Lubkin, 1975). as Imperial Chemical Industries (ICI) and ATO- Notwithstanding this pledge, DuPont of®cials CHEM, continued to market CFCs for use in aero- warned of the economic costs of precipitous reg- sols as their governments rejected the American ulatory action (anon, 1975a). A DuPont spokesmen approach to regulation. The unilateral action to ban estimated that industry directly relevant to CFCs the use of CFCs in aerosols had cost DuPont and contributed more than $8 billion to the US economy other US manufacturers an estimated 20% of the each year, employing more than 200,000 Americans global market. This led to a world-wide shift in the (anon, 1975b). In DuPont's view, any restrictions on production of CFCs (Figure 2). CFCs were both unwarranted because of the scien- While DuPont was losing the marketplace and ti®c uncertainties prevailing at the time and political struggle to defend CFCs, Shapiro assumed a impractical because of the substantial costs they proactive stance on major pieces of environmental would impose upon the US economy as a whole. legislation. In 1976, he had instructed senior vice- Despite a well ®nanced public relations cam- president Richard Heckert to collaborate with the paign, DuPont waged a losing struggle to defend Congress and the EPA in drafting versions of the CFCs against scientists and environmental groups Toxic Substances Control Act. The law required, who wished to curtail their use. During 1975, a among other things, extensive testing, at corporate federal interagency task force recommended steps expense, of any new chemical product before it was to restrict the use of CFCs if a National Academy of sold. According to Shapiro, the bill was `a lot better Sciences study were to con®rm the task force's than it would have been if the industry had simply assessment (IMOS, 1975). Congressional hearings said, as sometimes happens, we'll ®ght it to the death' followed in which legislation was proposed ban- (Shapiro, 1986). In 1980, DuPont boldly split from the ning the use of CFCs in aerosols. Bills to regulate position of the Chemical Manufacturers Association, CFCs were introduced in a dozen states; Oregon and similarly endorsed Congressman Jim Florio's banned the use of CFCs in aerosols. New York State version of the superfund law, which required com- required companies to label aerosols products when panies to assume ®nancial responsibility for cleaning they contained CFCs. up abandoned sites. DuPont The marketplace, however, moved even more actively supported progressive environmental legis- swiftly than the political system (Dotto and Schiff, lation, even while resisting speci®c regulations 1975, pp. 165±166; anon, 1975c). In 1975, Johnson Wax, directed at a variety of its products. a major consumer products company, announced at Following a National Academy of Sciences report a news conference, which was heavily attended by predicting of 16%, the EPA in 1980 national media, its intention to phase out the use of proposed to extend regulations from aerosols to other CFCs as aerosol propellants. Other large consumer uses, and eventually to ban the substances altogether products companies followed its example, placing as (DuPont, 1989). To resist the EPA's latest regulatory much as 25% of DuPont's CFC business at risk. With initiative, DuPont helped to organize a trade asso- demand for CFCs in aerosols falling off in response to ciation known as the Alliance for Responsible CFC consumer pressures, federal agencies proposed a Policy with other major producers and users. How- phaseout of nonessential use of CFCs in aerosols. The ever, public interest and media attention had waned speed of marketplace and regulatory developments following the elimination of CFCs in aerosols. An prevented DuPont from commercializing a less industry-sponsored lobbying organization was no ozone-depleting alternative. A DuPont spokesmen longer necessary to discourage further regulation. cautioned that this schedule `leaves us without a The declining public interest and continued uncer- short-term replacement for aerosol products'. tainty in the science did not diminish the fact that

Bus. Strat. Env, Vol. 6, 276±286 (1997) # 1997 John Wiley & Sons, Ltd and ERP Environment.

278 BUSINESS STRATEGY AND THE ENVIRONMENT THE CFC BAN AND DUPONT'S REGULATORY STRATEGY

Figure 1. Average value of CFCs. The ®gures are the average unit values calculated from rounded ®gures. Prices have been de¯ated using the yearly average producer price index (US International Trade Commission, ????).

DuPont's freon business had paid a heavy price for Given the state of scienti®c knowledge and the responding to public concerns about the threat of changing political circumstances, DuPont withdrew ozone depletion in the 1970s. Worse yet, from ®nancial support for its research program on alter- DuPont's perspective, regulatory policy had not been native chemicals. By the late 1970s, DuPont scien- based upon the scienti®c facts in this case, but on tists had identi®ed a number of replacements for the public perceptions that had been grossly distorted by then-existing CFCs, but they all proved either too environmental activists. toxic or too costly. As long as existing chemicals were available, customers would resist a switch to higher priced alternatives. As Richard Heckert later wrote: `the substitutes could never hope to compete Shifting policy: Abandonment of a multibillion because they were more expensive. . . . Such were dollar product the market realities at the beginning of the 1980s.' During the early 1980s, the pressures for extending According to DuPont, the market rather than cor- regulation of CFCs to other applications diminished porate policy dictated a change in research and as the scienti®c case against CFCs was undermined development priorities away from the commercia- by scienti®c reports by the National Academy of lization of substitutes. Sciences. The reports suggested that ozone deple- British scientists' discovery of the Antarctic ozone tion was in the range of 2±4% rather than the 10± hole in the spring of 1985 dramatically transformed 15% previously believed (National Academy of the science and the politics of the ozone issue. Sciences, 1982 and 1983). At the same time, the Scientists had predicted a gradual lowering of Reagan administration was unsympathetic to the stratospheric ozone levels over a long period of time expanded scope of regulation advocated by some as chlorine built up in the atmosphere; they had not EPA staff and environmentalists. expected either the rate or the magnitude of the

# 1997 John Wiley & Sons, Ltd and ERP Environment. Bus. Strat. Env, Vol. 6, 276±286 (1997)

BUSINESS STRATEGY AND THE ENVIRONMENT 279 J. MAXWELL, S. WEINER AND F. BRISCOE

Figure 2. Production of CFCs 11 and 12. Data for the rest of the world are estimated by subtracting the US data (US International Trade Commission) from the world total (Chemical Manufacturers' Association, 1990). depletion discovered over . A debate depletion issue. Through the CMA, DuPont had raged within the scienti®c community as to whether helped to develop a reliable reporting system for the industrial sources of chlorine or natural phenomena production of CFCs. Based upon this data, DuPont were responsible for the ozone hole occurring each scientists realized that the pattern of CFC use was spring. changing. By the mid-1980s, the growth in refrig- The policy stalemate was broken, even while the eration, mobile , and CFC foams scienti®c debate intensi®ed. In the spring of 1986, had more than offset the earlier declines in CFC use environmental groups called for immediate reduc- that had been caused by the aerosol ban in the US. tion in the production and use of CFCs to ensure Growth rates of several percentage points per year that society's experiment with the global climate did were expected to continue inde®nitely. not cause dangerous levels of ultraviolet radiation In June 1986, Joe Steed, a chemical physicist and to reach the earth's surface. David Doniger of the environmental manager for the Freon division, and Natural Resource Defense Council warned that Mac McFarland, an atmospheric scientist hired in immediate cuts were necessary or that `we would the early 1980s, began a systematic evaluation of the be facing an emergency that will make Chernobyl science given increasing production levels. Using look like a trash ®re at the county dump'. Lee models and assumptions similar to those employed Thomas, then recently appointed EPA adminis- in a 1985 report by the World Meteorological trator, stated that society could no longer afford to Organization, they concluded that the growth in experiment with the world's atmospheric systems CFC production would cause signi®cant reductions (Thomas, 1986). The frightening image of a `hole' in ozone. This would occur under almost all the suddenly drew the media and public attention scenarios tested. At the same time, EPA of®cials which a `decreasing trend' never could have (Doos, were publicly claiming that the only way to stop 1994; Glantz, 1995). The hole was a political trigger chlorine accumulation in the atmosphere was an even if it was not a scienti®c one. immediate 85% reduction in CFC production. DuPont of®cials showed sensitivity to both the Aware of the changing political climate, Steed and political and scienti®c dimensions of the ozone Kevin Fay, the director of the Alliance for Respon-

Bus. Strat. Env, Vol. 6, 276±286 (1997) # 1997 John Wiley & Sons, Ltd and ERP Environment.

280 BUSINESS STRATEGY AND THE ENVIRONMENT THE CFC BAN AND DUPONT'S REGULATORY STRATEGY sible CFC policy, believed that strict domestic reg- vention for itscreation. User industry resistance to ulation was inevitable unless industry took decisive such price increases would be reduced by the fact action to prevent it. that CFCs comprised only a small percentage of the The internal DuPont assessment concluded that total cost of any new or air conditioning future production levels should be limited to their system. The principal concern of industry was to existing levels. Senior management concurred with phase in any transition so that it was consistent with the assessment (Reinhardt, 1989). Observers from the introduction of new products and did not cause outside the industry might have considered the obsolescence among existing equipment (Rothen- proposed cutbacks as a method of shoring up prices burg and Maxwell, in press). The international for a poorly performing product. Nevertheless, regulatory regime had the potential to transform DuPont and other producers realized that a global one of DuPont's mature and only marginally prof- freeze was a ®rst step in a transition to alternative itable businesses into a more lucrative one. chemicals. Customers in growing markets would DuPont of®cials capitalized on this shift in strat- not remain loyal to products if the supply was egy because the political wisdom of Shapiro had potentially unavailable. For DuPont and other pro- been institutionalized at the company. DuPont ducers, an international regulatory regime that of®cials collaborated with of®cials of the user capped production implied an eventual phaseout of groups through the Alliance for Responsible CFC ozone-depleting chemicals and an orderly transition Policy to enlist their support for this shift in strategy. to alternatives. DuPont's decision to support inter- In fact, DuPont waited for the Alliance's own national regulation was the critical in the announcement before publicly revealing its own more than decade long ozone depletion controversy. policy shift in September 1986 (Environmental Data Underlying this decision, DuPont of®cials had Services, 1986). Joe Steed had also sought to inform understood the commercial implications of phasing and persuade other major chemical producers out CFCs and shifting to alternatives. Since the late through the CMA to follow DuPont's lead. Eur- 1970s, CFC 11 and 12 had not been highly pro®t- opean chemical producers, however, remained able; DuPont had been forced to offer substantial suspicious of DuPont's announcement, fearing that volume discounts to large customers. In contrast, its action was prompted by technical breakthroughs the substitutes would demand higher prices as they in substitutes development. The European chemical were inherently more expensive to produce. The industry reluctantly accepted DuPont's argument development of each of the substitutes required for constraints on global CFC production, but only sophisticated chemical engineering processes and at levels that allowed for some continued growth in capital investments of hundreds of millions of dol- output (European Fluorocarbon Technical Commit- lars. They would be marketed as specialty rather tee, 1987). Both DuPont and European producers than commodity chemicals where the leading shared the same long term economic interests. international ®rms could foresee substantial com- Indeed, long term economic interests were one of petitive advantages. Like other specialty chemical the primary reasons that DuPont sought, and Eur- products, they would be characterized by low opean chemical industry would ultimately accept, volume and high prices and pro®t margins would international regulation that helped to create a be higher because of less competition. DuPont's market for substitutes. decision to support a CFC ban was based on the With industry having conceded that substitutes belief that it could obtain a signi®cant competitive could be developed within 5 years, the case for advantage through the sales of new chemical sub- phasing out CFCs was greatly strengthened. The stitutes because of its proven research and devel- EPA and environmental groups pushed for a com- opment capabilities to develop chemicals, its plete phaseout of ozone-depleting chemicals within (limited) progress already made in developing a decade. DuPont of®cials preferred a 20±30 year substitutes, and the potential for higher pro®ts in transition to the 10 year period advocated by the selling new specialty chemicals. Although some EPA. DuPont ultimately supported the Montreal observers have speculated on the relevance of protocol which mandated a 50% reduction in pro- patent expiration to the decision to support a CFC duction by the year 2000. DuPont of®cials favoured ban, DuPont of®cials reported no such in¯uence. an international regulatory regime ± which had The new chemical substitutes were projected to been watered down through comprise ± to the sell for 5±10 times the costs of CFC 11 and 12. The alternative of stricter domestic regulation that only constraint for the availability of substitutes would mandate a more rapid phaseout. Never- was thus a world-wide market for higher priced theless, DuPont still publicly espoused the position materials, which depended on government inter- that the science justi®ed a limit but not an

# 1997 John Wiley & Sons, Ltd and ERP Environment. Bus. Strat. Env, Vol. 6, 276±286 (1997)

BUSINESS STRATEGY AND THE ENVIRONMENT 281 J. MAXWELL, S. WEINER AND F. BRISCOE immediate reduction in the production of fully DuPont claimed the decision to halt production of halogenated CFCs. According to DuPont of®cials, CFCs was science driven. In Congressional testi- scienti®c evidence suggested that there was no mony, Dwight Bedsole described DuPont's deci- imminent hazard to the environment from CFCs at sion-making process: `Not one time that week did the then current emissions levels; serious problems anyone discuss what effect this decision could have would arise as the continued growth in consump- on the ®nancial end of the business.' Richard tion led to further accumulations of chlorine in the Heckert, DuPont's chairman at the time, recalled a atmosphere. DuPont's support for the protocol had similar chain of events: `Our determination to act on also depended on US of®cials' ability to assure that scienti®c evidence rather than on speculation the European-based producers could not gain a exposed us to some criticism along the way, but as competitive advantage through any provisions of soon as hard evidence did appear, we didn't hesi- the international treaty (Maxwell and Weiner, 1993). tate to act.' However, DuPont of®cials were aware Almost immediately following the signing of the of the political consequences of the Ozone Trends Montreal protocol in September 1987, the scienti®c Panel's ®ndings. They recognized that the study's case against CFCs hardened. Measurements from ®ndings would soon result in an acceleration of the aircraft in the US-led Antarctic Airborne Ozone regulatory timetable for phasing out CFCs. More- experiments detected the presence of chlorine over, they knew that DuPont's announcement was monoxide, providing strong evidence linking sending a clear message to customers that they chlorinated compounds with ozone loss (anon, would need to speed up their plans for a change- 1987). The scienti®c results demonstrated de®ni- over. tively the link between chlorine and the hole. The DuPont acted quickly and unilaterally in Ozone Trends Panel report published in March 1988 announcing a phaseout (anon, 1988; DuPont, 1988). provided still further con®rmation of this link DuPont vice-president for external affairs, Malloy, (Watson et al., 1988). Even more importantly, the sought to convince his colleagues that other pro- panel concluded that unexpectedly large depletions ducers would withdraw publicly from the CFC at middle/high northern latitudes during winter business if DuPont failed to act. Given DuPont's had been revealed. These data showed a 1.7±3% position as the dominant producer and political decrease of ozone in the northern hemisphere and leader of the industry, Malloy wanted DuPont to up to a 6% depletion in the winter. The traditional make the ®rst announcement and to obtain the models had predicted ozone losses in the long term, largest share of the public credit for its phase-out. but it was clear that ozone depletion was already (CFCs would soon be used as the primary example occurring over the northern hemisphere. The deple- of DuPont's new corporate environmentalism.) The tion was unbounded and unexplained at this time. unilateral announcement did, however, foster con- DuPont had monitored these scienti®c develop- cerns among major users with whom DuPont had ments closely. In fact, McFarland had been the only been allied politically for more than a decade about industry member of the Ozone Trends Panel. As the continued availability of a supply to service soon as the study was released publicly, McFarland their billions of dollars of existing equipment that and Steed recommended to the director of the Freon depended on CFCs for its operation. division that CFC production be curtailed. CFC The phaseout announcement won accolades from production would need to be all but eliminated to those outside the industry. Governmental of®cials restore the environmental quality of the strato- and environmentalists praised DuPont for its new- sphere. found environmental consciousness. Referring to Within less than a week, DuPont's senior man- DuPont's announcement Lee Thomas, the EPA agement accepted the recommendation and administrator, stated that it sends an `unmistakable announced a plan to phase out their CFC produc- signal that alternatives and substitutes can be tion entirely. A Harvard Business School case study available in the near future' (Thomas, 1988). How- had described this decision-point as `very sharp' ± ever, DuPont's rivals viewed the announcement as a the critical turning point for DuPont. However, the logical and incremental step in the evolution of decision was already clear for management at that ozone-depletion policy. Mike Harris of ICI descri- point because of 1986 activities, during which bed DuPont's 1988 announcement as anything but a DuPont had moved decidedly towards CFC sub- major shift in position: `It's been quite clear that stitutes. DuPont had already realized that its future ultimately there won't be any fully halogenated lay there rather than with the old compounds, and CFCs around' (Reisch and Zurer, 1988). this decision merely accelerated the phase-out pro- DuPont's phaseout highlighted the technical and cess that had been initiated 2 years earlier. economic feasibility of a transition to CFC-like

Bus. Strat. Env, Vol. 6, 276±286 (1997) # 1997 John Wiley & Sons, Ltd and ERP Environment.

282 BUSINESS STRATEGY AND THE ENVIRONMENT THE CFC BAN AND DUPONT'S REGULATORY STRATEGY substitutes. Along with the mounting scienti®c case process modi®cation are available, even if the sub- against CFCs, the industry position was critical to stitute material costs several times more than the the revisions of the protocol that were original CFC, the changeover will not have not have signed in June 1990. Two of the primary obstacles to major impacts on the ®nal cost of the product. a total phaseout were access to technology and Contrary to DuPont's strategy for commerciali- ®nancial aid for developing countries. The devel- zation, the electronics industry moved swiftly from oping countries argued that the ozone-depletion CFC 113 to aqueous or to a no-clean pro- problem was not of their own making because cess for manufacturing printed circuit boards. The industrialized countries consumed more than 80% environmental manager of one major electronics of CFCs. Yet consumption was growing rapidly ®rm explained the reasons that the industry did not among the developing countries so that the Mon- wait for DuPont to develop a -in substitute: treal treaty would be in jeopardy if these countries `The writing was on the wall. It was going to hap- refused to ratify it. The industrialized countries pen sooner or later. We ®gured we would be better agreed to establish a multilateral fund to provide off moving at our own pace.' The electronics ®nancial assistance and promised to facilitate access industry's skill in introducing new technology to technology among developing countries. How- undercut the most pro®table portion of DuPont's ever, the agreements lacked speci®city as to how remaining CFC business. this technology transfer and licensing were to be For uses requiring a CFC-like substitute, DuPont accomplished. DuPont's and other companies' planned to replace CFCs 11 and 12 with a number of interests were protected because mandatory different chemicals tailored to speci®c uses. Each requirements for technology licensing had been of the chemicals would be produced at smaller rejected by the international community. Never- volumes but sold at higher prices. Because of the theless, the resolution of these dif®culties enabled technical complexity, production would be, at least the London revisions to be signed, establishing a initially, con®ned to the major chemical companies timetable leading to a total phase-out of CFC pro- based in industrial countries. This was a source of duction by the year 2000. contention with the developing countries in London in 1990 and after. The large producers are joint winners under the international regulatory regime, Political and economic consequences of regulation whereas small producers (especially those in The international regulatory regime transformed developing countries) which are unable to compete the market structure for the CFC business, but it in the new markets are the primary losers. Each of also had unanticipated consequences in the political the major chemical companies planned to specialize and market arenas. DuPont had expected that the in the production of certain chemical compounds, overall demand for CFC-like products would fall as thereby limiting competition and enhancing poten- major users shifted to substitutes. Those foreign tial ®nancial returns. manufacturers still relying on CFCs for aerosol Despite the lower quantities of CFCs substitutes propellants would begin using nonchlorine-based being demanded, the total revenues for the business alternatives, as they had in the USA. Some foam would increase through higher prices. DuPont saw blowing applications would also be converted to refrigeration and air conditioning as the sectors that alternatives outside the chloro¯uorocarbon family. would drive the future growth of the business. With Recycling would go a long way towards meeting its announcement and the subsequent London the needs of existing refrigeration and air con- agreements that mandated a global phase-out by ditioning equipment for servicing. If all went as the year 2000, DuPont accelerated its commerciali- DuPont planned, the transition would occur in a zation of substitutes. smooth and orderly fashion with few economic Once committed to a phase-out, DuPont's sci- disruptions. enti®c analysis complemented its commercial strat- The demand for CFCs 11 and 12 has fallen even egy. Rather than underscoring the scienti®c more rapidly than DuPont had anticipated. Use of uncertainties of ozone depletion as it had in the fully halogenated CFCs has declined swiftly in the past, DuPont highlighted the risks involved in aerosol and foam sectors. As expected, the high delaying regulatory action. In 1991 DuPont execu- costs of the substitute compounds did not turn out tives, armed with the most recent scienti®c ®ndings to be a key transition problem. In most applications, from the US Airborne Arctic Stratospheric Expedi- CFCs make up a small proportion of the ®nal costs tion, had actually encouraged the EPA adminis- of the products in which they are used. Therefore, trator to speed up the regulatory timetable. where substitutes that do not require equipment or President George Bush subsequently announced

# 1997 John Wiley & Sons, Ltd and ERP Environment. Bus. Strat. Env, Vol. 6, 276±286 (1997)

BUSINESS STRATEGY AND THE ENVIRONMENT 283 J. MAXWELL, S. WEINER AND F. BRISCOE that the USA would unilaterally phase out produc- auto industry executives remain concerned about its tion of CFC by the end of 1995 rather than by the long-term environmental acceptability. year 2000 (anon, 1992). Faced with mounting environmental pressures in DuPont's new corporate environmentalism the mid-1980s, DuPont had sought government improved its relationships with Congress and intervention that mandated a shift to substitutes, government agencies. Yet problems remained. transforming a mature and marginal business into a Responding to the urging of environmental groups, more pro®table one. But DuPont's new course of Congress adopted a windfall pro®ts tax as part of action also encountered some complications as the the 1990 Clean Air Act Amendments which cap- science and politics of ozone depleting substances tured some of the revenues that might have other- continued to evolve. The US government had wise accrued to DuPont from the restricted supply established a windfall pro®ts tax on fully halogen- of regulated chemicals. ated CFCs, instituted its own more rapid timetable Even more importantly, environmental groups for a phase-out, and banned some of the potential proposed a ban on many of the HCFCs. DuPont substitutes ± all actions that hindered DuPont's of®cials argued that many of the HCFCs were interests. The market size for substitutes also con- absolutely necessary as part of a transition strategy tinued to contract as the user industries shifted to because other substitutes would not be available in chemical-free technologies and improved the ef®- suf®cient volumes to meet the requirements of the ciency of their products. refrigeration and air conditioning industries. A DuPont spokesman testi®ed before Congress: `We CONCLUSIONS caution you to be sceptical about claims that tech- nologies other than HCFCs are viable in the near This review of corporate policymaking towards term for all current applications' (Bedsole, 1990). CFCs suggests that the international community Even the possibility of regulation, they asserted, successfully adopted the Montreal protocol because would discourage adequate amounts of investment of the concordance of political values, scienti®c in research and development for the substitutes. knowledge, and economic incentives. All were Without these compounds, many user industries necessary to create international change. At the time might delay their shift from fully halogenated of the protocol, the science of the Antarctic ozone compounds, causing increases in the total volume of hole was still uncertain. However, in the absence of chlorine being released into the atmosphere. If scienti®c consensus, strong political forces unlea- permitted by public authorities, DuPont planned on shed by the presence of the `hole in the sky' drove meeting as much as 40% of future CFC demand the Montreal process. The ozone hole had a unique through the production of HCFCs. Despite capacity to elicit strong fears among the scienti®c DuPont's arguments and plans, Congress adopted community (because of their inability to predict or limits on the use of HCFCs in the 1990 Clean Air explain it) and the general public (because of the Act Amendments. These included an eventual ban hole's magnitude, irreversibility and suggested on HCFC 22, the most widely used of the sub- impacts). stitutes then in production. Industry's role was critical in facilitating the By 1991, DuPont retreated further from its stand phase-out of CFCs. By the mid-1980s, the produc- on HCFCs, accepting the need for regulation of the tion of CFCs 11 and 12 was no longer as pro®table a most ozone depleting of the substitutes. DuPont business as it once was. Renewed environmental of®cials still insisted that chemicals such as HCFC pressures threatened to weaken an industry already 123, which had less than 2% of the ozone-depletion characterized by overcapacity. International reg- potential as CFC 12, were necessary transition che- ulation offered major producers the possibility of micals. Even the HFC substitutes that DuPont was new and more pro®table markets in the long term. developing for refrigeration markets had an envir- The bene®ts of international intervention are being onmental hanging over them as they con- reaped by a concentrated and politically powerful tributed to global warming. HFC 134a was a more industry (with fewer than half a dozen major pro- potent greenhouse per unit than carbon dioxide ducers). even though emitted at drastically lower volumes. This switch to substitutes was made feasible The global automobile industry has been moving because chemical producers had identi®ed a rapidly to the use of HFC 134a as the chemical of number of alternative chemicals by the early choice for automobile air conditioning. Yet some 1980s. Many consumer industries showed reluctance

Bus. Strat. Env, Vol. 6, 276±286 (1997) # 1997 John Wiley & Sons, Ltd and ERP Environment.

284 BUSINESS STRATEGY AND THE ENVIRONMENT THE CFC BAN AND DUPONT'S REGULATORY STRATEGY to give up CFCs but the costs of transferring to industry heterogeneity because it may provide a alternatives were widely dispersed, diminishing basis for important alliances to further environ- potential resistance. Moreover, the major costs of mental progress. Similar opportunities may exist for adapting new and other technologies the control of other chemical classes presently, such were manageable if phased in over time. as certain toxic and persistent which Equally important as the technical feasibility of could be replaced by new substances and processes. alternatives was the internal organization at Methods to encourage potential industry winners DuPont. Shapiro's approach to possible regulatory into supporting environmental initiatives deserve changes was internalized at the company, most further attention. visibly in the external affairs department which worked with regulators and others on the CFC issue. Such an approach of engaging external actors has sometimes led DuPont to depart from the che- ACKNOWLEDGEMENTS mical industry by taking a contrary position, such as they did with the earlier Superfund controversy. This work would not have been possible without However, close interaction with external, non- the intellectual contributions of Sanford Weiner of market forces had positioned DuPont to exploit the the MIT Center for International Studies. The situation when CFC regulatory discussions were authors would like to thank the of®cials of DuPont stepped up. for volunteering their time and knowledge for this DuPont and other major producers obtained study. Support for the study was provided in part substantial bene®ts through the establishment of through the MIT Chlorine Project, the MIT Tech- an international regulatory regime. This case illus- nology, Business & Environment Program, and the trates the opportunity for early-moving companies MIT Center for International Studies. to gain advantage by changing course concurrently with the changing external environment, rather than retrenching and opposing the changes going REFERENCES on around it. It is useful to consider, however, that even after taking these early actions, the uncer- anon (1975a) Fluorocarbon Ads, Proposal Under Attack, tainties in future regulation and market demand Advertising Age, 14 July. for substitutes have posed serious challenges for anon (1975b) The Sky is Falling: Chicken Little is Alive Du Pont. and Well and Worrying About the Ozone, Barons, The Montreal protocol has been widely con- March. anon (1975c) S.C. Johnson Drops all Fluorocarbons in its sidered as establishing a precedent for the institu- Aerosol Products, Advertising Age, 23 June. tional changes that will be necessary for averting anon (1987) , Drive Ozone Hole, Science, global climate change. Nevertheless, the political 38, 29 October, 156±158. economy of the ozone-depletion issue differs from anon (1988) DuPont Again Breaks Ranks on CFCs, that for global climate change. In the ozone case, the Announces Phaseout Goal, Ends Report 158, March, p. 6. anon (1992) CFCs: Hole-Stoppers, The Economist, 7 March. political dynamics were shaped by the producer Bedsole, D. (1990) Testimony at the Hearings on Strato- industry's pursuit of its long-term economic inter- spheric Ozone Depletion, Subcommittee on Health and ests and the of costs among user indus- Environment of the Committee on Energy and Com- tries. Policymaking towards global warming will merce, 25 January. not face such favourable economic and political Benedick, R.A. (1991) Ozone Diplomacy, Harvard Uni- versity Press, Cambridge, MA. conditions. Indeed, the costs of averting global cli- Chemical Manufacturers' Association (1990) Report of the mate change will be concentrated and the bene®ts CMA Fluorocarbon Program Panel, December. will be widely dispersed. Doos, B.R. (1994) Why is Environmental Protection So DuPont's experience offers other lessons for Slow?, Global Environmental Change 4(3), 179±184. environmental policymaking. During the time in Dotto, I and Schiff, H. (1978) The Ozone War, Doubleday, Garden City, NY. which the Montreal protocol was being considered, DuPont (1988) DuPont Policy Statement: CFCs, 24 March. some producers stood to gain more from the envi- DuPont (1989) Company Policy in the Face of Global Com- saged regulations than did others. Such industry mons: The Ozone Issue as a Model, Freon Products Divi- heterogeneity provides frequent opportunities for sion, DuPont, September. coalitions of the green and the greedy, such as that Environmental Data Services (1986) Report: DuPont Leads Industry Shift on CFCs, October, p. 6. between DuPont and environmental interests. European Fluorocarbon Technical Committee (1987) The analysis suggests that government regulators Chloro¯uorocarbons and the Ozone Issue: The View of the and environmentalists should be aware of this European Fluorochemical Technical Committee, European

# 1997 John Wiley & Sons, Ltd and ERP Environment. Bus. Strat. Env, Vol. 6, 276±286 (1997)

BUSINESS STRATEGY AND THE ENVIRONMENT 285 J. MAXWELL, S. WEINER AND F. BRISCOE

Council of Chemical Manufacturers Associations, Jan- Rothenberg, S. and Maxwell, J. (1997, in press) Industry uary. Response to the Banning of CFCs: Mapping the Paths Glantz, M. (1995) Creeping Environmental Problems in of Technological Change, Journal of Technology Strategy. the Aral Sea Basin, presented at the United Nations Shapiro, I. (1986) Unpublished Manuscript DuPont Cor- University Public Forum, 27 March, Tokyo, Japan. poration. IMOS (1975) Fluorocarbons and the Environment, Report of Thomas, L. (1986) Cited in Paul Brodeur, Annals of Che- the Federal Task Force on Inadvertent Modi®cation of mistry ± In the Face of Doubt, New Yorker, 9 June, 86. the Stratosphere (IMOS), p. 15. Thomas, L. (1988) Cited in How Long a Farewell to CFC Lubkin, G.B. (1975) Fluorocarbons and the Stratosphere, Production? Chemical Week, 6 April, 7. Physics Today, October. Tolba, M.K. (1987) The Ozone Agreement and Beyond Maxwell, J.H. and Weiner, S.L. (1993) Green Conscious- Environmental Conservation, 4(4), 290. ness or Dollar Diplomacy? The British Response to the Watson, R.T., Prather, M. and Kurylo, M.J. (1988) Present Threat of Ozone Depletion. International Environmental State of Knowledge of the Upper Atmosphere 1988: An Affairs 5(1), 19±39. Assessment Report, 15 March. Molina, M. and Rowland, F.S. (1974) Stratospheric US International Trade Commission Synthetic Organic Sink for Chloro¯uoromethanes: Chlorine Atom Chemicals Catalyzed Destruction of Ozone. Nature, 49(5460), 10- 12. National Academy of Sciences (1982 and 1983) Causes and Effects of Stratospheric Ozone Reduction: An Update, BIOGRAPHIES National Academy Press, Washington, DC. Oye, K. and Maxwell, J. (1995) In R. Keohane and E. James Maxwell, JSI Research and Training Institute, Inc., Ostrom (eds), Local Commons and Global Interdependence: 44 Farnsworth Street, Boston, MA 02210 1211, USA, Heterogeneity and Cooperation in Two Domains, Sage, Tel: +1 617 482 9485. Fax: +1 617 482 0617. London. Email: [email protected]@jsi.com Reinhardt, F. (1989) Harvard Business School Case Pre- Sanford Weiner, Massachusetts Institute of Technology, pared for the National Wildlife Federation, Washing- MA, USA ton, DC. Forrest Briscoe, JSI Research and Training Institute, Inc., Reisch, M. and Zurer, P. (1988) CFC Production: DuPont 44 Farnsworth Street, Boston, MA 02210 1211, USA, Seeks Total Phase-out, Chemical and Engineering News, 4 Tel: +1 617 482 9485. Fax: +1 617 482 0617. April. Email: [email protected]

Bus. Strat. Env, Vol. 6, 276±286 (1997) # 1997 John Wiley & Sons, Ltd and ERP Environment.

286 BUSINESS STRATEGY AND THE ENVIRONMENT