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COPYRIGHT 2001 Harvard Society for Law and Public Policy, Inc.
I. INTRODUCTION
There has been substantial environmental progress over the past several decades. Air and water quality, in particular, have improved, while the United States and other nations have reached unprecedented levels of prosperity. The apparent environmental successes of the past thirty to forty years, however, should not blind us to the deficiencies of the dominant approach to environmental protection. Today's environmental programs will not be able to continue the trend of environmental improvement. We have reached the limits of centralized environmental regulation. Indeed, in some cases we have already surpassed those limits and environmental programs themselves stand as the greatest obstacles to continued cleanup and conservation:
* The federal Superfund program,(1) created in 1980, was supposed to facilitate the rapid cleanup of abandoned hazardous waste sites. Instead, Superfund projects are plagued by excessive costs, litigation, paperwork, and delay. By 1996, the average Superfund cleanup took over a decade as cleanup costs escalated.(2) As of June 30, 1999, the Environmental Protection Agency ("EPA") claimed to have cleaned up half of the over 1,200 sites on the National Priorities List ("NPL") -- the EPA's official list of the most hazardous waste sites -- yet fewer than 200 had been actually taken off the list.(3) While Superfund is slow and costly, it is not at all clear that it does much to protect public health. According to one recent study, the target risk levels used for cleanups are more a function of politics than of scientific analysis.(4) Even accepting the EPA's overcautious assumptions, the mean cost per cancer case averted at a site is over $10 billion.(5) As if this were not bad enough for neighboring communities, fear of liability discourages local investment or redevelopment near designated sites. Instead, companies avoid these "brownfields" and increasingly opt to site facilities in rural or other undeveloped areas, increasing America's industrial footprint.(6)
* The Clean Air Act ("CAA")(7) mandates the use of various fuel additives in gasoline, including oxygenates, which increase the oxygen content of fuels. Congress included the oxygenate provisions to placate special interests, particularly the ethanol lobby.(8) Adding oxygenates to fuel increases the price of gasoline but does not do much to help clean the air. In some cases, oxygenates can reduce emissions of one pollutant at the expense of increasing another. Worse, the most widely used oxygenate, methyl tertiary butyl ether ("MTBE") has been linked to widespread water contamination.(9) In the state of Michigan alone, some 500 wells are contaminated with MTBE.(10) This is hardly the only time the CAA has produced perverse environmental results. Provisions in the 1977 legislative amendments, for example, were designed to benefit regional coal producers at the expense of their competitors, and air quality suffered as a result.(11)
Enacted in 1973, the Endangered Species Act ("ESA")(12) was supposed to bring species back from the brink of extinction. Yet in nearly thirty years, fewer than thirty of over 1,000 domestic species have been taken off the endangered and threatened species lists. Of these, more have been delisted by reason of extinction than because of recovery due to the ESA's protections.(13) One problem is that regulatory protection for endangered species discourages habitat conservation on private land. Stringent land-use restrictions make ownership of endangered species habitats a liability instead of an asset. The presence of a listed species can freeze the use of private land, barring everything from home construction and timber cutting to farming and clearing firebreaks. Faced with this risk, landowners respond accordingly. Indeed, there is increasing evidence that landowners preemptively destroy potential habitat rather than risk federal regulation.(14)
These are but a few examples of the harms caused by existing environmental programs, each of which costs the American people billions of dollars per year. Taken as a whole, today's environmental regulations impose substantial costs and inequitable burdens, generate meager benefits, and divert resources from environmental efforts that could produce more significant gains.
This Article seeks to outline an alternative approach to environmental policy, one based on market institutions and property rights instead of central planning and bureaucratic control. In principle, this entails nothing less than a complete reorientation of existing environmental policy. The aim is both to improve environmental protection and to lessen the costs -- economic and otherwise. It seeks to enhance environmental protection without sacrificing individual rights or economic liberty, to safeguard environmental values without expanding government control of Americans' lives, and to find solutions grounded in market institutions, not regulatory bureaucracies.
Part II of this Article diagnoses the problem with conventional approaches to environmental policy. It is not merely that existing regulations and programs are inefficient or overly bureaucratic. Rather, the failure of existing environmental strategies is the inevitable result of an outlook that views government regulation as the proper policy response to each and every activity that produces an environmental impact. This approach to environmental policy is a recipe for ecological central planning and is destined to fail.
Part III provides a cursory outline of an alternative paradigm for environmental protection that is grounded in market institutions, particularly property rights. This vision is often referred to as "free market environmentalism." By focusing on institutions and the incentives that they create, this approach to environmental policy seeks to reconcile human demands for economic well-being, safety, and environmental protection by incorporating environmental resources and values into the marketplace, rather than regulating them outside economic institutions.
A new science of environmental protection will not, indeed cannot, be implemented overnight. Political and institutional change is necessarily incremental. With this in mind, Part IV outlines a series of principles that should guide those interested in a more efficient, effective, and equitable approach to environmental protection, and offers specific examples of policy reforms that can reconcile environmental protection and market institutions.
II. DIAGNOSING THE PROBLEM
A. The Call for Change
Environmental regulation imposes a large and growing burden on the United States economy. In 1999, environmental regulations cost an estimated $206 billion -- over one-quarter of the total federal regulatory burden.(15) These costs are rarely readily apparent; rather, they are buried in the costs of products and services throughout the economy. Apparent or not, the pinch is real -- over $2,000 for the average family of four in 1999.(16) These numbers will only increase in the years to come. In late 1999, the EPA's accounted for over ten percent of all new rules in the regulatory pipeline.(17) Of the 137 forthcoming major rules identified by the federal government in October 1999, the EPA accounted for twenty-eight, over twenty percent of the total, and more than any other federal agency.(18)
Environmental regulations are certainly costly. The relevant question is whether they produce much in return. After all, if the benefits outweigh the costs, it may not be worth quibbling over the price tag. The EPA claims that many of its rules represent cost-effective approaches to pressing environmental concerns, but critics suggest otherwise.(19) Assessing the record is difficult due to the lack of consistent reporting by regulatory agencies of regulatory costs and benefits.(20) Moreover, it is difficult -- if not impossible -- to account accurately for the value of environmental protection, particularly in the context of unowned, i.e., "public," resources.(21)
There is no question that the early environmental laws seemed to work well.(22) Beginning in the 1960s, many indicators of environmental quality showed distinct improvement.(23) Some of these gains were likely due to the first generation of federal environmental regulation. The rest occurred due to state and local efforts or other extraneous factors.(24) The initial generation of environmental policy was effective principally because it was plucking low-hanging fruit; removing lead from gasoline and preventing the disposal of raw sewage in rivers were relatively easy issues to address. Environmental problems were obvious and economical policy measures were readily available. Not so any more.
Today few low-hanging fruit remain, and the existing regulatory system is ill-equipped, if not constitutionally unable, to reach any higher.(25) As regulations tighten, they yield diminishing marginal returns. In 1997, the EPA proposed a further tightening of national ambient air quality standards for ozone ("smog") and particulate matter ("soot"). Independent analysts estimated the new rules could cost as much as $90 to $150 billion per year to implement.(26) By the EPA's own estimates, the costs of the new ozone standard would exceed the benefits.(27) One reason is that all of the relatively inexpensive control measures have been adopted. For example, under current federal regulations, a new car produced in 2000 emits over 90 percent fewer emissions than a car produced just a few decades ago.(28) There is not much more to be gained by tightening these standards even further.
Continuing to press for further incremental gains is increasingly expensive and, in some cases, results in net environmental harm.(29) For instance, when reviewing the EPA's proposed revisions to national air quality standards, the Court of Appeals for the D.C. Circuit found that the EPA ignored evidence that further tightening the ozone standard could have negative impacts on public health.(30) Today's hyper-stringent environmental regulations are themselves substantial barriers to ecological conservation and pollution reduction in many sectors of the economy. Newer technologies are often subject to more stringent environmental regulations despite their potential to reduce environmental impacts. As the Clinton Administration noted in its report Reinventing Environmental Regulation: "Prescriptive regulations can be inflexible, resulting in costly actions that defy common sense by requiring greater costs for smaller returns. This approach can discourage technological innovation that can lower the costs of regulation or achieve environmental benefits beyond compliance."(31)
These problems in environmental policy have gradually produced a consensus on the need for significant reform. With few exceptions, environmental analysts recognize that changes must be made in order for environmental gains to continue into the twenty-first century. "The EPA's programs need some major rethinking, and they're not getting it," observes Terry Davies of Resources for the Future.(32) According to the United States Advisory Commission on Intergovernmental Relations, "federal rules and procedures governing decisionmaking for protecting the environment often are complex, conflicting, difficult to apply, adversarial, costly, inflexible, and uncertain."(33) Analysts at the Progressive Policy Institute, a think tank affiliated with the Democratic Leadership Council, note that existing environmental regulations "are increasingly inefficient in a fast-paced economy and too rigid" to address modern environmental concerns.(34) "The current system, consisting mainly of end-of-pipe, technology-based regulations, is inadequate for the challenges ahead," observes Karl Hausker who oversaw the Enterprise for the Environment project, an effort to develop a consensus on environmental reform.(35) Most analysts agree on the need for change, if not on the kinds of change required.
B. The Failure of Central Ecological Planning
Conventional environmental policymaking presupposes that only government action can improve environmental quality. In this view, environmental problems arise from "market failures" that produce "externalities." Government regulation is needed to correct environmental concerns that the market has failed to handle because they are "external" to the price signals that regulate marketplace transactions. To say that the market has failed simply means that human activity has generated an environmental impact that is not accounted for in the price of that activity. Thus, the conventional paradigm of environmental policy justifies the regulation of all activities -- from driving a car to turning on a light bulb -- that have an impact on the environment that is not factored into the cost of the product or service. Economic central planning may be intellectually and historically discredited, but the "market failure" thesis justifies environmental regulatory control of just about everything. As a result, current regulations tell landowners where they can build a home or plant a garden and instruct businesses on how best to manufacture goods and handle byproducts. Indeed, the federal government has passed environmental regulations governing everything from the chemical composition of gasoline(36) to the design of home appliances, including washing machines and toilets.(37) As environmental analyst Richard Stewart observed, "the system has grown to the point where it amounts to nothing less than a massive effort at Soviet-style planning of the economy to achieve environmental goals."(38)
The dilemma for policy makers is that ecological central planning cannot succeed any better than its economic cousin. Indeed, the likelihood of long-term success is even less in the environmental context; planning the "production" of air quality or other ecological "goods" is orders of magnitude more complex than planning the production of shoes or wheat. Centralized regulatory agencies are ill-equipped to handle the myriad ecological interactions triggered or impacted by private activity. No doubt the first generation of environmental regulations produced some significant gains -- just as the Soviet economies once appeared productive.(39) Over time, however, every centrally planned economy collapsed under its own weight. As centralized environmental regulations reach their limit, they too begin to falter.
In the Soviet system, further gains in production were achieved for a time through the reliance upon tradable quotas and other efforts to design a "market socialist" system.(40) Similar proposals are forwarded today to add market incentives to the existing regulatory infrastructure. Nonetheless, most environmental analysts recognize that federal regulatory policies are too costly and ineffective and cannot be relied upon into the future.(41) The problem is not merely one of regulatory design; it lies at the core of the current environmental approach.
Under the conventional approach to environmental policy, federal regulators who are located in or at least are responsible to Washington identify the greatest environmental concerns for the nation as a whole. Next they must identify the causes of these problems, and the proper solutions. Regulatory strictures must be designed to account for the myriad differences between industries, communities, and ecosystems. Monitoring and compliance systems must be developed to ensure that standards are met and dictates are obeyed. Because the federal government itself cannot be trusted, additional measures are necessary, including strict legislative deadlines, private "citizen suit" provisions that can force the government's hand, and "parallel" liability systems to impose additional costs upon noncompliant firms.(42) It does not end there. As circumstances change, the whole system must be revised to take into account new factors by incorporating new environmental threats into the system without forgetting to address the old.
Such a system cannot work because each and every step requires more information than can be realistically gathered or processed. Environmental problems are not uniform, nor are their solutions. The carrying capacity of a given pasture or stream or the vulnerability of a given ecosystem to disruption changes with time and place. One river may suffer from excessive nutrient loads, another from a deficiency. Smog in one city may be due to exorbitant levels of nitrogen oxide ("NOx"); in another, NOx controls may actually increase smog formation.(43) As a result, centralized environmental regulation is inherently limited by "the inability of central planners to gather and process the information...
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