Environmental Law – Sinden 2009
Background: Recurring Policy Themes
A. Introduction: Non-economic Perspectives on Environmental Degradation
a. Introduction. We have an environmental problem with pollution in almost every aspect. Recognized in the ‘60s, which led to large environmental statutes in the ‘70s.
i. Basis of Environmental Problems
a. Collective Action Problem. Environmental problems require collective action to fix them; i.e. everyone working together to change the impact of pollution on society, however incentives exist for individuals in the group to “free ride” because they will receive the benefits of the collective action without having to do anything.
2. Lack of information
3. Values. Economic/Non-economic, Human-centered/Nature-centered. Everyone differs in what we value.
b. Non-Economic Perspectives on Environmental Degradation
i. Human-Centered (Mark Sagoff). Environment should be treated in a way that advances the interest of human beings in a socially beneficial way. The focus of environmental regulation should be greater social good and values of the country (and human beings) as a whole rather than personal economic gain through market forces.
ii. Nature-Centered (Paul Taylor).Focuses on valuing living things (though not inanimate things) on the same level as humans and focusing on their welfare as well as human beings in developing environmental law. Puts human beings on the same level as other living things (both plants and animals).
B. Economic Perspectives
a. Goal is to maximize social welfare. The economic perspective’s normative goal is to maximize social welfare: the sum of the private welfare of each individual in a society.
b. Balancing test to determine the socially optimal amount of pollution.
i. Look to both the victims of pollution AND those who cause the pollution. A reduction in pollution is socially advantageous only if it increases the welfare of the victims of pollution by more than it decreases the welfare of those who cause the pollution.
ii. There exists a socially optimal amount of pollution. Therefore, there is a socially optimal amount of pollution, and less pollution can be as undesirable as more pollution, b/c then we are infringing on the welfare of those who cause the pollution without increasing the welfare of the victims of the pollution enough to justify that infringement.
c. Tragedy of the Commons (Garrett Hardin) explains environmental problems. Economic’s answer as to why environmental problems exist, and this explains why they propose what they do to solve the problem.
i. Definition. With a common resource, each person is attempting to maximize their personal gain, which eventually hurts the entire community. Therefore, “freedom in a commons brings ruin to all.” Exacerbated by the collective action problem and free riders.
ii. Applied to the environmental problem. A firm contemplating the discharge of pollution faces the same calculus as the herder in the commons, receiving a benefit from adding pollution to an environmental commons, such as an airshed or a river or lake. The aggregate effect of such decisions, however, is to produce an excessive amount of pollution, harming society as a whole.
1. Advocates government action. Government should intervene to prevent excessive exploitation of a commons.
iii. Externalities. Costs not born by the actor (the polluter)
1. Example. The social costs of polluting. The pollution cost on society caused by a factory is an externality. B/c the pollution falls on other people outside the factory, the cost of it is external to the factory’s calculations of the cost of their steel, for example
2. Applied to tragedy of the commons. The externality is the over-grazing of the cattle. The herder doesn’t bear those costs himself, but rather the rest of the cattle-grazers will bear the cost.
d. Pigou and the Problem of Externalities. Pigou argued that externalities caused a market failure b/c they are essentially social costs not accounted for by the market.
i. Tax solution to internalize externalities. Proposed a solution – that a tax should be imposed on the polluting entity. Ideally the tax is equal to the dollar cost that the pollution is costing society. Imposing a tax on the externality means the externality is internalized into the market, because the pollution is not being accounted for and there will be no market failures.
e. Coase Theory – Response to Pigou. Makes 4 important claims that rebut Pigou’s theory that government intervention with a tax is the solution.
i. Problem of pollution is reciprocal. The polluter and the victim of pollution are simultaneously present, and the problem is not only the polluter’s. Protecting one causes harm to the other, e.g. protecting the victim causes harm to the polluter, just like protecting the polluter would cause more harm to the victim.
1. Contradicts Pigou. Coase says polluter isn’t the bad guy – should be thought of as reciprocal and not in such a moralistic view.
ii. In the absence of transaction costs, parties will negotiate to the same result regardless of the legal rule. When a polluter and pollutee can bargain costlessly, they will reach socially desirable agreements, and the resulting amount of pollution will be independent of the legal regime.
1. Imposition of the legal regime (injunction);parties still reach same result. If the legal regime enjoins the pollution but the harm to the factory (polluter) is greater than the harm that the laundry (pollutee) would have suffered in the absence of such an injunction, the parties will enter into a contract under which, in return for a payment, the laundry will agree not to exercise its right to seek an injunction.
a. Converselyà If the legal regime allows the pollution but the resulting harm to the laundry is greater than the harm that the injunction would impose on the factory, the parties will enter into a contract under which, again in return for a payment, the fatory agrees not to pollute.
iii. That result of their negotiating will be the economically efficient (i.e. socially optimal) result. There is an optimal amount of pollution, and it’s often not zero b/c of the reciprocal needs of the parties.
1. Definition of economic efficiency.
a. The level at which net benefits are maximized to the society as a whole
b. The socially optimal point
c. The point at which marginal costs are equal to marginal benefits (e.g. factory and laundry problem graph)
iv. If transaction costs are substantial, the background legal rule will determine the result. The government should effectuate the result that would have been reached through negotiation without transaction costs. Therefore, Coase admits that sometimes you n
Significant Risk” standard from §3 of the statute – comes from the “safe” language. Safe doesn’t always mean risk-free, therefore unsafe means some kind of significant risk, not any old risk.
4. What is a “significant risk”? Very arbitrary. 1 in a billion is not significant, but 1 in 1000 is significant; somewhere in between is a point of significance
D. Risk Management (Cost-Benefit Analysis and its alternatives)
a. Environmental Regulation requires 3 questions:
i. Whether to regulate at all; if yes then…
ii. How much should we regulate (or how much regulation should we allow); if we know how much then…
iii. By what mechanism should we regulate
b. Determining How Much to Regulate. 3 ways to answer this question:
i. Effects Based. Effects based standards are cost-blind, and look instead to the effects of the regulation on human health and consequences
1. Example. §109(b) of CAA. Setting the NAAQS standard; mandates administrator to set the standard “requisite to protect public health.” ESA is also effects based.
2. Effects-Based Standards as Incentives for innovation. Seen in Breyer’s concurrence in Whitman. Effects-based standards are stringent, but they ultimately force industry to find cost-efficient methods of reducing pollution.
ii. Feasibility. Feasibility standards ONLY look at costs, and are benefits-blind.
iii. Cost-Benefit Analysis. Somewhere between effects-based and feasibility; look both to the costs and the benefits of the regulation.
1. Example – CBA in the TSCA. Corrosion Proof Fittings v. EPA (1991).
a. Facts. EPA wanted to completely ban asbestos, but the statute (Toxic Substances Control Act) required a CBA.
b. Held. Court struck down the complete ban b/c the EPA didn’t do the proper cost-benefit analysis; must find the least burdensome regulation.
c. Reasoning. EPA must do a technically correct CBA that an economist would do; not a fuzzy, intuitive CBA. Therefore, EPA is required to 1) take the least burdensome approach, 2) consider alternative, 3) consider costs, and 4) must discount correctly.
2. CBA defined.Cost-benefit analysis sets out to do for government what the market does for business: add up the benefits of a public policy and compare them to the costs.
a. 3 steps:
i. Estimate Costs. Must calculate the costs of a public policy. E.g. gov’t requires businesses to buy certain pollution control equipment. This step is relatively easy
ii. Monetizing Benefits. Must monetize the benefits, which often means placing a monetary valuation of the benefits of life, health, and nature. Difficult to do
iii. Discounting the Future. Analysis often spans a number of years, future costs and benefits must be discounted