Virtual Guest Speakers

March 1:

Market-Based Pollution Control Programs and Environmental Justice
Professor Stephen M. Johnson

Other links
Discussion List   (Professor Johnson will join the discussion list from Mrch 1 - March 5)

Short Biography of the Speaker

Stephen M. Johnson:  Stephen Johnson is a professor and Associate Dean at Mercer University Law School.  Prior to teaching at Mercer, he served as an Assistant Counsel in the Pennsylvania Department of Environmental Resources' Bureau of Regulatory Counsel, and as a Trial Attorney in the Environment and Natural Resources Section of the U.S. Department of Justice.   In 2003, Professor Johnson was a Fulbright lecturer in Japan at Waseda University and the University of Tokyo.  He has also taught or visited at Notre Dame Law School, Queen Mary College, University of London, and Strathclyde University.  He received a J.D. from Villanova Law School and an LL.M. from George Washington University Law School.  He has written numerous articles on environmental justice and recently completed a book entitled Economics, Equity and the Environment, which will be published by the Environmental Law Institute.

Virtual lecture

For the first 20 years of modern environmental law in the United States, the Federal government relied primarily on command and control laws.  Command and control laws require the Federal government to establish uniform national pollution standards and to apply those standards to major industrial polluters through a permit program.  Polluters who do not obtain permits or
violate their permits are subject  to large civil or criminal penalties.  While that approach was very successful in addressing the major pollution problems in the 1970s and 1980s, the incremental cost of cleaning up the pollution that remains after those laws are enforced has risen dramatically, and critics argue that the command and control laws are too rigid to address most of the remaining major environmental problems in the U.S., such as non-point source water pollution.  Because of that,
Federal and State governments are increasingly implementing market-based approaches to reduce pollution in the U.S.

I.   Market-Based Reforms - Background

Market-based pollution control programs use economic incentives to encourage polluters to reduce their pollution in cost-effective ways.  Theoretically, market-based approaches can achieve the same level of pollution reduction as command and control laws at a lower cost.   In addition, market based approaches do not require the government to gather large amounts of information to develop regulations and standards, as do command and control laws.   The major types of market-based approaches that have been implemented over the past decade are: (1) pollution trading programs; (2) pollution taxes; and (3) regulatory waiver programs.

In a pollutant trading program, the government gives polluters the “right” to discharge a specific amount of pollution and allows polluters to buy and sell their pollution rights.  Under a typical trading program, if a polluter is discharging ten tons of pollution, but only has the “right” to discharge five tons of pollution, the polluter must either reduce its pollution discharge by five tons
or buy the right to discharge an additional five tons from another polluter.   If it costs less for the polluter to buy the “right” to discharge an additional five tons of pollution than it costs to reduce its discharge by 5 tons, the polluter will buy the additional pollution rights from another polluter.  Thus, the trading system allows the polluter to choose the most cost-effective means of controlling pollution, while maintaining specific limits on total pollution levels.  In addition, because polluters can sell their “rights” to other polluters, the system provides incentives to polluters to reduce their discharges below levels allowed by law.  Further, under some of these programs, the government retains some of the pollution “rights” and auctions them off to polluters, so the system can also provide a source of income for the government.

Pollution taxes provide benefits that are similar to trading programs.  In a pollution tax system, the government imposes a tax on the discharge of a particular type of pollutant.  If it costs less for a polluter to reduce its discharge than to pay the tax for the discharge, the polluter will reduce the discharge.  If not, they will pay the tax.  Thus, pollution reduction is achieved in the most cost- effective manner.   Pollution taxes also provide incentives to polluters to reduce their pollution discharges beyond levels allowed by law because they can reduce their tax burden by reducing their discharges.  Pollution taxes can also provide additional revenue for the government; perhaps more than trading programs.   One disadvantage to the tax approach, though, is that it does not guarantee specific amounts of pollution reduction, in the way that command and control or trading would, since
if the tax is set too low, polluters will continue to pollute and pay the tax, instead of reducing their pollution.

Regulatory waiver programs are another type of market-based approach to pollution control.  In these programs, the government waives or modifies regulatory or other legal requirements that apply to a polluter, in order to allow the polluter to achieve similar pollution reductions as those required by law, but in a more cost-effective manner.   In such programs, (i) the government might waive permitting or reporting requirements for a polluter, or allow it to consolidate permits or reports. (ii) The government might also exempt polluters from certain technology-based requirements if the polluters can achieve pollution reductions equal to those that would be achieved by the technology-based requirements through other means.  (iii) Finally, the government might replace individual limits on pollution from a plant with a single overall “bubble” limit on pollution from the plant, so that the polluter can reduce pollution from one part of the plant to compensate for increases at another part of the plant.  While regulatory waiver programs do not net the government any money, as do taxes and trading programs, they allow the government to ensure that specific pollution limits are met, while allowing polluters to meet those limits in the most cost-effective manner.

II.  Environmental Justice: The other side of the coin:

While the market-based approaches are economically more efficient than “command and control” approaches, they raise other important issues.   Over the past decade, countless studies have demonstrated that minority and low income communities suffer disproportionate exposure to a variety of types of pollution under traditional command and control laws.  Those studies have examined hazardous waste facility siting, nuclear waste facility siting, siting of heaviest polluting industries, air quality violations, and enforcement patterns.

While the traditional command and control approach has not prevented environmental injustice, market-based approaches will inevitably exacerbate the problems.   Although the traditional command and control laws do not require the government to avoid disparate impacts, they also do not affirmatively encourage unequal distribution of pollution.  By contrast, many market-
based approaches affirmatively encourage polluters to shift pollution to low income communities.   Classical economic theory suggests that in a free market economy, resources are shifted to those uses in which the value to consumers, as measured by their willingness to pay is highest.  That is when the market is operating efficiently.   However, most economists incorporate “ability to pay” into “willingness to pay”, so that an efficient economic system by definition will shift pollution to low income communities.  Because wealthy communities are willing to pay (or rather able to pay) more for clean air and clean water than low income communities, the market operates efficiently when it funnels those resources to the wealthy communities, rather than the low income communities.

In addition, many market failures prevent low income communities from even participating in the bargaining process for environmental and health benefits.  (a) Information deficits; (b) financial limits; and (c) limited opportunities for public participation reduce the opportunities for low income communities to participate in the bargaining for environmental and health benefits.  To see what I’m talking about, let’s look at several of the market-based environmental reforms to examine
the potential disparate impacts that they could cause.

A.   Pollution Trading Systems and Environmental Justice

Let’s look first at pollution trading programs to see the potential disparate impacts.  The major distributional concern raised by pollution trading systems is that while trading programs limit the total amount of pollution that can be discharged through the program, most trading programs do not impose geographic limits on trades.  As a result, while the programs may reduce overall pollution levels, they could actually increase pollution levels in specific areas, creating “toxic hot spots.”

Because it is often easier for new companies to install new technologies or change production process to reduce pollution than it is for older companies to retrofit their plants to reduce pollution, older, heavily polluting industries are most likely to find that it is more cost-effective for them to continue polluting and to buy the right to pollute than to install new controls.   Older plants already have incentives to continue to pollute at levels higher than new plants because many of the federal environmental laws include grandfather provisions that allow older plants to comply with less stringent standards than new plants.   The result is likely to be that the “toxic hot spots” that are created will likely be centered around older, heavily polluting industries.

If the trading programs create hot spots, economic theory suggests that the hot spots will most likely occur in low-income communities.  There are several reasons for this.  First, heavily polluting industries are more often sited in low income communities, according to federal pollution data.  Second, low income communities may be less likely to urge a polluter to implement new pollution controls instead of buying the right to pollute, because they may fear that if they pressure the polluter
to adopt new controls, the polluter may decide to close, depriving them of essential jobs and tax revenue.  Finally, low income communities often lack the political power to influence industries to adopt new pollution controls instead of buying pollution rights.

One trading program has already been demonstrated to exacerbate environmental injustice.  In Los Angeles, California, the State established a program whereby oil companies could generate VOC pollution credits by paying drivers in the Los Angeles area to scrap old, heavily polluting automobiles.  Since the drivers who turned in their cars for cash were from all around the Los Angeles area, the pollution reduction achieved by the program came from a wide area around Los Angeles.   Once the oil companies had generated the VOC credits by buying up old cars, they used them to avoid installing new controls on pollution emissions at oil refineries in low income Latino communities.  Consequently, the program reduced pollution throughout the Los Angeles area, but created hot spots around the oil refineries in low income communities.

B.   Pollution Taxes and Environmental Justice

Pollution taxes can also have disparate impacts on low income communities because they can have a regressive impact.   For instance, low income households would feel the impacts of an energy tax more keenly than high income households because low income households spend a greater proportion of their income on heat, electricity and gasoline than high-income households.
Similarly, variable rate waste disposal fees impose more significant financial burdens on low income residents than on higher income residents.

C.   Regulatory Waiver programs and Environmental Justice

Regulatory waiver programs can also disparately impact low income communities.  Regulatory waivers are usually developed through a time consuming technical process, and the projects involve detailed analyses of industrial processes and economics.  While affluent communities will be able to hire consultants and experts to evaluate and comment on the proposals or to challenge the validity of the agency’s agreements, it will be more difficult for low income communities to shoulder those expenses.

One form of regulatory waiver program that is being implemented by many States in a way that can disparately impact low income communities is the brownfield cleanup program.  Many states have created brownfield cleanup programs to encourage developers to clean up and redevelop property contaminated by hazardous waste.  In order to encourage redevelopment, the programs usually allow the developer to clean up the property to a level that is less clean than would be allowed by law if the site was not being managed under the brownfield cleanup program.  Unfortunately for low income and minority communities, most of the sites that are being targeted for cleanup (and reduced cleanup standards) under the programs are in the urban core, in low income and minority communities.

III. Environmental Law: More Considerations than Efficiencies

Economists defend the market-based approaches by arguing that economic theory does not make value judgments regarding the distribution of resources or the moral or social implications of “efficient” allocation of resources.   However, environmental law developed and flourished precisely because economic theory and the free market did not address those concerns.

Environmental laws often incorporate a moral vision and strive to advance civic values that are ignored in the free market.  While environmental laws should weigh economic issues, the laws should not substitute economic considerations for the important social considerations that motivated legislators to enact the laws in the first place.

IV.  Compromises

Since it is likely that the Federal and State governments in the United States are likely to continue to rely on market-based approaches to address pollution control, it is important to look for ways to reduce the potential disparate impacts that may be caused by such approaches.   For many of the market-based approaches described above, the market funnels pollution toward low income communities because such communities either (1) lack information about the decisions that are being made that will adversely affect the health and environment of their community; (2) lack the financial resources necessary to participate in that decisionmaking process; or (3) lack notice of, and the opportunity to participate equally in, that decisionmaking process.

In order to minimize the disparate impacts that may be caused by market-based pollution control programs, such programs should include (1) provisions to improve access to information regarding the programs and decisions made in the program; (2) grants, loans and financial assistance to facilitate public participation in the decisionmaking process; (3) broader public participation provisions; and (4) a command and control safety net.

Theoretically, markets operate “efficiently” if consumers have perfect information.  If they do not, as they often do not in practice, in the environmental arena, a community may be unaware that a particular action could adversely affect the health or environment of the community and the community may, therefore, fail to bargain with the actor to prevent the harm.   One obvious way to address this market failure and to foster environmental justice is to improve consumers’ access to information.  Market-based reforms could include provisions that require participants or the government to provide detailed information to communities about the potential environmental and public health impacts of pollution trades, waivers or modifications of regulatory requirements, or similar market-based initiatives.  The power of such information disclosure laws has already been
demonstrated in the environmental arena, where right to know laws, such as the EPCRA and the consumer confidence provisions of the Safe Drinking Water Act, have been very successful in correcting information deficits in the market and spurring pollution reduction through the market.  Information disclosure requirements would reduce, but not eliminate, the likelihood that the market would allocate resources inefficiently.  In addition, information disclosure provisions would promote
individual autonomy and advance democratic decisionmaking.

Low income communities may also fail to participate in the market for health and environmental benefits because the communities do not have sufficient financial resources to bargain for those benefits or even to participate in the decisionmaking process.  In a market-based system, low income communities may never have sufficient financial resources to bargain successfully for environmental or health benefits.  However, technical assistance grants and loans could be made available to communities that would, at the very least, enable communities to participate in the decisionmaking process.  Such funds could be used to review trades, waivers and similar market-based actions.   Without such assistance, communities may be unable to retain experts to evaluate the environmental and health impacts of pollution trades, waivers or modifications, or to evaluate
other market-based actions.   Another way that grants and loans could be used to help reduce environmental justice problems is by increasing grants and loans to businesses to implement pollution prevention programs.  Pollution prevention is perhaps the best tool in the battle for environmental justice, but the government has not committed sufficient funds or resources to
promoting it.

While technical assistance grants and loans may increase the likelihood that a community can afford to participate in environmental decisionmaking in market-based programs, other obstacles have limited public participation by low income and minority communities in the past.  Traditionally, in many command and control programs, communities have not been provided with information or an opportunity to provide input in the process until the government has, for all intents and purposes,
selected a course of action.  Additionally, public meetings and hearings have been scheduled at times, locations, and in formats that limit opportunities for public participation.   Accordingly, broad and flexible public participation provisions should be included in pollution trading, regulatory waiver or variance programs, and other market-based programs, to enable low income communities, and all citizens, to participate in the market for health and environmental amenities.

The National Environmental Justice Advisory Council developed a Model Plan for Public Participation that establishes several core values for public participation and recommends, among other things, soliciting stakeholder involvement early in the policy-making process, developing relationships with community organizations and providing resources for their needs, regionalizing materials to ensure cultural sensitivity and relevance, and scheduling meetings and hearings to make them accessible and user friendly for stakeholders.  Public participation is even more important in market-based programs than in traditional command and control programs, because market-based programs reduce the role of the government as a decisionmaker and, thus, reduce the protections afforded to minority interests.

Each of the preceding proposals would work with the market, and not supercede the market in any way.  In addition, though, in order to reduce the potential for market-based programs to funnel pollution to low income communities, it may be necessary to build “command and control safety nets” into the programs.  While the preceding proposals would increase the ability of low income communities to participate in the decisionmaking process, they would not significantly increase the ability (“willingness”?) of such communities to pay to health and environmental benefits.  Without some additional “safety nets,” it is still likely that market-based programs will increase environmental injustice.  What do I mean by “command and control safety nets?”  Well, market based programs could include provisions that prohibit trades, waivers of environmental laws or regulations, or other actions that disparately impact low income or minority communities.  Alternatively, regulators could be required to examine the impacts of those actions on low income communities, similar to the approach used in NEPA, the National Environmental Policy Act.

Both of those approaches may be difficult to implement, politically and administratively.  The approaches increase the government’s role in reviewing and overseeing private actions in a market-based system and seem antithetical to the rationale for the reforms.   To the extent that the government prohibits certain trades or regulatory waivers that disparately impact low income communities, or reviews the distributional impacts of trades, waivers, and other actions in a market-based system, businesses and the regulated community may be less likely to take advantage of the tools.    Nevertheless, it is likely that without such safety nets, market-based programs will funnel pollution to low income and minority communities despite other reforms of the program that attempt to provide low income communities with greater power in the market.

V.  Conclusion

Market-based pollution control programs are here to stay in the U.S., and it is trying to export them as broadly as possible, by fighting for their inclusion in most recent international environmental treaties.  Since the programs are not likely to go away soon, steps must be taken to ensure that the programs do not continue to funnel pollution towards low income and minority communities.

Other links of interest