Under what circumstances can they be complementary to each other?

Formal regulation is environmental policy regulated by government institution which has formal (law & institutional) consequences. The first formal regulation is policy that seek to harness the positive links between development and environment including: (i) policy of building on the positive links which means many policies that good for efficiency are also good for the environment. For example policy to promote less consumption of raw material (papers) in state enterprise, it will reduce company’s spending for stationary and the same time saves consumption of woods for paper; (ii) policy of removing distortion, distorted incentives of government subsidy on energy. This will reduce government spending, and also promote efficiency in the use of energy.

The second formal regulation is targeted policies to change behavior including (i) policy based on incentives, which tax or charge polluters according to the amount of damage they do. This policy encourages those polluters with the lowest cost of control to take the most remedial action. Examples of this policy are fuel and vehicle taxes in most OECD countries, surcharges and stumpage fees to pay for replanting the forest in Indonesia; (ii) policy based on quantitative restrictions, such as specific regulations on what abatement technologies must be used in specific industries.

Informal regulation is ways to tackle environmental problem by non governmental policy. This informal regulations include (i) community pressure, improvement in the quality of life leads to stronger pressure on polluting facilities, public needs cleans sanitation, unpolluted air, access to clean water. This community movement to defend their rights and become powerful people power to fight environmental problem; (ii) Reputation, the company need to market their product in positive image, along with awareness amongst people of environmental problem, the more friendly product and company, the more likely consumers prefer to buy their products; (iii) involving local participation, neither government nor NGO are equipped to make judgments about how local people value their environment. Local participation also yields high economic and environmental returns in implementing program of forestation, park protection, water management, and sanitation. For example of local participation is a large irrigation project in Bali, Indonesia failed to recognize the advantages of traditional approaches, a follow up project that built on indigenous strengths succeeded.

That formal and informal regulation can be complementary under circumstances when government has conflicting social economic objectives, which allow them to use resource inefficient, or in case of weak government institution to face corporations, or inadequate data and knowledge for formal institution in finding solution with local people.