Methods of Environmental Regulation
1) Imposed Controls- the government can protect the environment by dictating amounts or methods of controlling pollution
a. Technology based standards (BAT)
b. Ambient quality standards (NAAQS)
2) Market Incentives- The government may use market forces to induce private organizations to reduce pollution to the levels they find economically desirable
a. Effluent Fees (Tax the polluter)
b. Marketable Pollution Rights
i. Netting- allows firms to avoid most stringent emissions limits by reducing emissions from another source (Bubble Concept)
ii. Offsets- Offsetting allows a firm to obtain “emission credits” from sources in the same areas through internal or external trades
3) Subsidies- the converse of taxing a polluter is to give a subsidy to the facilitates that produce the lease pollution
Environmental Values and Policies: An Introduction
Sustainable Development- the concept that future generation will enjoy the benefits of both a prosperous economy and a healthy environment
Proponents that Environmental Law is to Burdensome Propose the Following
– devolve authority from the federal government to the state governments
– rethink basic approaches to preserving bio-diversity
– suspend future regulatory action until science answers more question regarding human impact on the environment
– subject all regulation to a rigorous cost/benefit analysis
– replace regulation with a market that can allow polluters to trade polluting permits.
Environmental Problems and Progress
The Impact (I) of human behavior has on the environment results from the combined effect of population size (P), the level of affluence (A), and the type of technologies (T) that enhance our abilities to consume resources. I=PAT
The automobile which did not exist at the turn of the century is now responsible for 1/3 of global greenhouses gases and is a major source of some of the most harmful air pollutants.
Sometimes we set standards for pollutants that we think are safe but really are not. Lead is an example of a pollutant whose levels have been lowered throughout the 70s’ because it was learned that even a small amount of exposure can be deadly.
The road to environmental progress is only going to get more difficult in the future. In the beginning we picked off all the low hanging fruit, the easy stuff to clean up, the lakes and rivers that were on fire, the open sewage areas, the smog in our cities. Now that all the cheap, obvious, and easy stuff has been managed, we need to more onto the harder areas were people are going to have to change the way they live if progress is going to continue.
Politics has now also gotten in the way of progress. Everyone agrees that environment needs protecting but how to go about this protecting is split on partisan lines. Republicans are more concerned with a cost/benefit analysis and want to make sure that in order to clean up a pollutant we don’t have to sacrifice the entire economy.
Economics and the Environment
The Role of Prices and Markets
Market systems generate pollution because industry “inputs” such as water and air are under priced. Because no one owns these resources business will use them up freely ignoring the external costs imposed on others. If a company pollutes a river and people are harmed down stream, they should be forced to internalize the Externality and compensate those people for polluting their water. If this happened the company would be paying for the water it polluted an no longer would the water be under priced.
Free-Access Problem- this is the tragedy of the commons, if people are asked to weigh between private benefits against private costs (as opposed to social costs) they will over exploit the common resources when given free-access to them.
Free-Market Environmentalists- these people advocate doing away with regulation in favor of the people who are being affected by the negative externalities to sue the company that is responsible and forcing them to internalize their pollution.
– The problem with this is the free-riders and transaction costs. In order to bring a law suit it costs money to pay for the lawyers and all the proceedings. In conjunction with this, people who are not willing to participate in the law suit will still benefit by just sitting on the sidelines and enjoying the benefits of other peoples transaction costs.
Polluter Pays Principle- having the polluter pay for the externalities caused by its pollution ensures that the costs of production reflect the environmental damage.
Beneficiary Pays Principle- this principle is more applicable in the internationals arena (global warming). All countries benefit from a decrease in global warming but some will free-ride while others regulate their economies. Therefore if you benefit you should pay to eliminate the free-riders.
Course Theorem- pollution will be abated only if controlling it is cheaper than the damages it causes its victims. If it costs $10 to install a filter to eliminate the pollutant but only $5 to protect the community from the pollutant, the company will pay the $5 and keep polluting.
Economic Efficiency as a Policy Objective- the environment is a resource that is under priced. If it were priced accordingly markets would ensure that it was used by whoever values it most.
Cost Benefit Analysis
Cost Benefit Analysis seeks to compare the social benefit of the policy to its opportunity cost. Some times it is difficult to quantify accurately the cost of something. For example how do you place a value on lost recreational activities? Historically, these types of “hard to quantify” things were calculated by how much a person would be willing to pay for that benefit. If recreation is worth $5 to an average person then that his how much recreation would be worth in a CBA.
The human life is valued at $7,000,000 (EPA).
Valuing Ecosystem Services
Ecologists have been attempting to place a monetary value on the services entire ecosystems perform for the benefit of humankind. Ecologists place the value on the world’s ecosystems at $33 trillion just less then double the entire world’s GNP of $18 trillion.
Ecosystem Services include purifying air & water, detoxifying and decomposing waster, renewing soil fertility, regulating climate, mitigating droughts, and controlling pests. It would be extremely expensive for human beings to replace any of these ecosystem services if there were to fail. When we destroy the wetlands we destroy nature’s defense to flood control. When we deforest we destroy nature’s service of water purification and the removal of CO2. These costs need to be included when looking at the effects of our actions and are rarely included in CBA.
Sometimes it is cheaper to repair the ecosystem service then it is to invest in new capital to do the job of the ecosystem. In the 1990s New York City had to redo its water strategy and realized it was cheaper to protect their natural watershed.
If ecosystem services are more cost effective, why has the market not set up systems to utilize them? The answer is threefold
– Ignorance- people take our ecosystem for granted
– Institutional inadequacy- our laws were not set up with this kind of system in mind
– The problems inherent in public goods- there is no market or way to price “pollination or water purification”
The old generation of ecologists believed most eco-systems exhibit a homeostasis, the quality of returning to a self sustaining equilibrium. The amount of disturbance that an eco-system could absorb and still maintain its homeostasis was referred to as its “carrying capacity”. This carrying capacity can be upset by introducing a new species into an eco-system or the spraying of pesticides that bio-accumulates in the tissue of the animals and kills the bald eagle (weak egg membranes)
We need to change our philosophy on environmentalism from one obsessed with removing human beings from nature to one that aims at continuing our advancement in productivity but in a respectable way. Environmentalists like to view new technology as guilty before innocent.
The Myth of the Balance of Nature- nature is not in a balance, it is constantly changing and adapting and that it is impossible for the status quo to be perpetually kept. Sometimes what we think is a product of nature, something that is totally natural, is in fact created by human beings. An example is the old growth forests that were maintained by the Native Americans by lighting them on fire every 10 years.
Natural ecological systems are dynamic and are in a constant state of change. We used to treat a nature preserve like a jar of strawberry preserve, all they needed to be kept the same was to be set a side and left alone.
Common Resource Pools
The tragedy of the commons applies to many different facets of the environment. National Parks for example will cease to exist in the future if as many people as want can enter onto them. Regulation will need to be set up to limit the access people have to these parks. Private property is often the easiest way to solve a tragedy of the commons. However, it is impossible to fence in the air or the waters in our ocean. Therefore we need to find a new way to regulate these commons forcing the polluter to pay a higher price for polluting then for cleaning up their pollution.
Toxic Substance Control Act
§6 of the TSCA- authorizes the EPA to promulgate a rule prohibiting or limiting the amount of a chemical substance that may be manufactured, processed, or distributed in the U.S. if the EPA finds there is a reasonable basis to conclude that the chemical substance presents an unreasonable risk of injury to human health or the environment.
The EPA needs to do a cost/benefit analysis to see if the rewards from regulation outweigh the costs of the regulation.
Corrosion Proof Fitting v. EPA- The EPA passed a regulation banni
-regulatory alternatives are becoming increasingly important complements to regulatory policy.
1) Communities have the ability to protect their natural resources by stewarding them themselves without government regulation. Lobster men do this through violence and keep out any outsiders who are not part of their community.
2) Natural Resources can also be privatized which protects them. By creating enforceable property rights people have an incentive to protect what is theirs.
a. Private property is more likely to protect actual land then it is the air or water
3) Some regulation requires that companies purchase insurance before engaging in activities that create environmental risk to ensure that the liability system can provide compensation for environmental damage.
Can control risk rapidly and efficiently when consumers are well informed and have a choice of alternatives (Green Marketing)
Inadequate incentives to generate and disclose accurate information to consumed many risks not tradable in markets due to the absence of transferable property rights.
Common Law Liability
Provides compensation to victims; more efficient that regulation when private parties have better information that the government about nature of risks and how to control them
Inadequate incentives to control risks die to difficulties of proving causal injury and recovering for harm that is widely dispersed or in excess of sources capacity to provide compensation.
Can efficiently prevent environmental harm by internalizing external costs of risky activity; can be used to respond to equity concerns by altering the distribution of risks and benefits; can be used to generate better information about risks
Does not provide compensation to victims of environmental damage; difficult to tailor and take into account differences in regulatory targets; can be counterproductive in the absence of accurate information
Helps ensure that compensation will be available for the victims of environmental damage
Can reduce incentives to prevent environmental damage.
The Regulatory Option
(1) Regulation usually begins when society becomes aware of a collective problem. This awareness begins when the public sees something on television and the media shows its potential to harm the public. (2) Next society identifies a regulatory target, a product, pollutant, industrial facility that is to be blamed for the environmental hazard. (3) It selects some basis for establish controls to combat the problem, technology based, risk benefit balancing or health based regulation. (4) Its chooses a type of regulation to implement, design standards, performance standards, ambient standards, taxes, ect…
Products- the TSCA allows the EPA to regulate just about every aspect of the life cycle of a chemical substance or mixture.
Industrial Facilities- federal regulation targeted at these are the easiest to enforce because these facilities are fewer in number than individuals. Also, enforcement against facilities does not raise any questions about federalism as it does when the federal government tries to regulate the states.
Government Agencies- some times government entities are regulated because they operate facilities that have become pollution problems like public water systems and sewage treatment plants.
Individuals- this is not very popular and there are few examples. Individuals cannot take or kill endangered species. Individuals have the ability to elect their representatives, so if congress tries to impose limitations on individuals the congressman who voted for it might not get re-elected.
Bases for Controls
Health (or Environment)- the EPA is not supposed to look at costs or whether we have the relevant technology to achieve it when setting health standards. The EPA simply finds out what level is safe, puts in a margin for safety, and then it is up to industry to figure out how to achieve these goals.