Spillover Effects of Voluntary Environmental Programs on Greenhouse Gas Emissions: Lessons from Mexico

We compare the environmental performance of voluntary environmental programs (VEPs) with different attributes. Using club theory, we argue that the differential performance of VEPs is due in part to their specific design attributes that will either enhance or diminish their ability to improve both targeted and untargeted environmental impacts. We analyze two VEPs in Mexico, the global standard ISO 14001 and the local standard Clean Industry. These two VEPs differ in the stringency of the standards and in their ability to sanction noncompliant facilities. These differences ensure that firms adopting the local standard are less likely to shirk their responsibilities and enhance potential spillover effects on untargeted environmental emissions. Our empirical results support our hypotheses and show that the local Clean Industry program is more effective in improving both targeted (toxic emissions) and untargeted environmental impacts (greenhouse gas emissions).