Optimal Environmental Regulation and Pollution: Cost-Benefit Analysis and Federal Laws, Study notes of Business and Labour Law

Download Optimal Environmental Regulation and Pollution: Cost-Benefit Analysis and Federal Laws and more Study notes Business and Labour Law in PDF only on Docsity! Chapter 13: Environmental Law Every manufacturing process creates waste of some form. It could be heat, light, smoke, chemical compounds, greenhouse gases, or radioactive materials. When these wastes are disposed of into the environment, they become pollution. In some cases, pollution is an efficient method of waste disposal. In others, pollution imposes more costs upon society than it would cost to otherwise dispose of the waste. For reasons to be discussed in this chapter, market forces will not cause society to produce the optimal amount of pollution. It is therefore in the interest of society for the government to first determine the optimal amount of pollution and then to implement the optimal amount in the most efficient manner possible. The chapter will begin with a discussion of externalities. It will be followed by an explanation of optimal level of environmental regulation and will conclude with the government role in reducing pollution. A. Externalities In a market system, what and how much is determined by markets in which buyers send messages to sellers and sellers offer goods and services at prices that are determined by the interactions of millions of participants. Markets allocate the vast majority of society’s resources. However, markets will not produce the optimal quality of the environment because of the unique nature of the environment. Unlike most resources such as real and personal property, society has difficulty assigning ownership of the environment. While land owners can and do own the space above their property, they do not own the air that moves thorough it. Nor do they own the wild animals, birds, and fish that pass through it. Hence, if producers of waste want to use the air or, in some cases, the water that passes through their land to dispose of waste, they can do so, since no individual holds the ownership or property rights to stop them. When no one owns the property rights to a resource and cannot capture the benefits of its use, others will not use the resource efficiently. Such is the case of the environment. It has long been recognized that many activities in society produce spillover costs and benefits that are borne by others. These costs and benefits are known as externalities because they are external to market system. That is, the producer of spillover benefits, known as positive externalities, receives no compensation for their production, and the producer of spillover costs, known as negative externalities, pays no compensation to the bearers of the costs. If left to the market to determine the amount of externalities that are produced, there will be an underproduction of positive externalities because the producers have no incentive to engage in activities that benefit others. Similarly, markets will The Legal Environment of Business Chapter Fourteen: Environmental Law overproduce negative externalities because there is no disincentive to their producers since they do not have to compensate the ultimate bearers of the costs. In some cases, if markets are left to their own devices, parties to the costs and benefits can negotiate with each other to internalize the externalities, that is, they can be buyers and sellers of the activity. For instance, a beekeeper produces a spillover benefit to nearby orchards by helping to pollinate the fruit trees. However many bees are kept by the beekeeper, it is likely he would keep more if the orchard owners compensated the beekeeper for the spillover benefits received. In this way, the beekeeper would be more profitable and the fruit trees would produce more fruit. The same type of market negotiation could optimize negative externalities. The person who bears the cost of a negative externality could compensate the producer of the externality to cease its production. If such a transaction were voluntary, both parties would be better off. Suppose a recently retired professor moves to the country to enjoy the peace and quiet but moves next to a student who enjoys playing music at great volume. The loud music is a negative externality to the professor who hates music. If the professor's well-being is decreased from the music by more than the student's well- being is increased by the music, they can internalize the externality. The professor can compensate the student to turn down the music. The professor will be better off because she values silence by more than she compensated the student and the student will be better off because he values the compensation more than he valued the loud music. Unfortunately, when there are millions of bearers of the costs of pollution, it is unlikely they could, individually or as a group, negotiate a settlement with a polluter to either stop the pollution or be compensated for their loss. The transactions costs would be prohibitively high. One may recognize a role for government here. Theoretically, the government could assume ownership of the environment and force the polluter to either cease polluting or compensate the bearers of the pollution. But this solution presents at least two problems. The first problem is that it could discourage pollution. You may wonder why that is a problem. It is a problem because, in some cases, it is cheaper, in terms of resources, for society to dispose of its wastes into the environment. Eliminating such pollution would cost society more than it would gain. Of course, there are some wastes, particularly those that are highly toxic, which should be discouraged. As discussed later, one of the challenges for the government is where to draw the line with respect to disposal of waste into the environment. The second problem presented by the above solution is whether and how much to compensate the bearers of the negative externality. Are people entitled to pristine air and perfectly blue skies? If they were, waste disposal would be very costly, indeed. If they are not, at what point should compensation begin? Furthermore, if someone chooses to live in the presence of an externality should they receive compensation? If a person buys 246 The Legal Environment of Business Chapter Fourteen: Environmental Law Methods of valuing human life are also controversial. If lives are valued according to lifetime earnings, then the lives of low income workers are worth less than high income workers, a result that runs counter to the egalitarian principle, rooted in Judeo-Christian beliefs, that all persons are equal before God. Others say that any pricing of human life is abhorrent to its extraordinary and sacred greatness. The EPA no longer uses lifetime earnings but, rather, a calculation based on surveys of the wage premiums that are paid to workers in dangerous occupations. A final criticism of cost benefit analysis is that it ignores the distribution of benefits and costs. The costs of environmental regulation are borne by the producers and consumers of a product while the benefits accrue to property owners and others that live in the area where the emissions are reduced. However, it is the producers and consumers of products that benefit from their production and some say that they should bear the full impact of the production of the product on society. C. The Regulation of the Environment Once the government has determined the optimal amount of pollution, it must use its power to achieve it by the most efficient means possible. The government has several methods to achieve optimality. First, courts enforce the property rights accompanying the ownership of land through a system of tort law discussed in an earlier chapter. Second, the government uses its considerable influence to seek voluntary compliance with emissions standards by businesses. Thirdly, Congress passes broad legislation that mandates reduction of pollution. 1. Tort Law Property owners who are injured by emissions commonly use two tort theories. These two torts are trespass to land and nuisance. A trespass to land is any unauthorized physical intrusion or entry upon the land of another. A trespass can occur when one causes the invasion of particulate matter such as dust or soot onto the property of another. Actual injury to the land need not be proved, only that the invasion interfered with the owner’s exclusive possession. If the dust or soot remained on the land, the owner would be entitled to recover the cost of its removal. The landowner can only recover damages for past invasions. If the invasions are ongoing, as they often are with particulate emissions, the owner may obtain an injunction prohibiting future invasions. However, obtaining such injunctions is problematical, as will be discussed below. 249 The Legal Environment of Business Chapter Fourteen: Environmental Law The more common tort involved with pollution is nuisance, which is an unreasonable interference with one's peaceful enjoyment or use of land. The interference can be a result of sight, sound, odor, smoke, vibrations, or even the height of a building. Damages can be recovered for the past loss of use and enjoyment and a permanent injunction can be obtained to prevent future interference. While it may seem that a permanent injunction is an ideal way to rid society of polluters, permanent injunctions against polluters are difficult to obtain. In the landmark case of Boomer v. Atlantic Cement Company 287 N.Y.S. (1967), the defendant cement company was sued by neighboring property owners for the alleged interference caused by dirt, smoke, and vibrations emanating from the plant. At the time of the case, the rule of law in New York was that the plaintiffs were entitled to an injunction regardless of the cost of eliminating the nuisance. However, the court in Boomer stated that it could not ignore the great disparity, in this case, between the cost of eliminating the nuisance and the benefit to the neighbors. The investment in the plant was over $45 million and it employed three hundred people. There was no available technology that could eliminate the nuisance; therefore, the plant would have to shut down. The court said it could no longer ignore the economic costs of injunctions and refused to issue one in this case. Other states soon adopted this rule and rendered the use of nuisance suits ineffective for eliminating pollution. However, courts will now award what they call permanent damages, which amounts to a one time compensation for all future harm caused by the nuisance. Permanent injunctions are more common in cases of public nuisance, which is an action that interferes with the health, safety, and property rights of a community. When the injury of an entire community is compared with the cost of abatement, there is less disparity than with private nuisance so the likelihood of obtaining an injunction is greater. However, only public officials have standing to bring a suit for public nuisance, which makes the decision to sue a political one. 2. Voluntary Compliance Over the past forty years increased waste production and population density has moved environmental concerns to the forefront. It began with serious problems that could be seen and smelled such as the Cuyahoga River that was so polluted that it once caught fire. Toxic waste dumps that leaked into groundwater tables and leached into the soil prompted the creation of the Superfund to clean up these dumpsites. The fund was once financed by businesses but now uses taxpayer funds. It is difficult for environmental regulation to keep pace with the growth of industry. The EPA relies upon citizen groups such as the National Resources Defense Council (NRDC) to pressure polluters to reduce their emissions. The federal government 250 The Legal Environment of Business Chapter Fourteen: Environmental Law provides information to the public through the Toxics Release Inventory (TRI), which provides details on the emissions by 22,000 plants of over 300 chemicals believed to have health consequences. This information comes from the self-reporting of emissions by firms. Health risks associated with the environment are high on the audience intrinsic interest scale and are widely reported by the media. The EPA and citizen groups are adept at using the media to gain the cooperation of industry to set voluntary emission standards. This method is more efficient than legislation but often the threat of legislation is necessary to elicit cooperation. 3. Legislation One way to legislate the optimal amount of pollution is by using command-and- control regulations. One such method is for Congress to place emissions limits on the amount of certain wastes that may be disposed into the environment by each producer. The advantage of this method is that all producers are treated equally and the amount of emissions can be limited directly. A disadvantage of this method is that such limits are difficult to enforce because each firm must be constantly monitored. This is significant because no command-and-control plan is effective without proper enforcement, otherwise, polluters will accept the low risk of getting caught and fined, as opposed to spending tens of millions of dollars on abatement. Some legislation provides for criminal prosecution for certain violations as felonies. Another disadvantage is that although each producer is treated equally, all producers are not equal. More recently constructed plants may have incorporated newer emissions technology that would give them a cost advantage over older firms. The older firms could be under-priced by newer firms, and possibly forced out of business, with a consequent dislocation of labor and capital and a reduction in competition. Another command-and-control method is to tax certain emissions and allow firms to decide whether to cut emissions by investing in emission control technology or to continue to pollute and pay the tax. The additional advantage of this method is that it encourages the development and use of new technology by rewarding, through lower taxes, those who use it. The disadvantages are the same as using emissions limits with one additional problem. The tax must be set so that the market responds by producing the optimal amount of pollution. A great deal of information must be known about the cost structures of the firms, and the response of consumers to the subsequent increases in prices that result from the tax, in order to determine the optimal tax rate. An alternative to command-and-control methods is the tradable permits system. Under this system, the government decides the optimal annual amount of environmental discharge of a particular emission. Usually it is based on some fraction of the current 251 The Legal Environment of Business Chapter Fourteen: Environmental Law Another political complication with the reduction of pollution is what to do with the waste. No one wants to live near a waste disposal site, and, as rural areas become more populated, there are fewer and fewer locations that are not subject to the NIMBY (Not In My Backyard) movement. Scrubbers use a system that sprays a water and limestone mixture inside a smokestack causing a chemical reaction that removes the sulfur but produces sludge. A scrubber may use as much as 400 tons of limestone and thousands of gallons of water per day and produces hundreds of tons of sludge that must be put somewhere. As the costs of waste disposal sites increase, the optimal amount of pollution abatement, determined by cost-benefit analysis, decreases, which does not bode well for the environment. One way around the politics of environmental law is give power to the EPA to set standards. The EPA is an independent agency created by President Nixon in 1970 by executive order. Its administrator is appointed by the president and confirmed by the Senate. The EPA administers most of the environmental laws and spends most of the federal budget of $7.6 billion for environmental regulation. Congress has been reluctant to give the power to set standards to the EPA because the potential compliance costs to businesses could be devastating to particular industries. Such affects could be far- reaching, giving the EPA vast power to affect the economy. The EPA has the power to enforce some statutes by issuing complaints and granting hearings before an administrative law judge. Rulings by the agency can be appealed to the administrator and then to the federal court system. Other statutes, particularly those providing criminal sanctions, require the EPA to forward cases to the Department of Justice which may bring suit against alleged violators. Still other statutes grant standing to private citizens to sue the EPA for not enforcing the law or to sue polluters directly. Although Congress was at one time concerned that the agency would be captured by the industries that it regulates, the EPA has been quite active in using its power to put pressure on polluters to reduce pollution. During the late 1990's, EPA administrator Carol Browner put on the Internet detailed records of environmental inspection and infraction reports for 653 industrial facilities. The goal was to inform citizens as how to best protect themselves and their families and where to place pressure for environmental reform. The EPA once attempted to reform emission standards without congressional authority by taking into account the risks to children. In one instance, the EPA reduced the emissions standards for small particles of dust and soot because of the susceptibility of asthmatic children. In 1999, the court of appeals overturned the new standards on the grounds that they were arbitrary and capricious and exceeded EPA authority. E. The Environmental Protection Agency 254 The Legal Environment of Business Chapter Fourteen: Environmental Law Congress created the Environmental Protection Agency (EPA) in 1970 to coordinate the implementation and enforcement of the federal environmental protections laws. It has broad rule-making powers to adopt regulations to promote all of the environmental laws. It also has adjudicatory power to hold hearings and order remedies for violations of these environmental laws. The EPA can also file suit in federal court against suspected violators of federal environmental law. E. Federal Laws Relating to Environmental Protection and Pollution Control 1. Clean Air Act Congress originally passed the Clean Air Act in 1963, which focused on air pollution between states and gave the states federal assistance in fighting air pollution. It has been amended in 1970, 1977 and 1990. These amendments have strengthened the federal governments authority to regulate air pollution. The federal government regulates air from both mobile sources and statutory sources. The EPA has developed air-quality standards for stationary sources of air pollution, which are called the national ambient air quality standards (NAAQS). These standards are set at two different levels. The Primary level is designed to protect human beings and the Secondary Level is to protect vegetation, climate, visibility, property such as buildings, statutes and other matter, and economic values. Specific standards are have also been set for known pollutants like lead, carbon monoxide, and ozone as well as nitrogen oxide, sulfur oxide, which collectively cause acid rain and particles of matter. Even though the EPA sets the standards, it is the responsibility of the state governments to enforce these standards. However, the federal government has the right to enforce these standards if the state chooses not to do so. The states are to enforce these standards by preparing a state implementation plan (SIP), which sets out that state’s plan to implement the EPA standards. The EPA has also subdivided each state into air quality control regions (AQCRs) and monitors each region to ensure compliance. Regions that do not meet the EPA standards are designated nonattainment areas and the state must develop a plan to bring that area into compliance within a set time period. If the state does not do this, it is subject to severe penalties including the loss of federal highway funds and limitation on new sources of pollution, which means that the EPA can forbid new pollution controlling industries in nonattainment areas. The primary mobile source of pollution is automobiles. The Clean Air Act and its amendments govern air pollution from automobiles as well as other mobile sources by specifying pollution standards and the time schedules to meet those standards. However, often these time schedules are not met and have to be extended by the federal government. 255 The Legal Environment of Business Chapter Fourteen: Environmental Law Emission standards have been set by the EPA for automobiles, trucks, buses airplanes and even motorcycles. The EPA also regulates the production of automobiles to ensure compliance with its emission standards. All new automobiles must meet air quality control standards. If they do not, the EPA can require the manufacture of the automobiles to recall and repair or replace pollution control devices that do not meet these standards. The EPA is also authorized by the Clean Air Act to regulate fuel and fuel additives. Leaded gasoline was prohibited from being sold in 1995, just like the production of engines that use leaded fuel was prohibited after model year 1992. Service stations are also subject to environmental regulations. As of the 1990 amendments, in addition to not being able to sell leaded gasoline by 1995, some service stations where required to sell gasoline with a higher oxygen content. These service stations were located in over forty cities that had experienced carbon monoxide pollution in the past. Service stations in Los Angles and other eight of the most polluted cities had to sell even cleaner-burning gasoline than the national requirements. The EPA in enforcing the Clean Air Act as to mobile sources of pollution attempts to update its standards whenever new scientific information becomes available. One area where the EPA has been especially active is in decreasing the acceptable standard for ozone, which is formed when sunlight combines with pollutants from automobiles since ozone is one of the basic ingredients of smog and since there has been so much discussion about the ozone layer and its effects on the world. Mobile sources of air pollution are not the only area of concern expressed in the Clean Air Act. The other source of concern is stationary sources of air pollution. A good example of a stationary source of air pollution is a manufacturing plant that emits pollutants into the air. Substantial amounts of air pollution are emitted by stationary sources of air pollution. To combat that problem the Clean Air Act requires states to identify the major stationary sources of air pollution and to develop plans to reduce their level of pollution. Stationary sources of air pollution are generally required to install pollution control devices to control the air pollution as either: 1) Reasonably Available Control Technology (RACT) that is normally required of existing stationary air pollution sources and 2) Best Available Control Technology (BACT) that is normally required by the Clean Air Act of new stationary sources of air pollution. However, states can also require BACT and normally do if it is part of the state’s plan to reduce the level of air pollution in that region. The factors to consider in requiring RACT or BACT also in addition to the severity of the pollution in that area also include the cost of the equipment and the size of the polluting company. Another area of concern in air pollution is toxic air pollutants that cause serious illness or even death to human beings. It is the job of the EPA to identify these toxic air pollutants. So far, the EPA has identified over 180 chemicals that are designated toxic air pollutants. These include asbestos, mercury, benzene, radionuclides, etc. The Clean Air 256 The Legal Environment of Business Chapter Fourteen: Environmental Law violates this law the penalty may be a $50,000 fine, imprisonment for up to one year or both and an injunction can also be imposed. The Clean Water Act also authorizes the United States government to clean up oil spills within twelve miles of the U.S. shore and on the Continental Shelf and to recover the costs from those responsible for the spill. Furthermore, in 1990, Congress passed the Oil Pollution Act (OPA) in response to the devastation of the Alaskan shore due to the Exxon Valdez accident and the oil companies’ lack of preparedness to handle such a catastrophe. The first cleanup barge did not reach the spill site for fourteen hours and the oil contaminated 1,100 miles of shoreline killing tens of thousands of birds and animals and countless numbers of fish. The OPA contains strict requirements for constructing oil tankers requiring all ocean going oil tankers to be double hulled by 2015. This has met with great opposition by the tanker industry that feels this is an overreaction and less costly solutions should be used. The OPA also requires that each tanker owner and operator establish an oil cleanup contingency plan. The U.S. Coast Guard administers the OPA and has its own set of regulations for emergency response plans. The Coast Guard must issue a certificate to a tanker before it can enter U.S. waters and to obtain the permit the tanker owner-operator must prove that it is fully insured to cover any liability resulting from an accident. The OPA also set up a $1 billion oil clean-up and economic compensation fund. The OPA allows for compensation for the damage to natural resources, private property, and the local economy. Civil penalties of $1,000 per barrel of spilled oil or $25,000 per day of the violation are allowed. The Safe Drinking Water Act of 1974 authorizes the EPA to establish national drinking water standards for human consumption and forbids the dumping of wastes into wells used for drinking purposes. Operators of public water supply systems must use the best available technology that is economically and technologically feasible. Of primary concern to the EPA are underground sources of pollutants such as landfills and pesticides. There are more than 200 know pollutants that exist in groundwater used for drinking in more than thirty states. These pollutants are known to cause cancer, liver and kidney damage and even damage to the central nervous system. This act was amended in 1996 to give the EPA greater flexibility in establishing regulatory standards governing drinking water. This allows the EPA to move at its own pace in setting control over the pollutants that are of most concern to the public. The amendment also requires each supplier of drinking water to send to its customers on a yearly basis a statement describing the source of its water, the level of any contaminants in the water and the possible health consequences associated with those contaminants. Again, the states are primarily responsible for the enforcement of this law but the EPA can enforce the law if the states are not doing so. 3. Toxic Substances 259 The Legal Environment of Business Chapter Fourteen: Environmental Law a. Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) The Federal Insecticide, Fungicide and Rodenticide Act gave the federal government regulatory power over pesticides and related chemicals. The Act was substantially amended in 1972 and is now administered by the EPA. Pesticides must be registered with the EPA before they can be sold. The EPA can deny the registration, certify its use or set limits on the amount of the chemical residue permitted to be on crops sold for human or even animal consumption. If the pesticide is found to pose an imminent danger or emergency, the EPA can suspend the registration and thus stop the sale of the pesticide. If the danger is not imminent or an emergency, the EPA must have a hearing prior to the cancellation of the registration. FIFRA also allows the EPA or its state counterpart to inspect the plants where the pesticides are manufactured. Under the Food, Drug and Cosmetic Act of 1996, for a pesticide to remain on the market there must be a reasonable certainty of no harm to people due to the exposure to the pesticide. The 1996 amendment also requires the EPA to distribute to grocery stores brochures on high0-risk pesticides that are in food and the grocery stores must display and distribute these brochures to the public. Violations of FIFRA can include selling pesticides or herbicides that are unregistered or if the registration has been canceled or suspended or if the pesticide or herbicide has a false or misleading label. Penalties for registrants and producers of the pesticide or herbicide include imprisonment of up to one year and a fine of not more than $50,000. Penalties for commercial dealers include imprisonment for up to one year and a fine or $25,000 and penalties for farmers and other private users of the pesticides or herbicides can include a fine of up to $1,000 and up to 30 days imprisonment. b. Toxic Substances Control Act of 1976 The Toxic Substances Control Act requires manufacturers and processors to test new chemicals to determine the effect of the new chemicals on human health and the environment. The result of these tests must be sent to the EPA, which is charged with the administration of the Toxic Substances Control Act. These results must be sent to the EPA before the product can be sold. The EPA in turn can limit or even prohibit the manufacture and sale of the toxic substances or require special labeling of toxic substances. Hundreds of new chemicals and their compounds that may be toxic are discovered each year. 4. Hazardous Solid Wastes a. Resource Conservation and Recovery Act of 1976 (RCRA) 260 The Legal Environment of Business Chapter Fourteen: Environmental Law The Resource Conservation and Recovery Act regulates the disposal of new hazardous wastes. The RCRA was amended in 1984 and 1986. Those amendments decreased the use of land containment in the disposal of hazardous wastes and expanded the coverage of the RCRA to include some types of hazardous waste that were not originally covered by the RCRA. The EPA is authorized to regulate the facilities that generate, treat, store, transport and dispose of hazardous wastes. States have the primary responsibility of implementing the RCRA but if the states fail to do so, the EPA can enforce the RCRA. Hazardous wastes are solid wastes that might cause or significantly contribute to an increase in the mortality or serious illness or hazard to human health or the environment if managed improperly. The EPA designates what solids qualify as hazardous wastes and can continually add to the list. The EPA has implemented a tracking system from the creation to the disposal of the hazardous waste. Basically anyone creating or handling a hazardous waste must obtain a permit to do so from the government. The EPA also regulates the underground storage facilities of hazardous wastes, which can include something as common as underground gasoline storage tanks. Penalties under the RCRA include a civil fine of up to $25,000 for each violation. Criminal penalties can include fines of up to $50,000 per day per violation and imprisonment for up to two years, or both. Furthermore, criminal fines and times of imprisonment can be doubled for repeat offenders. b. Comprehensive Environmental Response, Compensation, and Liability Act (CERLA) of 1980, also known as the Superfund Congress created the Superfund to regulate the cleanup of disposal sites where hazardous wastes were leaking into the environment. The act was significantly amended in 1986 and is administered by the EPA. The act gives the federal government a mandate to clean up hazardous wastes that had been spilled, store, or abandoned. The first thing the EPA had to do was to identify the hazardous waste sites and then rank them in order of severity of the risk. Those sites with the greatest severity of risk were put on a National Priority List that receives first consideration for cleanup. However, before the cleanup can begin, studies must be done to determine the best way to cleanup the hazardous waste site. The Superfund creates a fund to finance the cleanup of these sites. Said fund is financed through taxes on products that have the potential to create a hazardous waste site. The Superfund is a tort law that imposes strict liability and joint and several liability. This means that you are liable if you did the act that results in the hazardous waste and you are potentially responsible for the entire cost of the cleanup even if you are only one party that contributed to the hazardous waste site. The law is also retroactive, so even if you legally disposed of the chemicals when you disposed of 261 The Legal Environment of Business Chapter Fourteen: Environmental Law Keep in mind that the states are supposed to enforce the federal environmental laws but some states are very active in passing their own environmental laws that can be more strenuous than the federal laws. The federal laws were patterned after California law to some extent. However, the New England states are now generally recognized as having the most strenuous environmental laws. Furthermore, international pressure and law or the lack thereof, can effect the United States environment as well. One of the big oppositions to the North American Free Trade Agreement was that many businesses would move to Mexico where the environmental laws were not as tough. However, they could locate along the U.S./Mexico border and when the South wind blew, cause major problems for states along the Mexican border. Also, take the example of Canada’s complaints about American factories producing sulfuric oxide and nitrogen oxide that combine with oxygen to become acid rain. Canada’s complaint to the United States was that the U.S. pollutions greatly contributed to Canada’s acid rain problem. Many people feel this was partially the reason for the Clean Air Act amendment in 1990. Furthermore, the political pressure of environmentalists through interest groups such as the Sierra Club and Green Peace is growing. Environmentalists are beginning to get more political as seen in the emergence of the Green Party as a political force to be reckoned with in the 2000 Presidential race. V. Trends in the Environmental Regulation Given the emergence of the environmentalists as interest groups and political groups and the growing awareness of recycling and other environmental programs, one can expect the area of environmental regulation to grow in the next few years. However, there will always be the opposition to environmental controls because those controls cost businesses money and are therefore, looked upon with disfavor. So, the battle will continue between the environmentalists on the one hand and the big business on the other. Which will win, again only time will tell. CHAPTER SUMMARY Wastes are produced in all production processes and the disposal of these wastes is a cost of production much like other inputs that must be used. If a market system could assign ownership of the environment to individuals, then producers would be forced to negotiate with such owners for the use of the environment to dispose of their wastes. However, the unique nature of the environment prevents its ownership by individuals. 264 The Legal Environment of Business Chapter Fourteen: Environmental Law Rather, the environment is owned in common by all members of society, and, thus, no member of society has the right to tell another how to use commonly owned property. This problem results in the production of negative externalities which are costs borne by someone other than the producer. Since the producer does not bear the full cost of his actions, he will have little incentive to curtail his activity that results in an overproduction of negative externalities. Pollution is a negative externality and unless producers of pollution can be held accountable for the discharge of wastes, they will dispose of them into the environment with impunity. This is a proper role for the government. It can act as the owner of the environment and hold producers accountable for its use. The first step in environmental regulation is to determine the optimal amount of pollution. Some may believe that the optimal amount of pollution is zero, but pollution actually saves society a vast amount of resources. Society could not afford the cost of disposing of all waste in such a way that it had no impact on the environment. The most useful way to determine the optimal regulation of the environment is to compare the costs and benefits of pollution abatement. It would be inefficient for society to spend more on abatement than it received in benefits. The government uses different ways of implementing the optimal amount of regulation. To a certain extent, courts enforce the property rights of landowners who are harmed by industrial waste. The Environmental Protection Agency informs the public about polluters and encourages citizen groups to pressure producers to pollute less. Congress passes legislation that controls emissions in a number of ways. The most efficient method is the emissions permit system that entitles holders of permits to a certain amount of emissions. The permits can be freely traded. The politics of environmental regulation are complex. Pollution abatement is costly and industry is well represented in Washington. The Environmental Protection Agency is the federal agency with the power to administer most of the Federal Environmental Laws. These laws include several laws that regulate air, water, hazardous wastes, noise, toxic substances and endangered species. 265 The Legal Environment of Business Chapter Fourteen: Environmental Law 266