New Environmentalism

Energy and Natural Resources | Policy Reports

No. 201
Wednesday, January 01, 1997
by Lynn Scarlett

How Can the Principle and Filters Be Applied in Specific Policy Areas?

Figure I

Broadly speaking, there are at least three distinct kinds of environmental problems: pollution problems, resource use problems and land use/habitat problems. For each, we need to rethink environmental policy by asking a few fundamental questions. What decision processes would allow us to give robust expression to environmental values in a world of constraints, complexity and conflicting preferences? What processes would help reduce conflict? What is the role of market decision processes? And what are the roles of governing institutions, including courts?

Applying the Principles and Filters to Pollution Problems

Air, water and noise emissions can give rise to pollution problems. They emerge as residuals from production and consumption and are dispersed into the air, water bodies or soil. The dispersed residuals may harm people or their property without any compensation being paid. What should be done about this problem?

Although privatized decisions function reasonably well for resource use issues and land use/habitat issues, they are difficult to construct for many pollution problems. Hence, the latter problems offer the broadest scope for collective (though not necessarily government) decision making. The challenge is to apply the principles and filters discussed above to each pollution problem and determine what if any action is warranted.

Consensus filter. On certain pollution problems, the level of consensus or the desire to reach consensus is so high that a national solution is indicated. For example, the harm from improper nuclear waste disposal is likely to be confined to a small area in the state that acts as a disposal site, but citizens may prefer a national rule. Disposal of highly toxic solvent is another example. Almost all solvents have purely local effects, but people may prefer a uniform national restriction on the riskiest chemicals. However, these cases are exceptional.

Divisibility filter and Decentralization principle. Since most environmental problems are divisible, their impacts are local and no national consensus exists, decentralization usually is a reliable guide. Different pollution problems have different spheres of impact. For example, ground-level smog produced by vehicles is largely a problem confined to individual air basins. Problems associated with hazardous contaminants in soils also are local, with little chance that the pollutants will migrate substantially. However, air emissions that reach the stratosphere may have regional or even global impacts. The locus of impact of a pollution problem should help determine where the decision-making authority ought to reside. [See Figure I.]

Figure IIa

Knowledge filter. It is obvious that before launching any major policy initiative to reduce pollution, we must understand what is causing the problem. For some pollution problems, the cause-effect link is well established. We know, for example, that automobiles are a major source of several kinds of air pollution. Vehicle air emissions are therefore an important target of air emission reduction strategies. Further refinement in our understanding of the cause-effect relationship between automobile use and air pollution can help pinpoint the most cost-effective solutions. We know, for instance, that about 10 percent of cars account for more than 50 percent of vehicle air emissions.43

The transparency of the cause-and-effect relationship between an emission and a harm varies for different pollution problems. In some instances, harms from pollutants are swiftly felt and clearly identifiable. In other instances, harms result only after decades of cumulative exposures. In the latter cases, it may be difficult to connect the harm to a specific substance and at least as difficult to identify and hold accountable the polluter. Where the cause-effect relationship is clear, use of the strategy filter may isolate tort as the most efficient way to deter harmful activity.44 Where the linkage is less clear, performance standards or regulations may be preferable.

Risk filter. Different pollution problems generate different degrees of nuisance or harm. Where a pollutant is known to be very risky, a sensible policy might be to restrict its use - particularly where offsetting benefits are few or ready replacements are available.45 If a pollutant creates little or no risk, the case for inaction is strong. However, as Figure I shows, for intermediate risks a number of options need to be considered, depending on the causal link between the pollutant and the harm.

Do No Harm principle. For any pollution problem, even with full knowledge of the cause-and-effect relationships and the risk of harm involved, questions remain. Among the most important: (1) What policy options are available to solve or minimize the problem? And (2) of the available options, will any inflict less harm and incur lower costs than the problem they are intended to solve? If no realistic options exist or if the options do exist but implementing them would do more harm than good, inaction is the best policy.

Figure IIb

Strategy filter. For almost any pollution problem, several policy options are available because risks are difficult to measure, costs hard to determine and trade-offs inherently controversial. Accordingly, different strategies must be formulated based upon a careful consideration of the previous filters and principles. These strategies must also incorporate the following principles.

Individualism principle. So far, architects of pollution abatement policies in the United States have relied largely on regulations. They have set standards, dictated technological fixes to specific problems, defined allowable production processes or mandated certain product configurations. Superfund policies for hazardous waste cleanups follow this model, as do clean air and clean water policies.

The individualism principle challenges us to allow individuals, neighborhoods or communities to negotiate their own solutions.

Consider the solution that allows England's angler (fishing) clubs to fish specific streams.46 Economists Terry Anderson and Don Leal have explained how a form of property right gives the clubs an incentive to protect streams against potential polluters. Because the clubs have fishing rights, polluters are subject to liability challenges. Thus anyone considering putting effluents into their streams must negotiate with the clubs over an acceptable level of emission. Over many decades, the angler clubs have recovered significant sums from polluters. But the clubs do not necessarily require pristine waters. Voluntary transactions between those with fishing rights and other potential users of the stream determine the required level of cleanliness. The transacting parties have an incentive to seek water levels that are pure enough to sustain healthy fish populations but that allow some discharges. The anglers use the revenues to help pay for such activities as riparian management, fish stocking and habitat improvements.

Even where collective action is needed, the individualism principle can encourage less prescriptive rules. For example, vehicle emission fees, set at levels that reflect a reasonable evaluation of the "costs" of pollution, would leave travel decisions in the hands of individuals. Faced with paying for their emissions, some consumers might drive less; some might purchase low-polluting vehicles; some might carpool and share the cost with others; some might switch to public transport; some might decide that continuing their current driving habits is worth the extra fee.

This approach contrasts starkly with requirements for the use of specific fuels, electric vehicles or particular drive times.

Figure IIc

Balancing principle. With quality of life and the protection of the earth at stake, talking about costs strikes many people as crass and irrelevant. This is because the notion of cost is often understood as an argument on behalf of greater corporate profits. But cost, as explained above, simply refers to the sacrifices - in time, other resources, forgone opportunities - that accompany the pursuit of any activity. That all human endeavors have costs in this broad sense does not mean they are not worth doing. Dollar costs simply provide a measure by which we can compare what we must give up to do one thing to what we must give up to do another.

Every public policy needs to satisfy a cost-benefit standard, and legislators or regulators must evaluate costs and benefits before arriving at collective decisions. Pursuit of zero emissions is usually not realistic, whether in the air, in soils or in water. Understanding how much it costs to eliminate each additional ton of carbon monoxide emissions from the air and weighing that incremental cost against actual improvements in human and ecosystem health would enhance - not reduce - our overall quality of life.

Contrary to its opponents' worries, cost-benefit calculation need not require massive research and sophisticated economic analysis. Often, the costs to clean up each additional ton of a pollutant rise slowly as one moves to clean up the majority of that pollutant. Only in the final cleanup stages do costs climb dramatically. At that point, we must seriously consider whether the additional expenditures are worthwhile. There is no magic formula, but incorporating cost-benefit analysis into environmental regulations can constrain escalating costs that promise marginal benefits.

Efficiency principle. Pollution control is not free. Resources devoted to controlling the discharge of pollutants, removing them from the soil and water or recycling them are resources unavailable for other worthwhile pursuits. For example, money spent on removing soil at a Superfund site or on related law suits is no longer available to build a new hospital or to pay for classroom computers. Collective decision makers should always strive to achieve social goals in the least costly manner.

Flexibility principle. When policy makers prescribe specific technologies or pollution-reduction protocols, they are limiting technical innovation and the application of site-specific knowledge.47 For example, under the Clean Air Act of 1977, Congress required the use of "best available control technology" standards. All coal-fired generating plants were required to install stack-gas scrubbers; plant operators could not meet the standards by using low-sulfur coal, a less costly option. The scrubber requirement on new plants slowed the rate of replacement of older, dirtier utility boilers.48

The flexibility principle asks that different policy alternatives be evaluated in terms of their restrictiveness. Bans are the least flexible of remedies, while tradable pollution permits and vehicle emission fees are more flexible - and are more likely to produce innovations.

Bottom Line: New Tools for Pollution Prevention & Control. Applying the environmental covenant - using these filters to sort information and these principles to make decisions - would translate into less pollution and more efficient, effective pollution control. It would:

  • steer decision makers - public and private - toward results rather than process;
  • create opportunities for firms to pursue pollution prevention - not just pollution control;
  • shift more dollars toward solutions and away from litigation and punishment; and
  • reduce bureaucratic opportunities to shift pollution problems from one medium, for example, air, to another, such as soil or water.

A concrete example of how filters and principles could improve pollution prevention strategies is in the improvement of air quality due to the prevention of auto pollution. Currently, most vehicle smog check programs, following USFWS guidelines, require annual or biennial testing of all automobiles. This requirement imposes costs and inconveniences on all motorists, with little or no improvement in air quality resulting. Yet for much less sacrifice we could have cleaner urban air if we took direct action against the 10 percent of cars that cause 50 percent or more of the pollution.

The strategy filter would obligate government to consider alternatives to current USFWS guidelines. The efficiency principle would obligate government to choose less costly alternatives. The divisibility and decentralization principles would empower states or localities when pollution impacts were not widespread. The individualism principle might lead to the development of graduated vehicle emission fees.

The principles would apply not only to the USFWS but also to the departments of Energy, Defense, Agriculture and Transportation and to state energy, transportation and agriculture agencies. Applying these principles and filters would constrain all the relevant bureaucracies to consider environmental goals and risks before they make decisions. Moreover, these principles require that all property owners - public and private - be held responsible for environmental impacts imposed by their actions.

Applying the Principles and Filters to Resource Use Problems

Are we running out of such resources as fish and minerals? If so, is this a problem we want to correct and how can we best do so? Our filter approach to problem solving tackles the issue in Figure II.

For some resource use issues, market decisions function fairly well. In other cases, market institutions can be created. Two features of most resource issues account for the success of the marketplace. First, most resources are owned. When they are consumed the owner pays a price - the opportunity cost of not consuming and selling the asset to someone else. Second, most resources are traded at market prices, which subtly balance demand and supply. However, as in the following cases, the best solution is determined by the nature of ownership rights.

Case I: Clear Ownership. Ownership of most resources traded in the marketplace is clear. Because the resources are owned, market transactions involving them can occur. And through market transactions, prices emerge that reflect the relative scarcity of each owned resource. When demand for, say, oil goes up, prices rise. As prices rise, entrepreneurs are motivated to find either new supplies or substitutes. Prices tell us which resources are becoming relatively scarce, and people typically respond by conserving, switching to alternatives or finding new supplies. Such conservation processes are ill suited to top-down rule making and properly left to the marketplace.

Sometimes, even though resource ownership is clearly established, price signals are ineffective. This occurs when the amount or quality of information that flows between owners (sellers) and buyers is poor. For example, in the 1800s farmers in the United States started producing corn. Consumers wanted to buy it, but two problems arose. First, buyers could not be certain what quality of corn they were getting ahead of time, so they could not arrange long-term contracts - making it difficult for both farmers and buyers to plan and invest. Second, farmers' information about buyers was often very local, causing a wide spread in prices that made markets inefficient.

Entrepreneurs remedied this problem by creating a commodities market that guaranteed quality and centralized information about supply and demand. By reducing uncertainties, they made long-term corn contracts possible.

Consider also the example of electrical outlets. When electricity was introduced, there was no single way to make a wall socket, and consumers were never sure an appliance plug would fit their wall socket. In response to the problem, the appliance industry voluntarily developed uniform standards and specifications. Today, Underwriters Laboratories, a private organization, assures that certain products perform as the manufacturers promise, and the American Society for Testing and Materials (ASTM) develops specifications for diverse products. The improvement in consumer and manufacturer information makes markets function better.

Today, markets for recyclables are hindered by a lack of information about supply and demand and a lack of uniform quality. One remedy to the information flow problem is to mimic the experience of corn farmers and socket manufacturers. This is already beginning to be done; the Chicago Board of Trade now lists some recyclables.

The knowledge filter helps us think about the nature of the resource problem. Is ownership clear? If not, why not? The decentralization filter helps identify the appropriate level for decision making and problem solving. Once we have determined these matters, we still need to find appropriate remedies. Here is where it is important to have some basic criteria against which to evaluate possible options. We have already discussed why costs matter. We have also discussed how most relevant information about environmental problems, trade-offs and constraints is fragmented, dispersed and dynamic. And we have discussed the importance of developing solutions that give expression to the diverse values and preferences of many individuals.

These concepts shape the criteria against which we should evaluate different policy options. Three criteria are especially important:

1) How much flexibility does the option offer individual decision makers?

2) What are the costs and expected benefits of implementing the proposed option, including the transaction costs to monitor and enforce the policy?

3) How well does the option allow different individuals and different locations to balance multiple values in a context of constraints?

Consider the problem of a weak market for recyclables because of poor information and uneven quality of materials. One option is to try to increase demand by mandating the labeling of products and packages to indicate how much recycled content they contain. The premise of this approach is that consumers want products with recycled content and that if they know which products have such content they will buy the products. Products with recycled content thus will gain market share, and manufacturers will have an incentive to increase the recycled content in their products.

Another option is to create a formal commodities market to centralize supply and demand information and create supply standards. In this case, users for whom using recycled content might be cost-effective will be better able to secure quality materials at market-clearing prices.

Both options meet the first and third criteria fairly well. Both allow the producer complete flexibility regarding what to produce and how to produce it. Both meet the flexibility test. And both allow individual producers and consumers to decide how to juggle competing values in a context of constraints.

However, the two options are not equally cost-effective. Labels involve implementation and monitoring costs. Product manufacturers would have to determine the recycled content they use and redesign their labels to incorporate that information. Regulators would have to monitor whether the advertised recycled content amounts were actually being maintained. Because measuring recycled content is often impossible, this monitoring would require a paper trail from the material manufacturer to the end user.

By contrast, setting up a commodities market would involve some up-front costs. But once established, such a market could be self-financed and monitored by its participants. The enforcement costs of preventing fraud and ensuring that contracts are carried out would be assured by the financial self-interest of the market participants.

Case II: Mixed Ownership. Sometimes resources are owned, but either regulations or poor enforcement of ownership rights interrupts the incentives for stewardship or restricts information. For example, when natural gas prices were regulated, natural gas users did not get information about scarcity of supplies in relation to demand. And owners had no incentive, when demand was high but prices were suppressed, to invest in more natural gas exploration.49

Or consider water policy. Subsidies for Western water use, for example, give farmers inaccurate information about the actual scarcity of water relative to demand. Because water is cheap, it seems abundant. The result is an incentive to produce water-using instead of water-conserving crops.50

Regulations that prohibit use of recyclables have a similar effect. In this instance, demand is curtailed, so generators of recyclables have no incentive to collect and process more materials. For example, federal laws are so ambiguous that used motor oil is sometimes considered a hazardous waste. This designation can impose costly regulatory requirements that inhibit motor oil recycling.

In other instances, resources may be owned, but governments may not fully enforce ownership rights. For example, if government builds a landfill next to my house and denies me compensation for noise and other nuisances, my well-being may suffer and my property values decline. Or if I own a fishing stream, and the government fails to uphold trespass laws, my stream may soon be fished out. This is what befell some Native American tribes whose historical fishing grounds were not respected as private property. Ironically, some statutory laws setting standards for air and water pollution may have had a similarly negative effect. In one case concerning noxious gases, a Pennsylvania court failed to provide remedies to complainants, determining that "the Legislature has provided a statutory method for resolution of the alleged problem," rather than allowing a common law approach in which an injunction against the harmful activity is invoked or damages are paid to the complainants.51

One way to remedy problems stemming from a failure of governments to enforce rights is to create additional regulations. In the case of recycling, policy makers could simply mandate the use of some levels of used motor oil. But this approach violates the flexibility principle and overrides the specific constraints that face individual consumers of motor oil. Another approach is to remove regulations that impede price signals. And in situations where enforcement of rights is lax, an obvious remedy is to strengthen tort, nuisance and contract law.52

In some instances, public policies are not appropriate at all. Improving the environment may be a matter of simply improving private sector information. For example, companies can undertake environmental audits to identify opportunities for reducing costs by reducing wastes and recycling residuals. 53

Consider the solution that allows England's angler (fishing) clubs to fish specific streams.46 Economists Terry Anderson and Don Leal have explained how a form of property right gives the clubs an incentive to protect streams against potential polluters. Bea creatures, no one has an incentive to invest in their cultivation.

Here the problem is not one of improving information flows by establishing quality standards or a centralized commodities market but of better defining rights to the resource.

The first question to ask is: how divisible is the resource? Is it confined to a specific locale such as an oyster bed? Does it move through regional boundaries, as do some kinds of fish? Does it occupy a global habitat, as do whales? These questions help apply the decentralization principle to find the appropriate decision-making level.

The next step is to identify the options for creating clearer use rights. This can occur through privatization, as has been done with some oyster beds, or through fishing quotas and other use restrictions. An extreme remedy is an outright ban, like the international ban on sperm-whale harvesting. Deciding what makes sense requires examining the relative costs and benefits of different options, the degree of flexibility each option offers and the degree to which each option supports individual decision making and individual values.

Bottom Line: New Tools for Resource Conservation. Over the past century, many environmental problems have emerged as an unintended side effect of government infrastructure and resource development policies. These policies, which have resulted in the construction of dams and highways, the development of mineral and energy resources and the expansion of the American "food basket" have generated substantial benefits. However, the policies often were pursued in isolation from other goals, such as environmental protection, and at great cost.

Respecting the covenant would correct the government's tendency to cause environmental problems as side effects of other policies. The balancing principle should provide a means of incorporating environmental values into such polict before launching any major policy initiative to reduce pollution, we must understand what is causing the problem. For some pollution problems, the cause-effect link is well established. We know, for example, that automobiles are a major source of several kinds of air pollution. Vehicle air emissions are therefore an important target of air emission reduction strategies. Further refinement in our understanding of the cause-effect relationship between automobile use and air pollution can help pinpoint a reexamination of dam and highway construction programs that damage the environment.

Applying the Principles and Filters to Land Use and Habitat Problems

Figure III

Land use and habitat problems are special concerns of people who wish to preserve wetlands, old-growth forests, spotted owls and other examples of America's grandeur.

This category includes the problems cited by environmentalists in which no economic or tradable commodity currently exists, although wildlife and wilderness protection are amenities for which many individuals would be willing to pay.

As with resource use, land use and habitat issues are reasonably amenable to private sector solutions that harness market institutions and individual choices. Options for private habitat and wildlife protection are not perfect. But understanding how property rights create spheres of autonomy and conditions of stewardship point to the resolutions of many habitat problems. [See Figure III.] Habitat and wildlife protection demands a full understanding of local ecologies. Top-down federal edicts like those associated with the Endangered Species Act often fail to take local circumstances into account. For example, a San Diego County rancher was told that a plant species on his property was endangered. He was required to sequester the plants by fencing them in to prevent cattle from eating or tramping on them. Once this plan was put into place, the plants started dying. It turned out that the cattle's presence helped the plants survive.54

Case I: Clear Ownership. In many instances, wilderness is privately owned and protected. Mrs. Rosalie Edge's Hawk Mountain is one notable example. The many thousands of acres owned by Ducks Unlimited is another. In the latter case, members preserve wetlands not because they value the wetlands per se but because the wetland habitat ensures a duck population for hunters. Ducks Unlimited preserves more wetlands in the continental United States than the entire federal wetlands preservation program.55

In some instances, ownership is clear, but information about environmental impacts is not. For example, the effect of logging on some bird habitats was poorly understood in the past. In part, this lack of understanding reflected a lack of interest in such protection. But even when wildlife protection became important to many citizens, the relationship between logging practices and wildlife protection was sometimes unclear.

One approach to this problem is a regulatory one in which public agencies prescribe or mandate particular logging practices. The regulatory approach tabout appropriate protection practices.

Consider another example. Many forests are privately owned and managed to maximize returns from lumber sales. The owners have an incentive to maximize the forests' economic value but not its amenity values. And sometimes managing a forest for maximum returns from lumber sales reduces those amenity values, including the abundance of wildlife.

If people value increased preservation of forest habitats, one option would be to prohibit cutting the trees. Another would be to regulate forest management. These are the current approaches to federal and state forest habitat protection.

Yet another approach would be to strengthen forest owners' incentives instead of eroding their property rights. For example, the government could pay, through a competitive bidding process, forest owners who come up with management plans that enhance amenity values. Since such management plans may reduce proceeds from timber, such a bidding process provides incentives and compensates private forest owners for forgoing some timber revenue to provide more amenity values. Another approach would be to give forest owners management responsibility for the wildlife on their lands, effectively privatizing the wildlife and turning a liability into an asset. Unlike nationalization of private forests or bans on timber harvesting, these market-oriented approaches would encourage forest owners to optimize several values simultaneously.56

Case II: Mixed Ownership. Sometimes habitat and land ownership law exists, but courts and other government bodies fail to adequately enforce against nuisances or harms. At other times government regulations shield landowners from the consequences of their decisions.

Consider two examples. Citizens who live or work near government-owned noxious facilities - say, landfills, nuclear power plants and hazardous waste sites - sometimes are precluded from seeking compensation for any harms. They may be able to seek an injunction against their creation, but if that fails they cannot get compensation for harms or nuisances. They may suffer a reduction in property values and well-being, while those building the noxious facilities are cushioned against claims.

Or take mandatory federal flood insurance. The federal government offers low-cost flood insurance and compensation to landowners who suffer flood damage. The subsidized flood insurance shields individual landowners from the actual costs of building and rebuilding in a flood-prone area.57

Land development prohibitions are the traditional way to grapple with these problems. A better way, one in keeping with the principles of new environmentalism, is to strengthen the enforcement of nuisance and tort law and to eliminate subsidies that shield property users from the full consequences of their decisions.

Case III: The Common Pool. As discussed above, sometimes ownership of land or wildlife is unclear or is held by the public. In these instances, responsibility for stewardship is diffuse or even nonexistent. And people have incentives to usurp common pool land for their own purposes, while bearing little responsibility for the consequences of its use.

We have examined the common pool problem as it relates to resource consumption. But what about circumstances in which the land or the endangered biological species has no traditional economic value?

 Again, the response to this kind of problem has long been regulatory. The Endangered Species Act was designed to protect such animals as the Stevens kangaroo rat and the Magazine Mountain shagreen (a snail). Similar approaches are proposed to protect species in the Brazilian rain forest. But not everyone values the protection of species, wetlands or open space. Sometimes proponents of protection win; other times they do not. Moreover, the all-or-nothing regulatory approach leaves little room for location-specific decisions and for the balancing of competing values.

Yet these values can be protected by moving away from uniform regulations toward privatization, long an American tradition. In the 1800s, New England conservationists created land trusts to preserve some natural landscapes in perpetuity. Private owners can exclude any or all users, while each taxpayer has a legitimate claim to the use of public land. The result often is conflict over use of public land, like that of off-road vehicle users, proponents of tortoise preservation and camping enthusiasts in Western deserts.

Increasing Opportunities for Private Action. Sometimes, as private landowners share the desire for environmental protection or seek to respond to consumer needs, they independently embark on environmental audits to identify and protect sensitive habitats. Many logging companies employ biologists to develop habitat protection plans. Other companies undertake environmental audits to find out where their activities have the greatest impacts in order to mitigate them. And some, such as landfill companies, establish buffer zones and nature preserves around their operations to shield the public. These efforts need to be nurtured, not overriden by regulatory edicts.

In this regard, adherence to the covenant should create opportunities for landowners to benefit from the wildlife on their land, turning a liability into an asset. The strategies and information flow filters should obligate government to consider alternatives to the command-and-control approach. Applying the efficiency and flexibility principles, we likely would discover that we could accomplish more for the same social cost if we paid compensation or rewarded landowners for improving habitat and attracting wildlife to their property.

To take another example, environmentalists often have relied on the Endangered Species Act to indirectly protect ecosystems. The principles and decision filters make it possible to pursue habitat or ecosystem protection directly and holistically. For example, land trusts can set aside whole ecoregions, restricting their use without compromising individual property owners' rights. In such cases the environment is protected, the Constitution is preserved and wasteful, acrimonious litigation is precluded.

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