Professional Documents
Culture Documents
Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, Vol. 51 No. 9, http://www.fee.org/publications/the-
Freeman/article.asp?aid=3690))
I hope I don’t sound outrageously cynical when I say that employees of the EPA are willing to sacrifice
environmental quality for personal gain. I hasten to add that I am not singling out EPA employees for
special criticism. They are just like the rest of us. We all do things for personal benefit that harm the
environment (almost everything we do causes some environmental harm). It shouldn’t be surprising that
EPA employees do the same. Command-and-control policies are not the best for protecting the
environment, but they are great for protecting (and expanding) EPA budgets and jobs. The EPA has
more to do when it is involved in the details of pollution control than it would if decisions were shifted
to those with more information on local conditions. As The Economist pointed out, “The EPA exists to
regulate things, not to see the market do the job for it.”1
Few things are easier than convincing yourself of the social virtue of things that serve your interest, so
most EPA officials are likely convinced that command-and-control policies are justified.
But even if they are motivated by civic virtue, EPA officials benefit by reducing pollution through detailed
regulation. And since they are well organized and considered experts on pollution control, their views have
significant influence on environmental policy.
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Doul et al 96 (John, Department of Pharmacology, Toxicology and Therapeutics, Kansas University Medical Center, Bernard Goldstein,
Director, Environmental and Occupational Health Sciences Institute and Chairman, Joshua Lederberg, President Emeritus, Rockefeller
University Sheila McGuire, President, Iowa Health Research Institute David Rall, Former Director, National Institute of Environmental Health
Sciences Virginia V. Weldon, Senior Vice President for Public Policy, “Commission on Risk Assessment and Risk Management”, June 13,
http://www.riskworld.com/nreports/1996/risk_rpt/html/nr6aa001.htm#TC1)
In some cases, OSHA may be an exception, we may have reached a point of diminishing returns, in that
each incremental improvement in human health- and environmental-risk reduction comes only with a
large increase in control costs, or benefits of additional regulation may be slight because so much has
already been invested in environmental risk reduction. In still other cases, the cost of risk reduction is
aggravated by the rigidity of the underlying command-and-control regulatory system. Rule-makings
and permitting processes become de facto design standards sanctioning the use of specific technologies
for pollution control. There may not be adequate flexibility for tailoring remedies to reflect the
circumstances of individual sources and locations, including the relative advantages that different
companies might have in choosing risk-reduction options. For some, especially small businesses, there
may be a preference for design standards because resources for research and innovation are limited.
For progress to continue, we must look beyond command-and-control regulatory programs. The call for
alternatives to command-and-control regulations was particularly strong in presentations received by the Commission outside of Washington, D.C. In
addition, federal agencies emphasized their commitment and cited their projects aimed at finding effective alternatives to command-and-control regulation.
This subsection discusses several analytic tools for identifying when environmental protection is improved and risk reduced, and endorses a number of
alternatives to command-and-control regulation that should be considered when there is interest in going beyond current levels of protection and risk
reduction.
Command and control regs prevent the best local solutions, become caught up in EPA
politics
Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, Vol. 51 No. 9,
http://www.fee.org/publications/the-Freeman/article.asp?aid=3690))
The EPA can never acquire all the information necessary to know the cheapest way for each of a large
number of polluters to reduce its pollution. And even if by some miracle it did have the information, it
wouldn’t use it properly for reasons that I will explain. Not surprisingly then, the EPA regulations do not take
different circumstances into account. Instead, the EPA typically imposes uniform regulations on very
different situations, making it unlawful for polluters to control pollution in the cheapest way possible.
Imagine the federal government’s taking over shoe production and making all shoes the same size. Ridiculous, right? But no more ridiculous than some of
the consequences of the EPA’s “manufacturing” one-size-fits-all pollution-control commands.
For example, one EPA regulation mandated that 30 percent of the organic matter be removed from the inflow into sewage treatment plants, probably a
defensible regulation in most cases. But not in Anchorage, Alaska, which is blessed with some of the purest water in the world because it comes from nearby
glaciers. Anchorage officials asked the EPA for a waiver, since its untreated inflow was cleaner than the treated outflow in most jurisdictions, and removing
30 percent of almost nothing would require building a new $135 million treatment plant. The EPA refused to grant the waiver. So Anchorage officials had
fish guts dumped into the water and then removed most of them—surely exceeding the 30 percent requirement by a wide margin. Anchorage taxpayers
saved buckets of money and EPA mandates were satisfied, but the water was dirtier than before.1
Such one-size-fits-all regulations obviously prevent polluters from protecting the environment in the
most cost-effective ways. The people closest to the situation, who know the most about reducing their
pollution, should be allowed to utilize that knowledge to reduce pollution as cheaply as possible.
If the EPA quit telling people how to reduce pollution and simply told them how much to reduce, each
polluter could use its localized knowledge to reduce pollution in the cheapest way possible. This would
be an improvement over the prevailing practice of imposing uniform approaches to pollution control.
But it takes more than allowing people to reduce pollution at least cost to minimize the cost of reducing pollution. The EPA would also
have to require a pattern of reduction that equates the marginal cost of reduction for all polluters.2
The EPA could never collect all the information necessary to determine how much each firm should
reduce pollution to achieve the least-cost pattern. The information is too dispersed and sensitive to
local circumstances, and too subject to change, to be collected, processed, and updated in order to be
appropriately considered by the EPA. Therefore the agency operates in an informational vacuum and
couldn’t fine-tune its commands to fit local circumstances even if it wanted to. And it wouldn’t want to.
Even if the EPA had all the information necessary to determine the least-cost pattern of pollution
reduction, political considerations would insure that it would not be used properly.
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Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, Vol. 51 No. 9,
http://www.fee.org/publications/the-Freeman/article.asp?aid=3690))
The least-cost pattern of reduction will generally require that some polluters (low-cost reducers)
reduce a lot while others (high-cost reducers) reduce very little. This will seem arbitrary and unfair,
since the implications of differences in marginal costs of pollution reductions are hard to explain in
concise and compelling language. (If such explanations were easy, the marginal value of economists would
be even lower than it already is.) So any attempt to force some firms to reduce pollution a lot more than
others is sure to motivate polluters to lobby politicians and bureaucrats to reduce their control
requirements. These lobbying efforts will be not only expensive, but effective as well, and the result will
have little to do with reducing pollution economically. For example, a firm that should reduce its pollution
a lot because it can do so cheaply may be in a district whose congressional representative chairs a committee
that can influence the EPA budget. Does anyone believe that in this situation the EPA would put the goal
of least-cost pollution reduction ahead of its budget? Of course not!
The evidence is clear that the command-and-control approach of the EPA misses opportunities to greatly
reduce the cost of achieving a given level of pollution control. For example, it has been estimated that the
marginal capital cost of removing a kilogram of biological oxygen demand (BOD)—a standard measure of
water pollution—varies from one penny for one firm to $59.09 for another.
In other words, if the first firm reduced BOD by one kilogram more while the second reduced it by one
kilogram less, $59.08 would be saved with no degradation in water quality.3 The saving would add up as the
first firm continued to substitute BOD reduction for the second until each had the same marginal cost of
reduction. The total saving can be substantial in each of a large number of pollution control situations.
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Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, The Freeman: Ideas on Liberty -
October 2001 Vol. 51 No. 10))
The Environmental Protection Agency’s attempt to reduce pollution with command and control suffers
from the same problem as attempting to direct the economy with socialism—central authorities dictate
outcomes without knowing what the outcomes should be or how they are best achieved. The EPA isn’t
any better at socialism than the former Soviet Union (or anyone else for that matter). Reducing pollution
efficiently requires information from many firms and coordination of their activities. This is clearly a
task for markets, since market prices excel at communicating widely dispersed information to those
who can respond to it most effectively by coordinating their actions with the actions of others.
But markets require private ownership, and pollution problems exist because our waterways and
atmosphere aren’t privately owned. If they were privately owned, there would be no pollution problems
because prices for discharging our waste in these resources would arise that would reflect the costs imposed
on others. But how can we use markets to reduce pollution if we cannot divide up, and parcel out as
private property, these resources? As we shall see, we can create an imperfect market that will reduce pollution far more
efficiently than the command-and-control approach.
Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, The Freeman: Ideas on Liberty -
October 2001 Vol. 51 No. 10))
In most markets price communication determines not only how much of a good goes to each consumer, but
also how much is supplied. When consumers want more of a good, they communicate that through higher
prices, and suppliers respond by increasing production as long as the marginal value to consumers (the price
they are willing to pay) is greater than the marginal cost of production. If oceans, lakes, rivers, and the
atmosphere could be privately owned and every owner could charge everyone whose discharges pollute
his water or air, then market transactions would determine the efficient amount of pollution. If
polluters wanted to pollute more, they would communicate that desire by offering to pay a higher price
to do so, and owners of air and water would allow more pollution until its marginal value (the price
polluters are willing to pay) is greater than its marginal cost. As I explained in my May and June
columns, the bargaining needed to determine this efficient amount of pollution is not likely to take place.*
So no market we create will determine the right amount of pollution reduction. That decision will
generally be made politically. But once made, we can create a market that achieves the reduction at far
less cost than can command-and-control policies. The EPA would issue transferable permits for a
particular type of pollutant; each permit would allow a given amount of discharge over some specified
period, with the total adding up to the allowable discharge of the pollutant. Because the permits would
be transferable, a market would quickly develop in which the permits are bought and sold at a price
that clears the market—equates the number of pollution permits demanded with the number that
exists.
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This was changed with the passage of federal legislation that effectively nationalized air and water quality in
the United States. What was becoming private property was made public property, almost a commons. The
new system of command-and-control regulation allowed polluters to operate legally if they had a
permit. With permits in hand, new polluters could enter already crowded river basins. The new regime
provided political access to industries and municipalities that hoped to postpone the day of reckoning
in common law courts. Environmentalists ran interference, since they typically preferred political
solutions to remedies based on property rights, markets, and the rule of law. A triumph on the
commons was reversed. Tragedy once again reared its head.
US command and control measures hurt the environment, land conservation proves
Badan and Ethier 93 (John A and Robert, founder and chairman of the Foundation for Research on Economics and the Environment
and Department of Agricultural, Resource and Managerial Economics, Cornell University, The Freeman: Ideas on Liberty - Vol. 43 No. 9)
As the U.S. works to promote free markets in Eastern Europe, the costs of its own environmental autocracy
are ignored or heavily discounted. Many of the government's resource agencies, such as the Forest Service, the Bureau of
Land Management, and the Bureau of Reclamation, operate in a perverse world in which they have incentives both to degrade the
environment and to lose money.
Bureau of Land Management lands are among the most degraded and eroded in the west. Yet the
agency continues to encourage, even require, overgrazing. Ranchers, who pay far below market rates
for grazing rights, have little incentive to invest in soil conservation or water storage. If they attempt to
rest an area through reduced use they are threatened with revocation of permits for underuse.
Many of the National Forests lose money while hurting the environment. They build roads whose costs
are not covered by the revenues from the timber sales they facilitate, while the environmental costs are
unaccounted for. Far more is invested in replanting than would be in a private forest, where natural revegetation is a realistic
option. Budgets are maximized while the environment and the taxpayer suffer.
It is essential that environmental groups realize the negative effects of command-and-control policies
on the environment. While politics may seem to be the cheapest route to environmental control, recent
conflicts over preserving old growth timber for spotted owl habitat show that environmentalists cannot
count on the political process. By replacing political-bureaucratic management with market forces,
property rights, and private management, we promote conservation and economic progress.
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Lee 1 (Dwight, Ramsey Prof at the Terry College of Business, U of Georgia, Vol. 51 No. 9,
http://www.fee.org/publications/the-Freeman/article.asp?aid=3690))
Command-and-control regulation typically increases the costs of doing business. But those costs are
often easier for a big business to handle than a small business, because large firms already have legal
departments to deal with the inevitable litigation that comes with environmental regulation, and they
can spread the costs of pollution control over more units of output.
Also, pollution-control regulation often reduces an industry’s output. This can increase industry profits
by allowing firms to raise prices and act like a monopoly cartel, something that is normally illegal. For
example, EPA regulations for reducing sulfur in gasoline have recently improved the profit outlook for
refiners by causing them to shut down some plants.2
Sometimes command-and-control policies are intentionally used to protect an industry against
competition at the expense of the environment. One blatant example involves air-pollution policy. The
1970 Clean Air Act established acceptable levels of several pollutants, including sulfur dioxide (SO2), the primary pollutant of coal-fired
electric generating plants. While requiring those generating plants to reduce their SO2 emissions, the Act did not specify how. The
cheapest way to reduce SO2 emissions is often to shift from high-sulfur eastern coal to low-sulfur
western coal, and that is exactly what many coal-fired plants did, even some in the east. The alternative
is to install stack scrubbers that remove much of the sulfur from the flue gas, but they are expensive,
consume large amounts of energy, and often do less to reduce SO2 emissions than simply burning western
coal.
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Adler 94 (Jonathan, Associate Director of Environmental Studies at the Competitive Enterprise Institute in
Washington, D.C, The Freeman: Ideas on Liberty, Vol. 44 No. 4, April)
If the federal government is mediocre at protecting environmental values, and spends much of its time
inflicting ecological damage, one may ask whether the federal government should be engaged in
environmental policy at all. The common law was premised on the protection of persons and their
properties and, as a result, was often used to prevent what is now considered environmental harm.
Polluters were not guilty of despoiling “public” water or lands, rather their crime was the violation of
the rights of others. In their chapter “Clean Water Legislation: Reauthorize or Repeal?” Meiners and Yandle
note that “The common law relies upon individuals seeking protection of their rights, not on group
lobbying before Congress.” This not only curtails efforts to politically impose ecological asceticism, but
in some cases “the common law often sets standards far tougher than those set by statutes.” Under
common law protections, no political entity could unilaterally impose a pollution easement upon
private lands. From this standpoint, it seems that the best a government could do is to transfer all that
is common into private hands.
Adler 94 (Jonathan, Associate Director of Environmental Studies at the Competitive Enterprise Institute in
Washington, D.C, The Freeman: Ideas on Liberty, Vol. 44 No. 4, April)
Heyne finds principled opposition to the conventional environmental agenda not in neo- classical economics,
but in a traditional standard of justice that emphasizes individual rights and the rule of law. This
approach will not only facilitate a free political order, it will also allow for the pursuit of many goals,
environmental and otherwise; “A regime of clear and stable property rights, as it turns out, will be
supportive of both efficiency and justice.” Indeed, by protecting rights and the rule of law, “efficiency
will • largely take care of itself.” The alternative of statist intervention in all facets of life—whether for
the environment or any other end—will fail on both counts. As Heyne astutely observes, “the command-
and-control approach will almost inevitably substitute arbitrary decisions for the rule of law.”
Moreover: “Allowing environmental regulations to be shaped by a political process that is dominated
by special interests is another ethically indefensible procedure.” The reality of both failings are amply
demonstrated in the balance of the book.
Free market advocates are often branded “anti-environmentalists” for their seeming indifference to
environmental harms. To most self-proclaimed environmentalists, fealty to free market ideologies will end in
ecological if not total—devastation. Yet, as this volume suggests, perhaps it is the modern
environmentalist whose outlook will lead to ruin. As Heyne concludes, “When we take the whole
environment seriously, we will acknowledge that our primary moral obligations are to respect the
persons, the liberties, and the rights of those among whom we live. After all, these are the people upon
whose cooperation we must ultimately rely, whether it is to ‘make a living,’ to ‘save the earth,’ or to see
the realization of any other of our larger aspi rations.”
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Shaw 95 (Jane S., Senior Associate of PERC, The Freeman: Ideas on Liberty – March, Vol. 45 No. 3)
In contrast, Americans live in a world that is extremely safe. The vast majority survive to a healthy
adulthood; a child born today can expect to live 75 years. Today, death is tragic in part because it is so rare.
Yet the actions of Americans imply the opposite. Americans have allowed their government to
intervene with the goal of protecting them against risks. The government now bans many chemicals,
controls emissions of small quantities of chemicals from industrial plants, clamps down on pesticide
residues on vegetables, and slows down the introduction of potentially valuable new drugs—all in the name
of greater safety.
Most of the risks being addressed are small. These policies may actually be increasing our risk by
reducing our self-reliance and frittering away resources that we need if we are to deal with our
problems individually. Reliance on the government in this area erodes freedom just as it does in every
other area.
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Marzulla 98 (Roger, fmr head of the U.S. Justice Department's Land and Natural Resources Division, Sept 1,
http://www.heartland.org/Article.cfm?artId=13827)
Most states now have sophisticated environmental protection programs. Because they are run locally,
those programs are much more effective and efficient than command-and-control programs run from
EPA's offices in Washington. Even the federal government admits this. The principal obstacle to
shifting power to the states is the reluctance of federal bureaucrats who now hold power to give it up.
When they are freed of the straitjacket of federal over-regulation, states not only do a better job of
protecting air and water, but they are able to integrate environmental protection with economic
development, transportation, housing, and community development. EPA can't do that.
In fact, the way the federal environmental laws are set up, EPA is often required to oppose projects that
would not only benefit the state and community, but would improve the environment in the process by
building ecological concepts into the facilities and plans from the beginning. It is a lot easier to avoid
environmental problems at the design stage, but federal laws often prohibit simple solutions that would
minimize waste and pollution by avoiding its creation in the first place.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Traditional regulatory approaches normally operate through one of three means: source-specific
emission limits, output specifications, or technology requirements. A brief description of each alternative illustrates both
the strengths and weaknesses of traditional forms of regulation. The first alternative applies emission (or effluent) limits to specific sources as a means of
achieving health standards or environment-based ambient standards. The total amount of pollutants that are released could be limited by setting emissions
standards for individual sources, such that total emissions just equaled the sum of the individual contributions from each source. Other pollution allocation
formulas that do not treat new sources more harshly than existing sources could also be used. One such formula, for example, determines a set weight of
pollution that can be released per unit of output.
Unless the authority responsible for controlling pollution is able to identify which sources have the lowest incremental costs for controlling pollution and
insist that those sources implement their pollution controls first, this source-specific approach to emissions will not be cost-effective. As Figure 3-1 depicts,
each source will usually have a number of options for controlling emissions. The least cost option (#1 in the figure) will control some emissions. Other
It is very difficult in practice to identify
successively more expensive measures may be implemented until all emissions are controlled.
the least cost strategy for controlling emissions from multiple sources. If all control measures and their costs are
known, linear programming or other modeling techniques could be used to find the least cost strategy for every level of emission control
for the sources taken as a whole. However, in most cases all potentially available control measures are not known,
and, even if they were, pollution control laws typically do not allow an agency to impose strict controls
at one source and relatively lenient control burdens on another, even if their control costs are quite
different. Generally, similar sources must be treated the same. Furthermore, incremental control costs include more than simply the
costs that sources must bear in order to comply with regulations, as noted earlier. It is likely to be difficult to predict in
advance how emission limits would affect production technology, energy and other input use, and other
cost elements. Economic instruments avoid the problems that a pollution control agency would have in
identifying the least cost methods of meeting a pollution control objective by harnessing market forces
to identify cost-effective solutions.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
The second alternative specifies certain characteristics of outputs that are destined for the product
market. Some examples include fuel efficiency requirements for automobiles, product specifications for
gasoline, and regulations regarding the ability of products to be recycled and the recycled material
content of consumer products. The regulatory strategy of imposing limitations on the polluting
characteristics of products is affected by the same issues noted above that make it difficult to regulate
emissions in a cost-effective manner. For example, the cost to individual refineries of meeting a sulfur
limit in gasoline is likely to vary significantly. It would be more efficient to allow trading among
sources to meet pollution reduction obligations than to apply uniform standards to each source.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
Technology standards (or more accurately de facto technology standards) are likely to be less cost-
effective than emission or effluent standards, since the latter give sources the freedom to choose the least
costly method of compliance. Further, technology standards tend to lock firms into one accepted method
of compliance, which discourages technical change and innovation. However, when emissions cannot be measured or
concerns exist about the feasibility of enforcing tax or trading systems or both, technology standards provide a practical way to reduce pollution.
identifying the strategies that should be implemented to control pollution at the
From a dynamic perspective,
least cost is more problematic. Technology is not static. Over time, the number of possible options
increases. Most of the options offer improvements over earlier technologies, in terms of cost,
environmental performance or both. A traditional regulatory strategy to identify and mandate least
cost controls can lock firms into technologies that become progressively less effective, and thus less
attractive, over time.
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RegNeg Good
Regulatory negotiations create effective environmental solutions while accommodating
business
Doul et al 96 (John, Department of Pharmacology, Toxicology and Therapeutics, Kansas University Medical Center, Bernard Goldstein,
Director, Environmental and Occupational Health Sciences Institute and Chairman, Joshua Lederberg, President Emeritus, Rockefeller
University Sheila McGuire, President, Iowa Health Research Institute David Rall, Former Director, National Institute of Environmental Health
Sciences Virginia V. Weldon, Senior Vice President for Public Policy, “Commission on Risk Assessment and Risk Management”, June 13,
http://www.riskworld.com/nreports/1996/risk_rpt/html/nr6aa001.htm#TC1)
Consensus, Mediation, and Dialogue Projects. Negotiated rule-making and dialogue projects, such as
EPA's Common Sense Initiative, offer opportunities for stakeholders to design new standards and
solutions that protect human health and the environment more reliably and with greater cost
effectiveness and public acceptance. With the Common Sense Initiative, begun in 1994, EPA has convened
consensus-oriented teams of stakeholders to look for opportunities to turn complicated and
inconsistent environmental regulations for six major industries--automobile manufacturing, computers
and electronics, iron and steel, metal finishing, petroleum refining, and printing--into comprehensive
sector-specific strategies for environmental protection. Several industrial sectors have launched their own
initiatives such as Responsible Care by the Chemical Manufacturers Association.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Although fees can generate substantial revenues for the government agency that imposes them, they tend to
be set at rates too low to have a significant impact on pollution. Generally speaking, if pollution fees or
taxes were set at rates equal to the incremental damage being caused by the pollution, or at a level that
would force changes in business or personal behavior, they would be controversial. Concerns about the
competitiveness of U.S. businesses would be raised if foreign companies were not subject to similar
fees. Consequently, the rates of most of these environmental fees and taxes are not set high enough to
achieve U.S. environmental goals, although in some specific cases fees and taxes are working well as a
mechanism for controlling pollution.
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Scott et al 98(V. J. Lein, and E. L. David, Wisconsin Department of Natural Resources, Madison, WI; and Donna M. Downing, USEPA,
“ENVIRONMENTAL INNOVATION AND REGULATION: SIFTING REALITY FROM RHETORIC”, Jan 1,
http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0408A-1.doc/$File/EE-0408A-1.doc)
We did find instances in which the environmental regulatory regime does appear to hinder innovation,
either by making it more difficult to innovate or by failing to provide strong incentives for innovation.
We summarize these regulatory hurdles and our policy recommendations below. We then note the various barriers to innovation that the theoretical
literature considers important, but that appear in practice not to importantly hinder innovation. Finally, we review motivations to innovate that are generated
or augmented by current environmental policies and attempt to underline areas in which existing policies and practices might be strengthened.
Regulatory hurdles are of two types; they discourage innovation or fail to encourage innovation. The regulatory hurdles that could discourage innovative
approaches, and therefore merit immediate attention include the following:
Permits that limit production or production inputs, in addition to pollution, can blunt firms’
incentives to consider creative ways to reduce emissions per unit of product. EPA requires such production
limits, in response to a court order; so short of challenging the court decision, state and federal agencies can not directly address this
problem. Nevertheless, agencies should make certain that firms understand that their production cap is based on their releases and that it
may be recalculated if the firm demonstrates that it has reduced its releases. Expedited permit review for such changes may lessen this
hurdle to innovation.
Performance standards that apply to the content of the input material, rather than to
environmental releases from production activities, can hinder innovation. While it doesn’t appear that this
application of performance standards has deterred much innovative activity, it remains possible. Either such standards themselves should be revisited, or an
expedited variance process should be developed for innovative approaches that run into conflict with these standards.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Being held legally responsible for health or environmental damages is a potent incentive for sources to
reduce or avoid pollution, since if found liable they can face extraordinarily large and unpredictable
damage claims. The Clean Water Act, for example, requires the cleanup of oil and petroleum products
spilled into the nation’s waters, while the Superfund Act and the Oil Pollution Act impose liability for
environmental damages caused by the release of hazardous substances and oil, respectively. Since 1990,
awards and settlements for damages to natural resources under these and related state statutes total
more than $700 million, with a number of cases that involve large sums still in varying stages of litigation.
Liabilities associated with the cost of cleanup at Superfund sites total billions of dollars.
With potential costs of this magnitude, sources have a powerful incentive to minimize their legal
exposure. Consequently, expensive technologies that control pollution or aggressive environmental
management systems can seem very reasonable to sources. While liability has prodded sources to take
significant actions to reduce pollution, such as managing hazardous wastes on site, it is sometimes difficult to
quantify the environmental results of those actions or to establish a causal link between concerns over
liability and reductions in pollution.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Polluters respond to federal and state pollution liability statutes by taking precautionary actions that
reduce the severity and frequency of spills. Alberini and Austin found this effect with respect to the
imposition of strict liability laws by states.19 The petroleum industry created the Marine Spill Response
Corporation, an emergency spill response effort, following the Exxon Valdez spill and the 1990 Oil Pollution
Act.20 Common law, such as nuisance, trespass, and negligence, can be used to address harm to individuals
and to private property that is caused by pollution. The effectiveness of these approaches in dealing with
pollution is an open question. In selected applications, liability can be a strong deterrent, but a number of
considerations limit the effectiveness of this approach as a general solution to pollution-related problems.
One factor that restricts its widespread use is the time limit for filing claims, otherwise known as the
"statute of limitations." In most jurisdictions, a case must be filed within two or three years of
discovering a harm. In a few jurisdictions, a case must be filed within a two- or three-year period of
when the harm occurred. This distinction is very important for individuals who develop cancer and
other diseases of long latency possibly as a result of exposure to toxic substances, since observable
effects may arise many years or even decades following the exposure.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
A second limiting factor is the burden of proof required by law. The burden of proof required for a
judgment against the defendant is usually the standard of “more likely than not,” which usually is
interpreted as having a probability greater than 50%. Epidemiological studies may suggest that exposure
to a particular toxic substance is but one of many factors that could have caused a disease. Satisfying
the more-likely-than-not standard can be difficult. Even if a substance is implicated, it may be difficult
to determine which polluter is responsible for the harm. For example, doctors may determine that an auto
mechanic’s lung cancer likely was caused by inhaling dust from brake linings, but assigning responsibility to
a particular manufacturer may be impossible. A few jurisdictions allow the assignment of proportional
responsibility for both the harm-causing substance and for the determination of who is responsible.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
A final limiting factor for liability systems are the transaction costs of pursuing a claim. These costs
include the legal costs of obtaining evidence, reaching agreement among plaintiffs on how to pursue a
case, presenting the case, and following up if the case is appealed. Liability works best when there is one
party on each side of the case and an easily demonstrated harm. When the harm is large in magnitude,
liability systems may perform reasonably well when transaction costs are small in proportion to the
amounts awarded and if there are few defendants and clear causation, even if the number of plaintiffs
is large.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
The collection and public availability of information on environmental performance has proven to be a
strong incentive for sources to reduce their emissions of pollution. The incentive derives from a number
of factors. For example, when companies collect emissions information, they learn about the nature and
magnitude of their emissions. When such information is made easily accessible to the public, workers
and local communities have a much better idea of the environmental risks they face, so they are more
prone to support or demand actions to reduce emissions. When a source’s emissions are shown to
decline over time, the source often reaps the benefits of better relationships with its employees and with
the local community. Finally, in some cases a proven, long-term record of environmental stewardship
makes a company’s products more desirable to consumers.
The disclosure of environmental performance information is much more common today than a decade ago. Although some information is disclosed
voluntarily, other information must be released to the public as required by statute. The two best-known laws mandating the public disclosure of
environmental information are the Toxics Release Inventory provisions of the federal Community Right-to-Know Act and California’s Proposition 65. Other
forms of information reporting include environmental impact assessments, product labeling, environmental performance awards, Securities and Exchange
Commission (SEC) environmental reporting requirements, and disclosure requirements for lead paint and radon when homes are sold.
Information disclosure has been a powerful tool for reducing pollution. Over the past decade,
the Toxics Release Inventory, for example, shows that sources have substantially reduced the amount of
substances listed in the inventory that they release into the environment. Because the TRI requires only
the reporting of information, actions taken by sources to reduce pollution are voluntary and in all
likelihood relatively low cost.
Disclosure decreases pollution more than command and control, California laws prove
Doul et al 96 (John, Department of Pharmacology, Toxicology and Therapeutics, Kansas University Medical Center, Bernard Goldstein,
Director, Environmental and Occupational Health Sciences Institute and Chairman, Joshua Lederberg, President Emeritus, Rockefeller
University Sheila McGuire, President, Iowa Health Research Institute David Rall, Former Director, National Institute of Environmental Health
Sciences Virginia V. Weldon, Senior Vice President for Public Policy, “Commission on Risk Assessment and Risk Management”, June 13,
http://www.riskworld.com/nreports/1996/risk_rpt/html/nr6aa001.htm#TC1)
The Toxic Release Inventory and California Proposition 65 have proved effective pollution prevention
incentives by requiring the disclosure of information about chemical releases to the environment and
labeling of chemicals in products, respectively. Those right-to-know laws rely on the public's attitudes
toward toxicants to encourage industry to reduce or eliminate their use or release. In the case of Proposition
65, the requirement to warn people about exposures to chemicals known to cause cancer, birth defects, or other reproductive harm has
been an incentive to businesses to eliminate such chemicals or reduce exposures and associated risks below the bright lines for cancer
and reproductive risks. Rather than relying on command and control, Proposition 65 uses disclosure of
information and labeling requirements as risk-management tools. Proposition 65 places the burden of
proof of safety on manufacturers rather than on government agencies, requiring businesses to present
a risk-based analysis to avoid having to label their products and substances as cancer-causing or
reproductive toxicants. David Roe of the Environmental Defense Fund informed the Commission that Proposition 65, once
enacted and implemented, has had widespread support from environmental and business communities and has had few legal challenges.
A key element was the decision by the state agency, accepted by environmentalists and business, to put the bright line for cancer risk at
10-5, rather than 10-4 or 10-6, as proposed by contending parties. He estimated that under this system, the state of California completed
the necessary regulatory work for 282 chemicals at a cost of about one-tenth of what EPA was spending on risk assessment during the
same years.
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Doul et al 96 (John, Department of Pharmacology, Toxicology and Therapeutics, Kansas University Medical Center, Bernard Goldstein,
Director, Environmental and Occupational Health Sciences Institute and Chairman, Joshua Lederberg, President Emeritus, Rockefeller
University Sheila McGuire, President, Iowa Health Research Institute David Rall, Former Director, National Institute of Environmental Health
Sciences Virginia V. Weldon, Senior Vice President for Public Policy, “Commission on Risk Assessment and Risk Management”, June 13,
http://www.riskworld.com/nreports/1996/risk_rpt/html/nr6aa001.htm#TC1)
In traditional accounting of revenue, expenses, and net income of businesses, energy costs are lumped in overhead, and
effects on and uses of resources--such as air, rivers, soils, and other environmental components--are neglected altogether.
The challenge is to incorporate all costs involved in design, production, use, disposal, and reuse so as to arrive at a life-
cycle analysis of a product or process. Assigning values to various environmental assets used and to real or potential
environmental effects that have varied probabilities is problematic, however. Those assigned values may well drive the
results of the analysis. Nevertheless, the process of environmental accounting can link environmental costs
with activities and products and provide information that results in win-win opportunities to increase
operational efficiency, improve worker safety, enhance product quality, and meet environmental
protection goals. Bankers and investment advisers have been slow to encourage up-front investments
in those cost-saving initiatives. The President's Council on Sustainable Development (1996)
recommended that national business associations provide technical assistance to companies interested
in identifying environmental management costs and innovative ways to increase profits by reducing
energy and materials use while better protecting public health and the environment.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Although “[s]tates’ experience suggests that taxes may provide an alternative to the standardbased policies
now used for most hazardous waste regulation,” Sigman found, the design and implementation of such
taxes pose several potential problems, including the determination of tax levels. To maximize the
efficiency of these taxes, they should reflect the social cost of hazardous waste generation. This cost,
however, depends on the type of waste, the method of disposal, the geographic location, and various
other factors that are difficult to assess and incorporate into tax structures. If, on the other hand, taxes
are too high, they could encourage illegal dumping, of which even a small amount could cause enough
environmental damage to offset the increased efficiency achieved by taxes. “In the presence of illegal
dumping,” the study states, “a deposit/refund program may be substantially less costly than a waste-
end tax.”
Because current federal regulations impose high costs on generators of hazardous waste, there may
already exist sufficient incentives to reduce the generation of hazardous waste. If existing regulatory
incentives are sufficient, taxes could raise the costs of waste disposal to a level that is higher than what
is socially desirable.
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McIntosh 96 (David, former Indiana congressman, “Making Regulatory Reform a Reality”, 1/31,
http://www.heritage.org/Research/GovernmentReform/HL559.cfm)
This leads me to the key area -- the environment -- where I think we need to more effectively articulate our
position. Republicans must lay out their vision of environmental protection. We should start by explaining
that in the 1960s, 1970s, and 1980s, as we turned towards the goal of protecting the environment in this
country, we did what the Soviet Union did. It used a command-and-control approach, made
tremendous strides forward, changed from a peasant economy into a manufacturing economy, but at
great cost in individual liberty. And what we now see is that if we continue down that route of a
command-and-control approach we run the risk of going the way of the Soviet Union, where the
structure collapses in on itself. So if we want to have a truly good record of protecting the environment,
we need to follow the same principles we follow in the economic world, where you use free markets, you
use property rights as the foundation of your policies. I think we can prove empirically that this will deliver a
better result on the environment.
Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
Large companies have always been tempted to seek tougher regulations as a means of raising the costs
of their smaller competitors more than their own. But today, they can wrap themselves in the cloak of
respectability by promoting regulation as a way of forcing beneficial change. One result can be to draw the
most entrepreneurial companies into the process of negotiating for regulations that give their companies
special advantages. Bruce Yandle reported in Regulation (Vol. 22, no. 3) that some oil and natural gas
companies have already figured out how to benefit from the proposed Kyoto Treaty negotiations—at
other companies’ expense. He also noted that logging regulations to protect the northern spotted owl,
which drastically reduced timber logging in public forests, raised timber prices, helping companies like
Weyerhaeuser that log primarily on their own land. (This fact helps explain why Weyerhaeuser’s
chairman enthusiastically supported the regulations.) Regulation can be a competitive tool regardless of its
environmental merits.
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Regulations increase pressure on the economy, preventing resources from being spent on
more important issues
Antonelli 96 (Angela, Dept. of Housing & Urban Development chief financial officer, “Making Regulatory Reform a Reality”, 1/31,
http://www.heritage.org/Research/GovernmentReform/HL559.cfm)
The American people have not stopped wanting regulatory reform, but we need to help them understand that
the goals of reformers are not different -- we want cleaner air and cleaner water -- but we can do it with less
money and less government intervention. Today, the federal bureaucracy supports elaborate programs
aimed at reducing tiny risks at huge costs to the taxpayer, while more serious dangers go neglected. At
the same time, this huge misallocation of resources means these resources are not available for other
purposes -- for example, the local community that must spend millions of dollars to eliminate one
chemical from its water supply that poses a negligible or non-existent risk to the public cannot spend
this money to put police on the streets or build a school. Helping people put daily risks in perspective is
one of the challenges we face in making regulatory reform a reality. As Dr. Graham points out, today people
are suffering from what can be called a "syndrome of paranoia and neglect" about the potential
dangers to their health, safety, and the environment. Risk regulation is responsible for the bulk of the
nation's $600 billion in annual regulatory costs, particularly those rules affecting the environment. Dr.
Graham's work with Dr. Tammy Tengs recently has shown us that a reallocation of resources to more cost-
effective programs could save an additional 60,000 lives per year at no increased cost to taxpayers or
industry. 60,000 lives! And we can also save $31 billion.
McIntosh 96 (David, former Indiana congressman, “Making Regulatory Reform a Reality”, 1/31,
http://www.heritage.org/Research/GovernmentReform/HL559.cfm)
I think we must return to the basic principles that have been successful for us. We need to explain regulatory
reform in terms of what it does for the average American. Reform will help us create more jobs; it will help
us get more products; it will lead to a healthier health system; it will help small businesses be more
productive and be able to be competitive. I think we need to search out examples of how the current
regulatory system works against us. I talk with people back home in Indiana about working in a foundry. I
put myself through college, and I point out that that foundry is now closed down because they could not
afford all costs of compliance of the Clean Air Act Amendments. Two hundred people are out of a job,
and their families are affected. It has had a terrible effect on the community. I talk about some of the
people I have met in hearings, for example, when we looked at FDA's review process. We heard from a
wonderful little 8-year-old girl who is a hydrocephalic child, and she is alive because of a miracle of
science. They have a shunt that drains the fluid from the back of her head; it's made out of silicone,
and the manufacturers are saying they're no longer going to make that shunt because FDA has still not
said that silicone is safe for use in the human body.
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Regulations force increased industry spending without improving products, halting medical
and industrial advances to destroy competitiveness
Parry 2 (Ian W H, Resources for the Future Fellow, “Are All Market-Based Environmental Regulations Equal?”,
http://www.issues.org/19.1/p_parry.htm)
Policymakers might also be concerned about the effects of environmental policies on different income
groups. Unfortunately, environmental and distributional objectives often appear to be in conflict. A
number of studies suggest that the burden on households from environmental regulation imposed on
power plants, refineries, and vehicle manufacturers is moderately regressive. The increase in prices as
producers pass on the costs of regulations tends to hurt lower-income groups disproportionately,
because they spend more of their income on polluting products than better-off households do.
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Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
Most environmental economists dismiss the notion that innovation depends on regulation. You could
almost hear Karen Palmer, Wallace E. Oates, and Paul R. Portney sputtering with indignation as they
responded in the Journal of Economic Perspectives. They called the Porter-van der Linde article
“somewhat astonishing” because it defended environmental regulation without recognizing the
necessity of weighing costs and benefits. “The traditional approach,” they explained, “consists of
comparing the beneficial effects of regulation with the costs that must be borne to secure these benefits.”
They disparaged the Porter- van der Linde claim that there are “lots of $10 bills lying around waiting
to be picked up.” They graphed an abstract model showing that environmental regulation cannot, as a
general rule, lead to higher profits. They explained that examples cited by Porter and van der Linde
were special cases under narrow circumstances. In addition, they reported that they had communicated
with officials of firms, including some mentioned by Porter and van der Linde. Each official “said quite
emphatically that, on the whole, environmental regulation amounted to a significant net cost to his
company.” The economists cited a Bureau of Economic Analysis study showing that industry spent $102
billion in 1992 on pollution con- trol, of which $17 billion (less than 2 percent) was offset by innovation.
And they pointed out that whatever the successes, concentration on environmental innovation meant
“other opportunities forgone” for these companies.
Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
We agree with these economists. The theory that regulations will wake up sleepy executives, forcing
them to become more efficient, is illogical in a competitive economy. The claim, however, resembles a
predecessor idea, the “shock effect.” Taught in labor economics texts, the theo ry of the shock effect held
that unions, by raising wages, would shock management into efficiency gains. The higher wages would
stimulate productivity so that higher wage costs would not be passed on to buyers. As Neil Chamberlain put
it in his 1958 text, Labor, “It is amazing the way firms find theycan cut costs when they are driven to it by the
spur of rising wages!” With this spur, he said, it is “possible to pay the added wage costs, retain the old scale
of prices, and make as much profit as before” (p. 289). But, of course, it is not true in general. Studies in
the United States and the United Kingdom indicate that unionized firms have higher wages but lower
profits and lower employment. Unionized firms and sectors have grown less rapidly than have
nonunionized ones, further discrediting the shock-effect theory.
Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
Business executives never accepted the shock theory of union wages in a big way, and the theory died a
natural death. It is easy for economists to assume that this new variant, the Porter–van der Linde message,
has been discredited and is on its way to a similar demise. After all, how many stodgy firms are there in
need of artificial stimulus to competitive behavior? In a global economy, with increased foreign trade,
wider markets in nearly every industry, and thriving merger-and-acquisition activity, surviving firms
are lean, mean, and innovative without regulation.
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Regulations are good for the economy – increase profits and innovation while providing
business opportunities
Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
A different idea is gaining ground in business boardrooms, however. Saving the environment is a “business
opportunity,” says Tachi Kiuchi of Mitsubishi Electric. According to the Aspen Institute (in a report
developed with help from businesses— from Anheuser-Busch to Wey-erhaeuser), “By learning to ‘value the
environment,’ companies and financial institutions are uncovering another competitive edge.” Yes,
regulation can be a good business opportunity for some, even with the higher costs it imposes. For
example, producers who are the first companies to discover better ways to reduce pollution can profit
by keeping costs down. In addition, they may profit by selling new technologies to other producers. (As
we will note later, some companies also profit by obtaining monopoly power through regulation.) So far, so
good. But some business strategists make another leap: they argue that regulation leads to cost-reducing
innovation, directly increasing profits. Lower costs and lower pollution can result. Under these
conditions, who would argue against tighter regulation?
Shaw and Stroup 0 (“Do Environmental Regulations Increase Economic Efficiency?”, Spring,
http://www.cato.org/pubs/regulation/regv23n1/shaw.pdf)
Although there are variants, the idea that regulation spurs innovation that raises profits stems largely from the
work of Michael Porter and Claas van der Linde. They have presented their views in such places as the
Harvard Business Journal, Scientific American, and the Journal of Economic Perspectives. Indeed, an
exchange with economists in the latter journal seems to be the one serious debate over the issue— and it is
not clear that the economists won. Since their competing essays appeared in 1995, economists have moved
on, assuming they were victors. Or, so it would appear. Meanwhile business strategists have held confer-
ences, written books, and persuaded journalists (in case they needed persuasion) that more environmental
regulation is nearly always a good thing. In the 1995 article, Porter and van der Linde argued that
“properly designed environmental standards can trigger innovation that may partially or more than
fully offset the costs of complying with them.” They offered several examples of such offsets. • Ciba-
Geigy responded to environmental standards by making process changes that saved $740,000 per year.
• 3M saved $120,000 in capital investment and $15,000 annually by replacing solvents with water-based
solutions.•The Robbins Company saved nearly $300,000 in capital costs and more than $115,000 per
year by moving to a closed-loop system in its jewelry-plating business. These examples are undoubtedly
true. The companies mentioned are making money from pollution control or material reduction. It
should not surprise us. The profit motive has long led to increasingly efficient use of material resources.
Every 1 percent reduction in the aluminum needed to make a beverage can saves beverage can manufacturers
$20 milliona year. Similarly,air pollutiondeclined for decades long before the passage of the Clean Air
Act because engineers strove to improve the efficiency of burn- ing fuel. The profit motive has been a steady
contributor to cleaner industry. Porter and van der Linde’s claim, however, is that environmental regulation
is necessary, for the most part, to spur the innovation that will add to profits. They argue that because of
poor information and management incentives in many companies today, there are “$10 bills” lying
around that have not been picked up—innovations just waiting to be made. And regulation is the way
to make executives start looking for them.
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The costs of regulation is inevitable – government regulations just make their impact more
equitable and improve efficiency
Parry 2 (Ian W H, Resources for the Future Fellow, “Are All Market-Based Environmental Regulations Equal?”,
http://www.issues.org/19.1/p_parry.htm)
But distributional concerns should not be an excuse for avoiding action on serious environmental
problems. Pollution control measures should be evaluated mainly by weighing their environmental
benefits against their economic costs for society as a whole. Distributional objectives are much better
addressed by altering the income tax system or providing a safety net through the benefit system. It still
makes sense, however, to avoid environmental policies that increase income inequality. That is a major
drawback of grandfathered emissions permits. When the government gives away rights to pollute for free,
companies acquire an asset with market value. This enhances their net worth. The increase in company equity
values in turn leads to more profits for shareholders, either directly through higher dividends and capital
gains or indirectly though their holdings in retirement accounts. Stock ownership is highly skewed toward the
rich; the top income quintile owns about 60 percent of stocks, whereas the bottom income quintile owns less
than 2 percent. Using annually allocated grandfathered permits to meet the original U.S. carbon pledge under
Kyoto could transfer more than $50 billion each year in pretax income or larger retirement assets to the top
income quintile. Thus, higher-income groups can benefit greatly from grandfathered permits, with their
windfall gains easily outweighing their income losses from higher product prices. Poor households, by
contrast, are worse off. According to a study by the Congressional Budget Office, grandfathered permits to
reduce U.S. carbon emissions by 15 percent would cut the annual real spending power of the lowest-income
quintile by around $500 per household, while increasing that for the top income quintile by around $1,500
per household. Auctioned emissions permits and emissions taxes do not create windfall gains to
shareholders. Instead, the government obtains revenue that can be returned to households in a
distributionally neutral manner, such as proportional reductions in all marginal income tax rates, or in
ways that disproportionately benefit the poor, such as increasing personal allowances
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( ) Alternative energy resources have not developed because of the absence of tax credits.
The current subsidies are not immediately deductible and do not encourage investment in
other types of energy.
Hymel 6 (Mona, Professor of Law, James E. Rogers College of Law, University of Arizona, Loyola
University Chicago School of Law, Journal, 38 Loy. U. Chi. L.J. 43, Lexis)
The federal government's huge investment in the petroleum industry, through both tax and other government
subsidies, influenced how [*65] quickly and dramatically the United States developed into a fossil fuel-
driven society. Investment spurred development and consumption, resulting in exhaustion of the
resource more quickly than might otherwise have occurred. In addition, other energy resources have
not developed because of the inability to compete with the heavily subsidized petroleum fuel industry.
This section discusses the impact and effectiveness of energy-based tax incentives for the petroleum industry
over a fairly long time period, and it considers ways to use similar incentives to stimulate alternative fuels.
For over ninety years, the combination of percentage depletion and the deduction for intangible drilling
costs, along with more recently enacted tax incentives, has significantly lowered the effective tax rate for,
and attracted substantial resources to, companies in the oil and gas industry. Deductions for the costs
of exploration and production in the petroleum industry are superaccelerated as compared to other
types of capital investments because amounts in excess of original cost are deducted and most other
costs associated with the investment are not only recoverable, but immediately deductible. n141 These
generous tax incentives were designed to defer tax liability and to encourage oil and gas prospecting and
drilling along with the development of U.S. petroleum reserves. n142 Since their inception, however, the
combination of percentage depletion and intangible drilling costs deductions has resulted in little or no
income tax for much of the petroleum industry. n143 A mere nine years after Congress enacted percentage
depletion in 1925, critics begin to characterize these deductions as tax "loopholes." n144 In 1937 President
Franklin Roosevelt declared that percentage depletion was "perhaps the most glaring loophole in our present
revenue law." n145
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( ) Tax credits have a direct effect on consumption – the tax relief granted to petroleum
companies prove.
Hymel 6 (Mona, Professor of Law, James E. Rogers College of Law, University of Arizona, Loyola University Chicago School of Law, Journal, 38 Loy. U.
Chi. L.J. 43, Lexis)
[*67] The increased profitability and reduced marginal tax rates of the petroleum industry reduced
production costs, increased investments in petroleum exploration, accelerated oil and gas extraction, and
caused rapid depletion of energy resources. n153 Specifically, "relatively low oil prices encouraged petroleum
consumption (as opposed to conservation) and inhibited the development of alternatives to fossil fuels, such as
unconventional fuels and renewable forms of energy." n154 One early study analyzing resource allocation from 1959 to 1971 concluded
that federal tax policies significantly affected investment in crude petroleum reserves. n155 The same study also indicated that the percentage depletion allowance was
not cost-effective in increasing reserves when compared to the alternative policy of having the government purchase additional oil reserves directly. n156 The
effect of these tax benefits can be directly related to increased consumption. Several recent reports have quantified the tax
benefits to the petroleum industry as reflected through lower gasoline prices to consumers. n157 These estimates conclude that tax subsidies reduce the
price of gasoline by 1.5 to 7 cents per gallon. n158 Lower prices translate into additional consumption, rather
than conservation, of gasoline by consumers. Because energy policy is made in a political setting, it rarely comports with principles of
economic or public finance theory, and "more often than not, energy tax policy may compound existing distortions, rather than correct them." n159 In 1920, oil and
gas production comprised sixteen percent of total U.S. energy production. By 1970, the nation's peak production year, petroleum [*68] production constituted
seventy-one percent of total U.S. energy production. n160 Policy makers have justified the differential tax treatment of the petroleum industry on several grounds: (1)
to adjust for the high risk associated with the oil and gas industry and encourage investors to provide the significant up-front capital needed to develop this valuable
commodity; (2) to encourage conservation of the oil and gas reserves and prevent waste of our limited oil reserves; and (3) to maintain our productive capacity in oil
reserves for national defense purposes. n161 While other reasons for preferential tax treatment are also advanced, these three reasons are the most commonly used to
justify percentage depletion and the IDC deductions. n162
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( ) Tax credits can generate government revenue and increase the economy. This would
help accelerate efforts on the environmental front.
Harper 7 (Christina, Morgan Lewis’s Business and Finance Practice, LL.M. Commercial Law from the University of Cambridge, J.D. from the University of
Southern California Law School, 30 B.C. Int'l & Comp. L. Rev. 411, Boston College International and Comparative Law Review Lexis)
Green taxes may be used to punish polluters. The general principle of increasing taxes on "bads" (e.g.
polluting, smoking) and decreasing taxes on "goods" (e.g. labor) n93 was first adopted by the OECD in [*428]
1972. n94 Environmental agencies across the globe use this underlying principle as a reason for implementing green
taxes. n95 Countries including Sweden, Norway, Finland, Denmark, and the Netherlands have attempted to
shift the tax burden of labor and capital to the use of environmental resources through the implementation of
green taxes. n96 Green taxes are also often designed to change behavior. Taxes must be set high enough to "make it attractive for customers to use more
environmentally benign products and practices." n97 For example, in 1989 the U.S. Congress introduced a federal tax on Ozone Depleting Chemicals. Initially the tax
on chlorofluorocarbons (CFCs) was $ 1.37 per pound, approximately twice the then-current product price. n98 By 1995, the federal tax was $ 3.10 per pound. n99 The
Federal Government simultaneously introduced the Clean Air Act, which put a cap on most CFCs with a phase-out in 2000. Nevertheless, many analysts believe that
the tax, not the cap, is responsible for U.S. ozone gas reduction. n100 Similarly, policymakers can use green taxes to channel good behavior and influence the choice
governments may want to discourage the use of exhaustible natural resources and
of resources used. For example,
provide more attractive alternatives through the use of the tax system. n101 Governments may also use green
taxes to generate revenue. Governments may choose to use the resulting revenue to pay for damages created
from past pollution or for measures to reduce future pollution. For example, of the thirty-two billion pounds
generated by U.K. environmental taxes in 2001, fourteen percent purportedly was allocated to environmental
projects. n102 Tax shifting describes the economic theory that by combining a significant pollution tax with a
major restructuring of the national tax system, government can make the overall economy more efficient.
[*429] This theory often arises in conjunction with raising revenue. In the early 1990s, many scholars suggested
that governments could eradicate unemployment by implementing high environmental taxes. The debate was most
vigorous in European countries with strong environmental political parties and high unemployment. n103
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( ) More ev.
Harper 7 (Christina, Morgan Lewis’s Business and Finance Practice, LL.M. Commercial Law from the University of Cambridge, J.D. from the University of
Southern California Law School, 30 B.C. Int'l & Comp. L. Rev. 411, Boston College International and Comparative Law Review Lexis)
In his book, Public Choice and Environmental Regulation, Gert Ting-gaard Svendsen of the Aarhus School of
Business in Denmark discusses the general attitude of private industry, state government, heavily regulated industry,
and environmental groups toward the options for emissions regulation. n81 Svendsen reports that private industry
generally supports permit markets. n82 Permit trading schemes are more flexible than CAC regulation, which
does "not readily adapt to changing economic conditions, and therefore, does not embrace new technological
solutions." n83 Green taxes are rigid and may be arbitrarily set, while permit markets allow the market to set
prices. Moreover, private industry particularly supports grandfathering schemes that effectively make it
more difficult for future competitors to enter the industry. n84
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Congress passed the Energy Tax Incentives Act in August 2005. As the most significant energy legislation in
many years, the Act contains tax incentives for both the fossil fuel industry and its infrastructure, as well as
the alternative and renewable fuel industries. n41 Tax breaks for domestic fossil fuels constituted well over
half of the government expenditure mandated by the legislation over a ten-year period. n42 As part of this Act,
Congress added to the nonconventional fuels credit a production credit for qualified facilities producing coke or
coke gas. The $ 3.00 credit is available for up to 4,000 barrels of oil equivalent. The credit for these fuels extends
until January 1, 2010. In addition, this credit is now part of the general business credit, thus making carry back
and carry forward of unused credits available. n43 [*52] The Act also included several other incentives to
stimulate oil and gas production. First, the new law increases the number of oil and gas producers that will be
able to claim percentage depletion by qualifying as independent producers or royalty owners. Percentage depletion
may only be used by independent producers or royalty owners who are not "refiners." Under the old law, to avoid being classified as a "refiner," a producer could not
engage in refining operations in which production exceeded 50,000 barrels on any day during the taxable year. The law now allows producers to refine up to 75,000
barrels based on average daily production and still qualify for percentage depletion. n44 In addition, the Act made certain natural gas distribution lines and electricity
transmission property depreciable over fifteen years rather than thirty years, and natural gas gathering lines depreciable over seven years rather than fifteen years. n45
Congress
Geological and geophysical costs are now amortizable over a two-year period rather than capitalized as part of the cost of the oil and gas property. n46
also provided a temporary option to claim qualified oil refinery property as an expense. A taxpayer may also
expense fifty percent of qualified refinery property used in the refining of liquid fuels for property if the
property has a binding construction contract prior to January 1, 2008; is placed in service before January 1, 2012;
and meets increased capacity requirements. n47 Ordinarily, petroleum refining assets are recovered over a ten-year
period. Congress also included two new credits for investment in certain clean coal technologies. A twenty
percent investment tax credit is provided for property associated with gasification of coal, including any coal
handling and gas separation equipment. Additionally, a fifteen percent tax credit is now available for other
advanced coal-based projects, and a twenty percent credit is available for certain certified gasification
projects as well. n48 The Act also provides significant additional government investment into the existing
nonrenewable energy infrastructure. Though several of [*53] these provisions are designed to encourage more
efficient use of fossil fuels, a number of these incentives target exploration and development of petroleum. However,
most of the available studies suggest that these tax incentives are not cost effective and have little or no impact
on energy production. n49 One recent study evaluating many of the Act's tax incentives found that the
estimated federal revenue loss from enacting the incentives would not be offset by revenues generated from
increased oil and gas supplies stimulated by those tax incentives. n50
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Big industry is sometimes a big problem for policymakers devoted to environmental taxes. Energy industry
groups argue that environmental taxes hinder global competitiveness. n129 The effectiveness of this claim is
perhaps most evident in the public statements by leaders of the United States and Australia in rejecting the
Kyoto Protocol. n130 A survey of recent literature reveals that scholars are working to counter this fear and have
suggested at least five techniques to reduce the effects from environmental taxes on competitiveness. n131
First, a country may introduce a relatively low rate of environmental tax. n132 A tax that is too low, however,
will not only fail to affect competitiveness, but will also fail to have substantial beneficial environmental
effects. In the words of the OECD, a tax that is too low will simply be a "revenue raising device" not an
environmental tax. n133 Indeed, the EPA proposes that green taxes tend to be set too low to have a significant
impact on the environment, with few exceptions. n134 Second, scholars suggest that countries may "exempt
those industries or products that are exposed to international competition from the tax." n135 Many
countries have used this technique, but this method "raises serious problems related to cost-effectiveness and
the achievement of the environmental objective in question." n136 Third, countries may subsidize parts of industry subject to
competitive disadvantages. n137 Fourth, countries can make domestic taxes dependent on whether foreign producers competing in the same market as domestic
producers are subject to similar taxes. n138 Finally, countries can offset the adverse effects of environmental taxes through a mechanism called a "border [*433] tax
adjustment." n139 For example, by applying the tax to final products rather than to raw materials, a country has greater freedom to adjust the tax as the product either
enters or leaves the country. n140
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
However, just as economic incentives have advantages, they also have limitations. One of the most
significant disadvantages is that they are often inappropriate for dealing with environmental issues that
revolve around equity concerns. Many types of environmental standards are designed to protect
individuals around the site of a polluting facility; in some cases the specific purpose is to protect
individuals exposed to the highest pollutant concentrations. In general, people are not willing to accept
higher risks to their health because it is “more economical” to reduce risks to others. There are many
such environmental and health standards, including toxicity standards for air, waste management standards,
and cleanup standards. For example, risks cannot be traded between Superfund sites. To do so would
mean that some people would live near an unsafe site.
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Bell 2 (Ruth Greenspan, Director of International Institutional Development and Environmental Assistance at Resources for the Future,
http://www.emissierechten.nl/climate_change__monitoring_inter.htm)
What does this mean for protecting the world from global warming? The dazzle of trading, and its
undeniable benefits, should not blind policymakers to the need for fashioning a reality-based system
with real greenhouse gas reductions. They must be sure that the rewards from trading do not tempt
traders to manipulate the system for their own enrichment. This requires countries in the developing world and
countries in transition to develop institutions that can control emissions and expose cheating before, during, and after trades are made.
The role of the developed world must be to face this challenge the old fashioned way--by providing assistance and working patiently to
develop laws, monitoring systems, and property rights, as well as respect for those requirements.
The governments running the system, through the Conference of the Parties, must build confidence through an institutional structure that
is capable of managing these very difficult problems. The bottom line is integrity must be developed and insured. Emissions trading
clearly can save society money. But international planners must put safeguards into place now, not later, to keep the mission of traders
on track with the goal of reducing greenhouse gas emissions. If international policymakers wait to act until a scandal
erupts, it will be too late. The United States, with 200 years of experience in financial regulation, has
just acknowledged the urgent need to step up enforcement through the Securities and Exchange
Commission. Who will be the international SEC of greenhouse gas credit trading?
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Deposit-refund systems appear to be most appropriate for discrete, solid commodities such as beverage
containers, batteries, and car bodies that would cause environmental harm through their improper disposal.
Government-mandated deposit systems for less discrete substances, like air and water pollutants, have
not been attempted. One factor that limits the widespread use of deposit-refund systems is their high
transaction cost. Collecting and refunding deposits on the sale of individual products such as beverage
containers tends to be expensive, and additional costs are involved in collecting and returning used
products for disposal.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Subsidies for environmental management are sometimes criticized because the government entity
providing the subsidy and the taxpayer, ultimately is helping to bear the costs that should be the
responsibility of the polluter. Other environmentally related subsidies, such as federal support for
timber harvesting in the national forests, are also criticized because they in fact have proven harmful
to the environment. Nonetheless, subsidies have become a fairly common tool to manage the environment
at every level of government.
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Subsidies Unpopular
Subsidies politically unpopular
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Subsidies often are politically popular. In contrast to taxes, they transfer funds to specific targets within
the private sector where incentives for conservation, recycling or pollution control currently are
lacking. Consequently, subsidies may be most useful in situations in which targeted assistance is
essential and other policy approaches would be politically unacceptable or ineffective.
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Incentives best – harness natural motives for public health, environment, economy
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Economic incentives have a singular advantage over traditional forms of regulation: they harness the force
of the marketplace to reduce environmental and health risks. While this feature does not make economic
incentives applicable to every source of pollution, market forces often can operate where traditional
regulations would be ineffective. Sources of pollution include point sources such as discharge pipes and
stacks; area sources such as factories and storage areas; and non-point sources such as streets, farms, and
forests. In a traditional regulatory system, owners of many of these sources have an incentive to comply
i.e., avoidance of enforcement actionsbut releasing pollution has no economic cost to the owner.
Consequently, owners of these sources of pollution (hereafter referred to as “sources”) normally have no
incentive to do more than the regulations require, whether it is a limit on emissions or on the use of a
specific technology. With market incentives, sources of pollution can see an economic value in reducing
pollution because doing so saves them money. Consequently, the difference between a traditional
regulatory system and economic incentives can lead to several public health, environmental, and
economic benefits.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Voluntary programs have also become a major environmental management tool at EPA over the past
decade. The Agency now manages dozens of such programs, many of which have led to measurable
reductions in pollutant emissions. In some cases EPA’s voluntary programs have given U.S. companies
an incentive to develop less polluting products, like computers and household appliances, the sale of
which reduces pollution in every part of the country.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
An important new trend in environmental management is the use of voluntary programs to accomplish the
goals of environmental protection. This trend involves implementing methods to cut waste, conserve
materials, and improve efficiency— outcomes that increase the value added by business, improve
competitiveness, and reduce pollution. Voluntary programs are an important addition to the more
marketbased incentive measures discussed elsewhere in this report. While the market-based programs offer
financial and other closely related incentives to encourage firms and individuals to reduce pollution,
voluntary programs offer less tangible rewards such as public recognition and access to information on
ways to reduce pollution at low or no cost. Governments promote voluntary initiatives for a variety of
reasons, including the pilot testing of new approaches and the absence of legislative authority to
establish mandatory programs. As such, many voluntary programs offer unique approaches to
environmental management.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Working with equipment manufacturers, the U.S. Department of Energy (DOE) and EPA are using Energy
Star labels to promote highly energy-efficient products. Collaborations formed with DOE are also
facilitating the development of initial markets for advanced technologies, for example, by encouraging large-
volume purchases. These purchases help reduce manufacturing costs through economies of scale in
initial production. More than 1,200 manufacturers now offer Energy Star products in over 30
commercial and residential product categories such as air conditioners, heating systems, and exit
lights. These products are featured in over 4,000 retail stores. In 1999 alone, consumers purchased
more than 100 million EPA-labeled Energy Star products, saving over 25 billion kWh of energy.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Voluntary agreements appear to contribute to constructive dialogue among groups that normally act as
adversaries. Voluntary agreements also provide for more opportunity for stakeholder participation
than the status quo does. With improvements in administrative, monitoring, and participatory procedures,
voluntary agreements could become an important element of the U.S. strategy for improving the cost
effectiveness of environmental management. Unilateral, industry-led voluntary agreements can suffer from what is termed
the "free rider" problem. Such agreements provide benefits in the form of publicity and goodwill for all members. Members of an
industry association may join a voluntary agreement, yet take minimal actions to comply. Members can also choose not to
join the voluntary agreement, but they can still benefit from the actions of those who have joined.
Understandably, an association would be reluctant to eject members, since it depends on dues from them to survive. Thus, free-riding
may be a significant problem from the point of view of truly motivating participants to join unilateral agreements. This problem was
evident in the STEP program of the American Petroleum Institute (API). In this case, several API members joined STEP, yet they failed
to follow through with all of its provisions.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
There are a number of reasons why voluntary reductions in pollution are proving more and more popular
with sources, and they are related to the incentives associated with information disclosure. When sources
voluntarily reduce pollution and their employees, neighboring communities, and customers learn
about it, sources gain several benefits. Voluntary actions taken by sources often reduce employees’
exposure to harmful pollutants, thus lessening sources’ liability and improving their relationship with
labor. Sources enjoy better relations with neighboring communities, and a reputation for good
environmental stewardship may attract more customers for their products. In some cases, sources also
save money by taking these actions. Moreover, sources that join voluntary partnership programs can
be eligible for various kinds of technical assistance from sponsoring government agencies. For example,
they can receive free information on the cost and availability of energy-efficient technologies.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
The Report also concludes that economic incentives for environmental pollution control:
• Provide a unique contribution to environmental management--In many cases incentives generate benefits
beyond what is possible with traditional regulations; sometimes they are applied where traditional
regulations might not be possible. They are particularly useful for small and geographically dispersed
sources. They can also provide impetus for technological change.
• Provide cost savings relative to traditional regulatory approaches–Demonstrated theoretically, based on
at least 40 studies. One study estimates potential savings of widespread use of economic incentives could
reach $45 billion annually. On a practical level, acid rain trading savings are at least $700 million
annually.
• Have wide applicability to specific environmental problems–Although a wide variety of incentives are
available, any particular one may be effective in managing only a fairly narrow range of problems. The report
suggests which incentives are most useful for what problems. Economic incentives are expected to be
particularly useful in controlling pollution not subject to regulation For instance, citizens can be
encouraged to reduce curbside solid waste by recycling, composting and other means if there is a disposal
charge based on the volume of solid waste.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Clearly, economic incentives have several advantages that make them attractive environmental management
tools. When properly designed and used in appropriate circumstances, they can achieve environmental
results beyond those of traditional regulations, they can achieve those results at lower costs, they often
can do a better job of controlling large numbers of small sources, and they provide a valuable spur to
technological innovation.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
In some instances it is difficult to quantify the reductions in pollutants or the improvements in human health
and environmental quality that result from the use of specific economic incentives. However, there is little
doubt that such incentives are providing a new and unique element to environmental management in
the United States. In many cases, incentives are generating health and environmental benefits beyond
what is possible with traditional regulations, and sometimes they can be applied in situations where
regulations might not be possible at all. It is difficult to imagine, for example, the public supporting a
regulatory system that mandated reductions in household waste, but household wastes are declining
significantly in communities that charge for waste collection based on the amount generated.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
Market-based or incentive approaches, by contrast, provide rewards for reducing pollution (and,
conversely, assign penalties for releasing pollution). The rewards may or may not be financial. In contrast to
the traditional regulatory approach, an incentive based regulatory strategy gives sources great flexibility
in selecting both the type and magnitude of their response and gives them incentives to develop new
and cheaper strategies and technologies to control pollution.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
First, economic incentives in some circumstances can be structured to achieve larger reductions in
pollution than would result from traditional regulations. For example, a program that allows trading of
pollution reduction obligations among sources may be able to require greater reductions in pollution
than a similar program that does not use trading. Pollution charges or voluntary pollution prevention
programs could encourage sources to reduce emissions below permitted amounts.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Second, economic incentives often can control pollution at lower costs than can traditional regulations.
By setting standardized emissions, product, or technology requirements, traditional regulations do not
usually take into consideration the different costs of compliance faced by different sources. But in an
incentive system, the marginal costs of controlling pollution play an essential role. When emission
allowances or credits can be bought and sold by the sources, the sources that have relatively low costs
of pollution control will reduce more pollution than sources that have relatively high costs of pollution
control. Thus, when economic incentives are used, goals of reducing pollution whether applied over
a facility, an industry, or the nation as a whole will be achieved at the lowest cost as determined by
market forces. One study done for the EPA (Anderson. 1999) estimated that the potential savings from
widespread use of economic incentives at the federal, state, and local level could be almost one-fourth of
the approximately $200 billion per year currently spent on environment pollution control in the United
States.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
Economists have long understood that economic incentives have the potential to reduce pollution at a cost
below that imposed by traditional regulations. The national experience of using economic incentives over
the past decade reinforces this point of view. In some cases, it is difficult to quantify the costs imposed by a
particular incentive. In other cases, the hoped-for cost reductions do not materialize to the extent expected.
However, in general, it is clear that economic incentives do provide the opportunity to achieve any
given level of pollution control with substantial cost savings.
Evidence supporting the lower costs of economic incentives is both theoretical (derived from models)
and empirical (based on the results of operating programs). At least 40 studies based on computer
modeling of different scenarios for controlling pollution show that economic incentives should be more
cost-effective than traditional regulations. One study (ICF, 1989) estimated that allowance trading in
EPA’s acid rain program could result in savings to affected utilities of $700 to $800 million per year
over the long term. The actual cost savings now are believed to be at least twice this amount. Other areas also
offer potentially large savings. For example, effluent trading has the potential to save sources as much as
$7.5 billion annually. Even if the cost savings from using market incentives are less than predicted as a
result of regulatory, institutional, transactional, or legal restraints, or some combination of these factors, the
actual savings undoubtedly are still significant.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Economic analysis indicates that incentive mechanisms can often increase the cost effectiveness of
pollution control relative to traditional regulatory approaches. Several reasons exist for this conclusion.
First, some incentive-based mechanisms explicitly allow the trading of pollution allowances or pollution
reduction credits. By trading credits or allowances, sources with high incremental costs of pollution
control can have their obligations satisfied by sources with low incremental costs of pollution control.
Other incentive-based mechanisms levy a charge or tax on each unit of pollution. Under such an approach
sources would control pollution only to the point at which the incremental cost of control equaled the
charge or tax. In an ideal world that did not have transaction costs and competitive markets, both permit/credit trading and pollution
fee, charge and tax approaches should result in the same marginal cost of controlling pollution at each source. In such an idealized world
of economic incentives, control costs should be lower than (or, at most, the same as) the costs associated with a traditional regulatory
approach.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Third, the use of economic incentives, in contrast to that of traditional regulations, can control the
pollution that is caused by a multitude of small and dispersed sources. A traditional regulatory system,
which relies on reporting, inspections, and fines for noncompliance, becomes very cumbersome and
expensive to administer when applied to thousands, or even millions, of sources. For many serious
environmental concerns today, such as surface water quality and global warming, the sources of the
problem can indeed number in the millions. two good examples of how economic incentives can more
effectively manage the quantity of pollution that is released from large numbers of small and dispersed
sources.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic
Incentives for Protecting the Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-
01.pdf/$File/EE-0216B-01.pdf)
Fourth, economic incentives can stimulate technological improvements and innovations in pollution
control in situations where traditional regulatory mechanisms may not. In some cases, traditional regulatory
mechanisms can stimulate technological change. For example, challenging numerical performance standards have prompted the
development of cleaner technologies (e.g., catalytic converters). Also, when regulations require the use of the best available control
technology (BACT), manufacturers of pollution control equipment have an incentive to improve the performance of the products they
offer for sale. But traditional regulations that specify the approved pollution control technologies
discourage sources from developing better pollution control technologies. Not only is there uncertainty
that an improved pollution control technology would be approved, but greater pollution control
normally is costly. What source would want to engage in greater control of pollution than is required by
existing regulations? Economic incentives, on the other hand, attach a value to controlling pollution. In
some cases the value is an explicit monetary amount, while in other cases the financial impact is indirect.
Therefore, sources have an incentive to develop technologies that are more effective or less costly,
particularly when pollution reduction obligations can be traded among sources like any other
commodity in the marketplace.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
Many economic incentives give an impetus to technological change and innovative pollution control because
sources can generate profits by finding better, cheaper ways of reducing emissions. EPA’s voluntary
programs are a particularly good example of economic incentives acting as an incubator for
technological improvements. When businesses take initiative on their own or work collaboratively with
government to find ways to reduce pollution, instead of merely reacting to government regulations, they
tend to apply the same inventiveness and cost-cutting skills used in other parts of the business. In this
sense, voluntary programs, as well as other kinds of economic incentives, unleash the qualities of
American entrepreneurs that make U.S. businesses such strong competitors in the marketplace and
encourage these sources to use those skills to protect the environment.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf
Market-based instruments should have significant advantages over traditional regulatory mechanisms
in terms of stimulating technical change and innovation in pollution control. The reason is that each and
every unit of pollution is costly to the source. In contrast, under a traditional regulatory approach, once
a source has satisfied the emission limits, all pollution within those limits has no cost. Why spend
valuable resources instituting further controls when there is no offsetting cost savings? In fact, there
generally is no incentive for a facility to reduce pollution much below permitted amounts because such
an action would invite regulators to reduce the facility's permit limits. In many parts of the nation,
pollution control agencies are constantly struggling to find ways of meeting ambient environmental quality
goals. Facilities that demonstrate the possibility of making emission reductions below permitted
amounts offer an easy target for obtaining some of the necessary emission reductions. These same
innovative firms may be the catalysts for developing regulations that require other firms in the same
industry to reduce their emissions to the amount shown to be feasible.
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
The contributions to environmental management made by economic incentives are as varied as the incentives
themselves. Deposit-refund systems are helping change the environmental behavior of individual
consumers in ways that traditional regulations could not. Deposit-refund systems and taxes on
products and outputs are reducing the pollution caused by a multitude of small and geographically
dispersed sources that typically are difficult to control through traditional regulations.
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Doul et al 96 (John, Department of Pharmacology, Toxicology and Therapeutics, Kansas University Medical Center, Bernard Goldstein,
Director, Environmental and Occupational Health Sciences Institute and Chairman, Joshua Lederberg, President Emeritus, Rockefeller
University Sheila McGuire, President, Iowa Health Research Institute David Rall, Former Director, National Institute of Environmental Health
Sciences Virginia V. Weldon, Senior Vice President for Public Policy, “Commission on Risk Assessment and Risk Management”, June 13,
http://www.riskworld.com/nreports/1996/risk_rpt/html/nr6aa001.htm#TC1)
Taxes and Subsidies. Tax and subsidy programs that encourage and discourage economic activity can be
powerful motivators, either encouraging or discouraging use of natural resources and production or
reduction of pollution. For example, agricultural land-retirement programs have prevented excessive soil
erosion and damage to waterbodies and wildlife habitat, and promoting agricultural production through
implicit and explicit subsidies for inputs, such as pesticide and water use, can contribute to environmental
damage. Elimination or amelioration of negative-tax and subsidy programs can have a positive impact
on the protection of human health and the environment, as can carefully targeted increases in subsidies
for the provision of some environmental benefits. Government purchasing practices can also encourage
the development of markets for products that are environmentally more sound. Care is needed to avoid
excessive acquisition costs for products with small markets and to avoid buying products with one attractive
attribute but other unfavorable characteristics.
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Scott et al 98(V. J. Lein, and E. L. David, Wisconsin Department of Natural Resources, Madison, WI; and Donna M. Downing, USEPA,
“ENVIRONMENTAL INNOVATION AND REGULATION: SIFTING REALITY FROM RHETORIC”, Jan 1,
http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0408A-1.doc/$File/EE-0408A-1.doc)
Even while the environmental regulatory system erects some hurdles to environmental innovation, it also provides important incentives
for firms to innovate. Policymakers concerned about innovation should use care when considering proposals that would dilute these
regulatory incentives. Firms must comply with environmental requirements. Frequently, they pay attention to the actual and potential
costs associated with releases and their control. The following regulatory motivations, found to be especially
effective at motivating innovative approaches to pollution control, should be enhanced or strengthened
where possible.
Environmental requirements that limit firms' releases. One example, product bans, motivates
considerable innovative activity. Stringent regulations that require firms to reduce or watch their releases
also motivates innovative behavior.
Future standards anticipated to be more stringent. Firms innovate to stay ahead of the
regulations.
Liability for process wastes. The potential for uncertain liability prompts firms to innovate to
eliminate their use of hazardous substances altogether.
Reduction in regulatory burden when releases fall below a threshold. Thresholds can motivate
innovation if the regulatory burden is substantially lessened for firms that reduce their releases below
the threshold, i.e., the firm is subject to less burdensome recordkeeping or reporting requirements or is
no longer subject to a regulation.
Public release of firms' pollutant information. The Toxic Release Inventory status appears to
provide a powerful motivation to innovate.
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***Emissions Trading
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Bell 2 (Ruth Greenspan, Director of International Institutional Development and Environmental Assistance at Resources for the Future,
http://www.emissierechten.nl/climate_change__monitoring_inter.htm)
Advocates of international emissions trading would be wise to reflect on recent U.S. accounting and
trading scandals. The Kyoto Protocol establishes an international greenhouse gas trading system. Emissions
trading clearly can save society money, but international planners must put safeguards into place to keep
the mission of traders on track with the goal of reducing greenhouse gas emissions. If international
policymakers wait until a scandal erupts, it will be too late. Who will be the international Securities
and Exchange Commission of emissions trading? Ruth Greenspan Bell directs Resources for the Future's program for
International Institutional Development and Environmental Assistance, helping institutions in societies without strong legal systems to
become more effective in implementing natural resource management and environmental protection policies and laws. Her current
projects include efforts involving public participation in environmental decision making in the Danube region and in Thailand. Before
joining RFF, Bell spent almost 17 years in management positions in the Office of General Counsel at the Environmental Protection
Agency.
Sham trades reported by Reliant Resources, Dynergy, Enron, and CMS Energy to pump up trading
revenue and volume in California, the out-and-out balance sheet fraud committed by WorldCom, and
the most recent revelations about seemingly reputable bankers who intentionally structured
transactions to allow Enron to hide $125 million in debt, seem, at first glance, to have only a remote
connection to global climate change policy.
But advocates of international emissions trading would be wise to reflect on these scandals.The cornerstone of the approach
to climate change management taken by the administration of former U.S. President Bill Clinton is a complex international
greenhouse gas trading system. The administration of President George W. Bush has pulled out of the Kyoto Protocol process, but it has
not slammed the door shut on an emissions trading scheme in the future. Emissions trading allows firms and countries
that can control pollution more cheaply to accumulate credits for their efforts. They may then sell these credits
to others for whom the cost of pollution reduction is greater. Variations of this technique were written into the Kyoto Protocol's "clean
development mechanism." The Pew Center for Climate Change calls emissions trading the "policy of choice," and the theory has been
endorsed by many economists, including several Nobel laureates, and now even by many environmental advocacy groups. The
purpose of trading is to harness market forces in the reduction of greenhouse gases. The main
opposition has come from proponents of the view that emissions trading would allow the developed
world, and in particular the United States, to escape responsibility for its energy-intensive lifestyle by
funding reductions in other parts of the world.
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Bell 2 (Ruth Greenspan, Director of International Institutional Development and Environmental Assistance at Resources for the Future,
http://www.emissierechten.nl/climate_change__monitoring_inter.htm)
But in the past six or so months, a number of warning bells have sounded for those who care to listen.
Examples of trading abuses have cropped up in the United States, meaning within the context of a well-
developed legal and oversight system and a free press--an important issue that will be discussed further
below. The basic message of each of these incidents is that even in a mature, capitalist democracy, the
invisible hand needs plenty of highly visible oversight and management. Without strong institutions to
police the participants in the market, markets can be captured and distorted. The losers from the
frauds reported in today's press have been investors and consumers. In the future, if greenhouse gas
trading is not backed up by effective institutions, the environment will be the loser.
The first of these incidents involved New Jersey's emissions trading system. PSEG Fossil LLC, the
biggest player in that state's system, apparently had not installed necessary pollution controls or
obtained proper permits. The U.S. Justice Department discovered this and brought an enforcement action, which was resolved
in the form of a consent decree. PSEG, without admitting any wrongdoing, agreed to stop selling its credits to other firms and to stay out
of the trading system. When PSEG was forced to withdraw, its sheer size and status as one of the largest "suppliers" of credits in New
Jersey brought that state's system close to collapse.
In addition, according to the Aug. 5, 2002, issue of the Electricity Daily, the South Coast Air Quality Management District (SCAQMD)
in California and the regional office of the U.S. Environmental Protection Agency are looking into charges that a
Pasadena broker cheated several firms who paid for emissions credits that were never delivered. The
SCAQMD manages emissions trading for the Los Angeles region. A similar example from the United Kingdom was reported in the April
12, 2002, edition of the Electricity Daily, in an account of a government-sponsored auction in which participating companies bid by
offering greenhouse gas reductions. An independent review by Environmental Data Services noted strong
grounds to suspect that at least half of the claimed emissions reductions were not real, and blamed the
inaccuracies on shortcomings in the Department of Environment, Food, and Rural Affairs regulatory controls and "poorly thought
through rules."
The New Jersey and U.K. situations attracted little public notice. But more recent events have attracted a great deal more attention. This
past spring, several energy trading companies admitted to having made sham electricity trades. In
addition to the well-known activities of Enron, Duke Energy Corp. reported that it had included about
$1.1 billion of energy trades that had no economic benefit in financial statements over a three-year period, and
the chief executive of CMS Energy was forced to resign when it was disclosed that the company had inflated revenue by 28 percent over
two years. A former Reliant executive was quoted as saying, "The same circuit got traded back and forth. The idea
was to book more transactions and get a market going."
All of the above failures and near failures, including the Enron and WorldCom debacles, took place in
countries where law and law enforcement are relatively well developed. The news media paid close attention and
so, therefore, did the public and government officials. The nongovernmental organizations are vigilant and know how to bring lawsuits
or how to complain to Congress.
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
At the same time, trading programs may have several drawbacks, including the potential for high
transaction costs and inactive markets, especially in credit or open-market systems. High costs can be
attributed to the need to verify each reduction before authorizing the credit. Clearly, trading programs
should not be applied to all environmental problems. The long-term effects of The U. S. Experience with
Economic Incentives for Protecting the Environment trading programs on technical innovation vary from
program to program. Some have spurred considerable innovation, such as the acid rain program,
while others have not due to high transaction costs.
Bell 2 (Ruth Greenspan, Director of International Institutional Development and Environmental Assistance at Resources for the Future,
http://www.emissierechten.nl/climate_change__monitoring_inter.htm)
But verification can be notoriously difficult and rests on domestic systems of environmental
enforcement. Participants in these transactions in the West know they can rely on a viable legal system or
some analogous set of institutions to ensure the integrity of trades and to act in a timely manner to protect
wronged parties.
But many places where the "cheapest" carbon reductions are to be found do not have reliable rule of
law traditions or the resources and policies that would discourage cheating. For example, a power
plant can change its fuel entirely, or use cleaner coal, or install control technology. Verification of each
of these approaches is quite different. It is relatively easy to determine whether the plant is fired by coal or
natural gas, but harder to know, on a continuous basis, whether the coal used is cleaner or the control
technology has been turned on and continuously maintained.
The EU may have the best of intentions, but its actual ability to monitor what is going on in Russia, Ukraine,
Bulgaria, and Romania, to choose four examples, will be quite limited. Verification and oversight procedures
in the developing world and the countries of the former Soviet bloc, where reside many of the big potential
sellers in this market, have been notoriously ineffective. In many cases, these are countries that have
adequate laws on the books, but they have done a very poor job of controlling their domestic pollution.
We could not be sure how much pollution each of their plants would send in to the atmosphere when
they do not have the expensive monitoring equipment that is required in the United States.
The court systems may move too slowly, giving life to the adage, "justice deferred is justice denied." Or the
judiciary lacks independence, and sometimes judges get their pay checks and social benefits from the same
body that owns polluting industry.
In addition, rampant, or even institutionalized, corruption may mean that public officials who oversee
such programs will make policy decisions on the basis of personal connections or illegal payments
rather than whether the trade involves true reductions in greenhouse gas emissions. Independent
nongovernmental organizations, where they exist, do not have the tools available to their counterparts in the
United States. Indeed, many of these countries cannot produce accurate figures on basic data such as
population and economic production, let alone the highly esoteric information for greenhouse gas emissions.
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Bell 2 (Ruth Greenspan, Director of International Institutional Development and Environmental Assistance at Resources for the Future,
http://www.emissierechten.nl/climate_change__monitoring_inter.htm)
Critically, verification must be in the countries of origin of the emissions. There are no international
institutions to police trades across borders and keep them honest, although some level of oversight is planned
through the Conference of the Parties and an executive board supervising the clean development mechanism.
Nevertheless, we know through examples--such as the difficulty of policing arms reduction and nuclear
proliferation treaties--how hard verification can be and how many resources they can absorb.
Climate change verification should be even harder, and the incentives to do it fewer. This is because
reducing greenhouse gas emissions can require supervision of potentially thousands of domestic
reduction projects in each country. Historically, governments have typically given far less weight and attention to supervising
international environmental treaties than they do to agreements that involve arms and world trade. And the sanctions available, even
when governments are alert to violations, are limited in number and often severe. Negative trade
measures, unilateral sanctions, membership sanctions, and other economic and political measures are
rarely or reluctantly used because of their political consequences.
What if we set up a worldwide system and later find fraudulent record keeping or industries that sell phony reductions? Who will enforce the rules? What
body would prosecute false accounting schemes and assure the basic integrity of the regime? There are at least two possible outcomes. The best solution
would be if countries with currently weak enforcement and compliance regimes could be inspired to make improvements so they can share in the
considerable benefits that global trading might bring them. The other possibility is the temptation toward cheating.
Either way, trading itself will not solve the problem of greenhouse gas emissions in the absence of
substantial domestic commitment to making real emissions reductions.
Proponents are quick to point out the undeniable successes of the sulfur dioxide emissions trading
scheme, but they are less likely to mention its reliance on the many unique safeguards built into the
U.S. program. No less an authority than The Economist magazine has published a spate of articles trumpeting market-based instruments as the
salvation of the environment (in the same issues that report the details of the WorldCom scandal).
But their exhibit No. 1, emissions trading, alone is not a solution to resolving works relatively well, these same solutions are far less likely to succeed
where institutions are much weaker.’
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Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
Examining the performance of trading systems in particular, one finds that existing applications fail to
achieve anywhere near their theoretical potential cost savings.24 Trades have been fewer and cost
savings smaller, according to this analysis, than indicated by economic modeling. A number of
explanations have been offered for why the predicted savings are not realized.25 Regulatory and legal
requirements of the actual programs may limit the trading opportunities to a greater extent than
portrayed in the models, especially where the incentive programs operate in conjunction with
traditional regulatory programs. Various models have not fully reflected all the aspects of real
regulatory programs, including the transaction costs, restrictive trading rules, monitoring and
reporting requirements, and the administrative burden placed on both emission sources and
regulatory agencies.
In addition to the limitations imposed by the regulatory structure, potential participants in trading systems
may be reluctant to trade emissions credits or allowances, preferring instead the greater certainty of
installing pollution control equipment at their facilities. Moreover, pollution credits have a limited life
whereas engineering controls, in principle, last for the life of a facility. In most trading systems, the vast
majority of trades that take place occur within firms, not between firms. Furthermore, markets for permits
that are available for sale tend to be thin, and it may be difficult to locate potential sellers.26
Anderson 1 (Robert C, Resource Consulting Associate, EPA, “The United States Experience with Economic Incentives for Protecting the
Environment”, http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0216B-01.pdf/$File/EE-0216B-01.pdf)
ERC emission trading has not lived up to expectations; trades have been fewer and offset prices lower
than many had expected. Several factors seem to have limited the appeal of the emissions trading policy. In
order to assure that air quality did not deteriorate, state environmental administrators often required
expensive air quality modeling prior to accepting proposed trades between geographically separated
parties. Deposits to emission banks typically were “taxed” by the air quality management authority to
meet state SIP requirements or to generate a surplus that the area could offer to attract new firms.
Offset ratios greater than unity further depressed the value of ERCs. In many areas, it appears that
ERCs had an economic value less than the transaction costs of completing a sale to another party.
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***Capital Flight DA
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Krissoff et al 96 (Barry, May, U.S. Department of Agriculture. Agricultural Economic Report No. 738.,
http://www.ers.usda.gov/publications/aer738/Aer738.pdf)
National environmental policies may exert longrun effects on international investment flows and firm
location. Just as labor-intensive industries may concentrate where labor is abundant (everything else equal)
polluting industries may concentrate in countries with less stringent environmental policies (everything
else equal). One concern is that developing countries, in particular, may use their lower environmental
standards to attract foreign investment and stimulate economic growth.9 Another is that countries that
are moving toward stricter environmental regulations will encourage industrial and capital flight
toward countries offering “pollution havens.” Little evidence supports the pollution-haven hypothesis,
particularly concerning the importance of differing environmental standards for foreign direct investment in
the food and agriculture sectors. Pearson’s survey (1987) finds little evidence of industrial flight to
developing countries as a result of differing environmental standards. In another study, Pearson (1976)
estimates that developing countries may have increased their export revenues by 2.1-4.6 percent by lowering
their environmental standards. Duerkson and Leonard (1980) conclude that there is no evidence of
widespread relocation of U.S. industries to pollution havens. However, Molina (1994), investigating
pollution abatement costs and U.S.-Mexico trade in food-related products, finds some evidence to
support the pollution-haven hypothesis. He finds that in U.S. industries that incur higher water and
solid waste abatement costs relative to Mexico, the United States is more likely to import from that
industry and, consequently, firms are more likely to migrate.
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Selko 8 (Adrienne, managing editor of corporate publications at a large regional financial institution
[http://www.industryweek.com/ReadArticle.aspx?ArticleID=16860] U.S. Manufacturing to Remain Flat over Next
3-6 Months Says Industry Group/ July 17, 2008)
Two indexes remained flat at positive levels of activity. The U.S. investment index, which queried
executives on their expectations regarding capital investment in 2008 compared to 2007, held steady at
62%. The research and development (R&D) index remained at 72%.
US capital investment up
Muradian 2 (Roldan, UNIVERSITAT AUTÒNOMA DE BARCELONA NEPAD AND THE ENVIRONMENT: ENVISAGING THE
ECOLOGICAL CONSEQUENCES OF OUTWARD-ORIENTED DEVELOPMENT IN AFRICA
http://www.worldsummit2002.org/texts/RoldanMuradian.pdf)
On the other hand, foreign direct investment (FDI) is also supposed to encourage both economic growth
and environmental quality improvement. Transnational corporations (TNCs) should play an important
role in the economic performance of developing economies by enhancing competition, injecting capital,
providing technological advances, and promoting modern management practices. TNCs may help
developing countries leapfrog stages in development, enabling them to shift from an economy oriented
toward primary products to a service economy. This would release pressure on natural resources and
improve the environmental performance of the economy. Even if foreign investments are directed to
the primary sector, many analysts assume that environmental performance will improve because TNCs
are more efficient and technologically advanced than outdated national enterprises (Zank, 1995).
According to some authors, multinational firms are the single most important vehicle for the transfer of
environmental information and technology to the developing world, and the initiatives they are taking in
many cases exceed the requirements of the host country governments (Hadlock, 1994). Natural resources
have no value unless they are discovered, extracted, processed, transported, and distributed to
customers. The predominant idea is that TNCs may give value to these resources that would otherwise
remain unused due to lack of capital, managerial skills, and technology in poor countries (Wilkins,
1998).
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Goodstein 2 (Eban, Professor of Economics at Lewis and Clark College in Portland Oregon
[http://www.progressiveregulation.org/perspectives/enviro_regs_jobs.cfm] The Trade-off Myth: Fact and Fiction
About the Employment Effects of Environmental Policy/ May 2002)
This is one case in which the conventional wisdom is dead wrong. Economists who have studied the issue
agree that the three propositions above are false. At the economy-wide level, in reality, there has simply
been no trade-off between jobs and the environment. In fact, regulation-induced plant closings and
layoffs are very rare. And, despite what one hears in the media, few firms are fleeing industrial
countries like the U.S. to take advantage of lax environmental regulations in poor countries. Let’s look
more closely at these three facts. First, there is no economy-wide tradeoff. This reality is demonstrated by
looking at U.S. economic performance in recent years. From 1990 to 2000, U.S. firms, consumers, and
governments boosted their spending on environmental protection from round $138 to $219 billion -- from 2.1
percent to 2.8 percent of GDP. These expenditures financed the installation of pollution control equipment in
factories, catalytic converters in cars, laboratory testing of new pesticides, the construction of municipal
sewage plants, and the disposal of household garbage, to name just a few items. Over the same period of
time that environmental spending grew so dramatically, the U.S. economy added a whopping 16
million new jobs. At a nationwide level, unemployment rates ultimately depend on the health of the
macroeconomy, which has not been impaired by environmental regulation. Second, it is a mistake to
confuse costs of environmental protection with net job losses from environmental protection. Environmental
costs translate into environmental spending, which also provides jobs. The great majority of studies
which have examined this issue find that jobs created in the environmental and related sectors balance jobs
lost as a result of higher regulatory costs.
Goodstein 2 (Eban, Professor of Economics at Lewis and Clark College in Portland Oregon
[http://www.progressiveregulation.org/perspectives/enviro_regs_jobs.cfm] The Trade-off Myth: Fact and Fiction
About the Employment Effects of Environmental Policy/ May 2002)
Over the last 35 years we have been at this same decision point-- facing a new set of major
environmental regulations—several times. And each time that a new regulation is put in place, we have
been able to gather more evidence that refutes such claims. In spite of apocalyptic predictions from
industry-sponsored models about the consequences of the SO2 control program, for example, not even
a whiff of economic slowdown emerged from this highly successful clean-up program. The accumulated
experience to date shows unambiguously that the job impacts from environmental regulation have been small
and gradual and that job gains have balanced losses. Environmental protection has never induced or
deepened a recession, lead to widespread plant shutdowns, nor has it promoted significant capital
flight to poor countries.
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***EPA Administration DA
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Federal environmental law has no single, uniform statutory base. Over the last four decades, Congress
has enacted numerous
pieces of legislation focusing upon a range of particular types of environmental problems. For example, the
CAA was concerned with the nation's air quality while the CWA focused upon the eradication of pollution in the nation's waters. 28 As a
result, federal environmental law has been established in a media-specific or problem-specific fashion and, as a consequence, is a
composite of a large number of statutes. These environmental laws usually direct EPA to set substantive and
procedural requirements necessary for the achievement of identified environmental policy goals
underlying each statute. 29 For instance, in order to [*182] meet the National Ambient Air Quality Standards (NAAQS) set
under the CAA, EPA and the states must establish source-specific emission standards that limit the amount of air pollution that can be
emitted. 30 Agency requirements, such as these emission rules, often impose economic costs, require
operational changes and/or delay activities falling under EPA's statutory jurisdiction. 31 As a result, these
environmental standards may not be enthusiastically embraced by those subject to them. Not surprisingly, those falling under the EPA
regulatory umbrella may find many practical reasons not to comply or not to fully comply with these rules.
B. The plan’s increase in EPA’s administrative efforts trades off with judicial efforts to
address environmental problems.
Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
However, those regulated by EPA rules do not immediately come into compliance with the them. Environmental
regulations
are not self-enforcing and frequently, when they ask regulated entities to assume new economic costs or
to change their methods of operation, they are resisted. 7 As part of federal environmental policy, EPA
has also developed both coercive and cooperative tactics to achieve compliance with its many rules. 8
Using the threat of punishment to encourage voluntary compliance, EPA has adopted an enforcement
program that threatens noncompliant behavior with a variety of judicial and administrative sanctions,
believed necessary to achieve the environmental goals of federal law. 9 Environmental law authorizes a range of
enforcement techniques that can impose both civil remedies--injunctive and financial--and criminal penalties. 10 However, both of these
enforcement methods require a federal enforcement lawsuit. 11 Federal environmental statutes provide an alternative enforcement route
to resource-intensive and time-consuming judicial intervention: EPA's issuance of administrative injunctive and penalty orders. 12
Increasingly, EPA has selected this in-house approach by taking civil enforcement actions within the agency's own administrative law
structure to punish environmental violators. 13
[*178] During the last decade, these administrative enforcement cases have become so numerous that they far outnumber court-ordered
actions and result in the payment of millions of dollars in civil penalties and in the imposition of injunctive compliance orders. 14 This
practice is so pervasive that one recent assessment has estimated that approximately ninety percent of EPA's
enforcement actions are administrative, not judicial, in nature. 15 For example, in fiscal year 2006, EPA data
reported that the agency initiated 4647 administrative complaints while issuing 1438 compliance orders and imposing 4624 final
administrative penalty orders for approximately $ 42 million in fines. 16 To put these [*179] numbers into a comparative perspective,
during this same year, EPA reported that the total number of judicial enforcement cases concluded in federal court totaled only 173 and
that $ 82 million were collected in civil penalties. 17 A private estimate places the number of civil enforcement law suits filed by the
Department of Justice (DOJ) in fiscal year 2006 to be only fifteen cases. 18 The overall trends in EPA enforcement
demonstrate consistent reductions in the number of judicial civil case referrals and case conclusions, as
well as criminal sentences and fines. 19 While at the same time, the available data shows that EPA
administrative [*180] penalties have become the only increasing form of enforcement undertaken
over the last decade. 20 This striking rise in in-house environmental enforcement has occurred just
when more visible judicial enforcement has diminished.
Administrative enforcement has not only become the more frequently selected alternative to judicial
enforcement, but it has also given rise to the development of an administrative analogue to the federal
judicial system--an administrative judicial system. 21 This system conducts adjudicatory proceedings governed by its
own Agency rules of practice, largely within the confines of EPA, in an insulated administrative format with significantly less public
involvement or awareness. 22 Despite the increasing importance of EPA's internal enforcement regime, the
workings of this administrative enforcement process have operated as a stealth system, largely
escaping the view of the public. Over the years, it has also avoided scholarly examination both in terms
of its methods and its results. 23 Significantly, there has been no concerted [*181] attempt to analyze reported case decisions
that have been generated by these administrative enforcement methods. The augmented use of EPA's administrative civil penalty
technique of enforcing environmental rules is the focus of this Article.
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
In conclusion, the increased use of the administrative penalty mechanism is not a clear-cut improvement in the attainment of
environmental-quality objectives. In fact, this shift could actually represent a movement towards under enforcement and result in
damage to the deterrent effect of all environmental enforcement. An unjustified and unwise over reliance on informal
and less-costly methods of enforcing environmental law could have a deleterious effect on the
willingness of regulated parties to meet their environmental obligations. If this actually does occur, the
stealth system of administrative enforcement will have harmed environmental policy more than it has
helped--certainly an unfortunate result.
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Environmental groups have been taking cases to the Supreme Court: Whale case.
Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
This four-tier array of enforcement methods represents a mix of techniques sharing the common goal of ensuring compliance with the
myriad environmental rules and regulations, as well as the larger programmatic objectives underlying each environmental statute. 53
While citizen suits continue to be filed, the vast majority of environmental enforcement activity is
initiated by the government, rather than by citizens or environmental organizations. 54 Frequently,
media attention is fixed upon enforcement results from significant court judgments or settlements
[*187] imposing substantial monetary penalties and far-reaching injunctive relief. 55 With this big
case emphasis in the popular media and in the minds of many commentators, it is easy to lose sight of
the fact that a significant amount of environmental enforcement occurs within EPA itself by way of
administrative or agency penalty practice. 56 It is not difficult to comprehend the reasons for this shift
towards administrative enforcement: (1) reduced agency resources than are required by judicial
methods; (2) EPA independence in enforcement without required coordination with the DOJ; and (3)
decisionmaking by EPA's ALJs, who are familiar with the law, regulations, and technical aspects of
environmental conflicts. 57 Relying upon these administrative authorities, EPA annually obtains both monetary penalties and
injunctive relief in many individual cases that are decided within its own administrative judicial system staffed by EPA ALJs and by
EPA's Environmental Appeals Board (EAB or Board). 58 As the statistical data below will indicate, this kind of [*188] administrative
enforcement is becoming increasingly common as more cases are disposed of in this low visibility, administrative fashion. The wisdom
of this enhanced reliance on civil enforcement via administrative means remains an open question.
Congressional laws allow the EPA to use administrative mechanisms for the environment.
Miller ‘5 (Jeffrey G, Professor of Law at Pace University, 29 Harv. Envtl. L. Rev. 1, “Theme and Variations in Statutory Preclusions
Against Successive Environmental Enforcement Actions by EPA and Citizens”)
States have similar arsenals of enforcement remedies in their statutes. In practice, however, EPA and
states conduct most
enforcement by issuing administrative orders. Approximately ninety percent of EPA enforcement
actions and ninety-five percent of state actions are administrative. 30
Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
As with any regulatory scheme, EPA must find ways to have its regulations followed so that the environmentally protective goals of the
regulations and statutes will be realized. But how will compliance be achieved? What approach will be taken? This effort to insure
regulatory compliance is generally known as enforcement. 32 Two main theories of enforcement have
been advocated: a deterrence-based approach and a negotiated, cooperative approach. 33 Over time, and
with the differing political philosophies of successive governing administrations, the relative emphasis between these two approaches
can shift. Despite this observation, EPA's enforcement system has consistently stressed deterrence-based
enforcement methods using formal sanctions imposed through adversarial processes as a sign of
programmatic success. 34 The central idea underlying this view is that polluters will act in an economically rational fashion and
will seek to avoid the certain--and [*183] high--penalty costs of their environmentally noncompliant conduct. 35 This risk avoidance
will influence behavior and encourage compliance. 36 In this way of thinking, EPA consistently must act to quickly identify regulatory
violations and punish these transgressions in a predictable and economically onerous way. Even if EPA wishes to employ its
enforcement powers in a more conciliatory or cooperative way, it must maintain the possibility of using
more punitive tactics as an incentive to securing cooperation. 37 This conclusion is especially true when public health
and environmental quality interests are at stake. In the most environmentally threatening situations, the deterrence theory also requires
that EPA have the authority to punish particularly egregious behavior with noneconomic criminal law penalties. 38
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Glicksman and Earnhart 7 (Robert: Distinguished Professor of Law at the University of Kansas and Dietrich: Professor of
Economics at the University of Kansas, “The Comparative Effectiveness of Government Interventions on Environmental Performance in the
Chemical Industry”, 26 Stan. Envtl. L.J. 317)
Despite the central role of enforcement in the implementation of environmental legislation, relatively
little is known about why regulated entities either do or do not comply with their regulatory
obligations. In particular, "until recently, there have been surprisingly few empirical studies of environmental enforcement," in part
because comprehensive data on compliance and enforcement have been difficult to obtain. 7 The EPA
and state environmental agencies typically proceed on the assumption that rigorous enforcement will
deter noncompliance by regulated entities. 8 Other participants in the environmental enforcement
process, including the courts, seem to agree. 9 Some environmental law scholars, however, have interpreted the available
evidence to suggest "that economic sanctions do not play a major role in encouraging compliance" with environmental regulations. 10
Even assuming that government enforcement efforts can potentially induce regulated firms to improve their performance, relatively little
is known about what kinds of enforcement actions are more effective at deterring noncompliance than others. 11
Data proves that administrative enforcement trades off with judicial enforcement.
Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
After reviewing the EPA administrative enforcement data for the five-and-a-half-year study period, a number of conclusions can be
made. First, administrative enforcement within EPA is definitely increasing, even if recent EPA data is
discounted for being somewhat over-inclusive. This appears to be the result of twin trends: a reduction
in EPA and DOJ judicial civil enforcement and an increase in the use of administrative measures. If this
de-emphasis of more formal judicial enforcement continues, EPA will employ these administrative tactics to seek both injunctive relief
and civil penalties from violators of environmental regulations in the future. Serious questions remain whether this increased reliance on
administrative enforcement measures sufficiently advances the environmental policy goals of the underlying statutes. A more complete
analysis of this greater emphasis on the administrative process is warranted to determine if environmental policy goals are being
adequately served.
EPA administrative enforcement cases are kept away from the courts.
Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Fifth, with a limited number of cases reviewed by the EAB, ALJ decisions, in reality, represent the final
step in the EPA enforcement process. This conclusion means that a larger number of environmental
enforcement disputes are being resolved by EPA's ALJs without external review by courts. 172 The
only review of these decisions is potentially undertaken by the EAB. However, the small number of
EAB appeals granted suggests that few cases are seriously reconsidered. All in all, this adjudicatory process vests
considerable discretion and authority upon EPA's ALJs and in regional officials to determine how environmental noncompliant behavior
will be sanctioned.
While there may be certain efficiencies and other benefits from such an administrative enforcement
system, there is no assurance that the right cases are being kept inside the Agency, rather than being
enforced in a more public way outside of EPA in court. Perhaps this kind of case selection represents a proper exercise
of prosecutorial discretion. However, this increased emphasis on administrative enforcement potentially diverts more serious cases away
from the judicial forum. Perhaps these right cases will be resolved in the wrong venue. The expansion of this form of internal Agency
enforcement, while simultaneously contracting the amount of external enforcement, holds the potential for inadequately sanctioning
more serious environmental wrongs. While deciding which matters are worthy of referral to the DOJ for civil enforcement would be
essentially a matter of discretionary judgment, the rapidly shrinking number of judicially enforced environmental cases calls this
selection process into serious question.
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Second, the data collected indicates that administrative enforcement can result in cost savings for the
Agency by encouraging Consent Agreements as the principal method of resolving a large number of
environmental complaints. While the EPA regional offices expend time and effort to secure these settlements, it would seem that
more of both would be needed to expand judicial and administrative enforcement proceedings from their present levels. As the
research shows, a relatively small portion of the administrative complaints actually result in contested
cases. Put into perspective, for the five-plus years of the study period, there were less than 200 reported ALJ case decisions under the
five major environmental statutes. This suggests that EPA conducted adjudicatory hearings in approximately thirty-five contested cases
each year, with hundreds more resolved by CAFO settlement agreements. 170 If this trend continues, negotiated
settlements conducted at the regional level will become the rule in environmental violation cases, with
[*214] administrative penalty proceedings being an occasional event and judicial enforcement serving
as the rare exception.
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Fourth, the administrative enforcement process not only results in low visibility and negotiated
settlements but has also produced an adjudication format that results in a high number of penalty
reductions. The number of downward penalty adjustments greatly exceeds the number of upward
adjustments. This fact suggests that ALJs frequently perceive EPA's initial proposed penalty to be too high, rather than too low. It is
not altogether clear why EPA enforcement officials would repeatedly err on the high side. One possible
answer is that they expect the ALJs to reduce the penalty, so they set their bargaining and litigation starting point high. Perhaps the ALJs
systematically discount the EPA claims as being excessive from past experience in prior cases. [*215] Whatever the strategic
reason might be for setting the initial penalty amounts, as the system has evolved, it rewards initial
penalty challenges with a forty-two percent chance of downward adjustment. This adjustment would
compensate penalty challenges with a relatively high probability of financial reductions.
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Third, the review of the reported CAFOs and administrative case decisions reveals a surprising lack of
adherence to EPA's own rules of practice in administrative penalty hearings. This defiant behavior is not
reflected by the parties charged with environmental offenses or EPA enforcement officials, but rather by the RJOs and ALJs who draft
the CAFOs and write the case decisions. These are the decisionmakers who have been charged with the responsibility of implementing
EPA's administrative enforcement system. In particular, the absence of specific civil penalty calculations in the
final penalty decisions undercuts the objectivity of the system as a whole. The Part 22 rules specifically require
this explanation in all decisions to enhance the transparency and accountability of these decisionmakers. In an agency adjudicatory
system where individual decisions rarely reach the public or the environmental community, it would seem especially important to
comply with EPA's own disclosure regulations as a means of reinforcing the legitimacy of this important and increasingly utilized
penalty process. Unfortunately, this does not seem to be the case and one is left to wonder just how the particular civil penalties were
calculated. The absence of coherent explanations certainly does not build confidence in the administrative
enforcement system that is so isolated from public view. 171
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Rosenberg ‘8 (Ronald H, “Doing More or Doing Less for the Environment: Shedding Light on EPA’s Stealth Method of Environmental
Enforcement”, 35 B.C. Envtl. Aff. L. Rev. 175)
Sixth, the sustained increase in EPA administrative enforcement emphasizing negotiated settlements
and relatively low civil penalties may provide the regulated community with the idea that
environmental enforcement does not present a serious threat of court enforcement, and so may not
deter noncompliant conduct. If those subject to environmental [*216] rules believe that regulatory
compliance is something that can be negotiated away for a low-level sanction in a nonthreatening
context, what will become of the deterrent effect of enforcement? Conventional wisdom suggests that
serious and costly EPA enforcement is unlikely and that environmental charges can be dealt with through publicly
invisible negotiation.
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2. Non-Unique: EPA won’t get that regulatory power because the Bush administration is
blocking efforts to regulate.
3. Link Turn: The courts don’t help the environment: Clean Air Interstate Rule proves.
More evidence.
Even Massachusetts vs. EPA didn’t work: The Bush administration is rejecting action.
Even Massachusetts vs. EPA didn’t work: The Bush administration is rejecting action.
***DOE Good/Bad
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( ) DOE procurement approaches are not tailored to specific needs – this limits their
effectiveness and success.
ASCE 5 (American Society of Civil Engineers, Project Management Factors Affecting Department of Energy Project Success,
http://books.google.com/books?id=xZte3iKpuV8C&dq=Department+of+Energy+success&source=gbs_summary_s&cad=0)
An acquisition strategy should be developed during the conceptual design phase of the project and integrated with
the risk management program. Procurement approaches should be tailored to project needs. Performance metrics
and incentives should be used to tie contractor performance to desired business results.
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