Twenty-Five Years Of Environmental Regulation:
What Americans Have Learned

by Alexander Volokh
speech delivered at Instituto Libertad y Desarrollo,
November 1997, Santiago, Chile

Good afternoon. My name is Alexander Volokh of the Reason Foundation, and I'm going to be talking to you about American environmental regulation. My Spanish is a little rusty, but in the interests of cross-cultural understanding, I will try and deliver my talk in Spanish. I hope that you will understand me and that I will be able to understand your questions if you ask them in Spanish, but I also hope you will forgive me if I answer them in English.

I will be discussing the lessons that Americans have learned from 25 years of environmental regulation -- lessons about centralization and federalism, mandates and flexibility, regulation and market forces. I will also be discussing the mistakes that Americans have made in the past, and the move today from an old to a new environmental paradigm.

Environmental regulation has existed since the foundation of the United States, and even existed hundreds of years ago in England. If a landowner dumped sewage into a river so that another landowner downstream could no longer fish in the water, the downstream landowner could take the first landowner to court. If a factory emitted noxious fumes that contaminated the pasture grounds of a neighboring dairy farm, the dairy farm could sue the factory. Parishioners at a church brought a successful lawsuit against a railroad company because of its air and noise pollution.

This system of environmental regulation, which did not come from laws enacted by parliaments, but emerged from the evolving tradition of Anglo-American jurisprudence, was based on private property. Sometimes the court made the polluter pay the victim for the damage to him or his property; sometimes the court decided that the harm to the victim was a serious enough infringement of his property rights to make the polluter decrease his polluting activities or stop them altogether. Often, the courts balanced the competing demands of industry and neighboring landowners, and decided that a particular level of pollution was too low to regulate, or decided that the landowner had no claim because he knew about the pollution when he bought his land. In any case, the remedies for pollution were based on the traditional notions of "nuisance" and "trespass."

Even in the absence of the legal system to settle disputes, the very existence of private property was often an effective conservation device. Economists often talk about a problem called "The Tragedy of the Commons." When a resource is collectively owned, no one has an incentive to invest in the improvement of that resource. If an apple tree is privately owned, the owner of the tree may wait to pick the apples until they are ripe, in part because he can stop other people from picking them earlier. If no one owns the apple tree, then people will pick the apples before they are ripe, because they know that if they do not pick the apples, someone else will, leaving none for them. In the same way, collectively owned pastures are overgrazed because each owner knows that if he does not send his cattle to graze there, someone else will. This is why Americans have dirty public parks. On the other hand, private ownership of the resource encourages responsible stewardship. This is why Americans have clean private lawns.

But in the late 1960s and early 1970s, the American government turned toward more interventionist measures, and enacted laws and regulations to address environmental problems. This happened not because private property-based solutions had failed, but because where property rights are poorly defined, as they are in large metropolitan air basins, the legal system, with its individual disputes, is not always the best way to improve environmental quality. But the move toward greater regulation was also the result of ideology; many academics and politicians at the time had an innate distrust of private property and market forces, and believed that all problems, including environmental problems, were best solved by government at the federal level.

The American environmental movement started out intensely idealistic, imbued with moral fervor, and convinced that its mission was to save the world. One watershed of the movement was the publication in 1962 of the book Silent Spring, in which the biologist Rachel Carson hyperbolically predicted that man-made chemicals were so harmful and pervasive that one day, Spring would come and no birds would sing. Another important moment was Earth Day on April 22, 1970, which fell, not by accident, on the 100th anniversary of the birth of Lenin. Environmental activists took advantage of the publicity surrounding Earth Day to call for sweeping government-led initiatives to improve air quality, water quality, hazardous waste disposal, and so on. Within the next decade, Congress passed:

• the Clean Air Act;
• the Clean Water Act;
• the Endangered Species Act;
• the Resource Conservation and Recovery Act, which regulates the transportation and disposal of hazardous wastes; and
• the Comprehensive Environmental Response, Compensation, and Liability Act, also called "Superfund," which regulates the cleanup of hazardous waste sites.

The idea behind American environmental regulation was very simple. But the regulations themselves were anything but simple. Over the last 25 years, we have discovered many fundamental problems with our regulatory structure. I will give you just a few examples.

• Air quality, water quality, and hazardous waste regulations did not merely regulate pollution. The regulations controlled the intimate details of the operation of every company, down to what machinery every company had to use. Instead of regulating pollution, the output of the industrial process, the law regulated technology, the input. The trouble was that governments can be good at establishing fair rules of conduct between people, but they are usually bad at making management decisions for individual companies. They do not have as much information as each company manager has, and because of their bureaucratic nature, they work much more slowly than technological innovation. A company that wanted to adopt a new technology had to ask the government for a permit, but the time and expense involved often meant that it made more sense for the company to stick with the older, dirtier methods. The emphasis on technology and inputs slowed environmental improvement by preventing firms from investing in whatever technology was most efficient for their needs.



• Laws that tried to protect sensitive ecological areas or endangered wildlife also suffered from serious problems. The Endangered Species Act tried to protect species in the most direct way. It told landowners, "If you find an endangered species on your property, you cannot develop your land near where that animal lives." It seemed like the most direct way to prevent the extinction of endangered species, but many now believe that it may have had the opposite effect. The law made the interests of endangered species opposite to those of landowners. Landowners with an endangered species could find the value of their land drop to zero, but they were almost never compensated for this loss. Many farmers or owners of private forests are afraid of finding an endangered species on their property, and actively manage their property to prevent endangered species from wanting to live there. The law has also encouraged a mentality among some landowners that is picturesquely called, "Shoot, shovel, and shut up."

I could tell similar stories about many other environmental programs. Laws that tried to improve the environment regardless of cost became highly burdensome to businesses, landowners, and ordinary citizens; as the environment became cleaner and cleaner, additional improvements became more and more expensive, even as they became less and less ecologically valuable. Laws that tried to control every company decision in detail necessarily became highly complex, highly technical, and confusing. The complete text of some regulatory programs often takes up thousands of pages. One judge jokingly remarked that the people who wrote hazardous waste law "ought to be shot." Two-thirds of corporate environmental lawyers said in a 1993 survey that their companies had violated some environmental law during the previous year because of uncertainty and complexity. Seventy percent believed that full compliance with all federal and state environmental laws was impossible.

More agencies and committees and bureaucratic layers were created to solve more complicated problems, but the problem was the complexity itself. It did not help that most environmental laws were passed on the federal level, so that the same standard was mandated for different regions, regardless of different regions' values and tolerance for environmental risk. Nor did it help that environmental enforcers often adopted a deliberately confrontational attitude with respect to industry. The success of enforcement programs was measured by how many inspections were done, how much money was collected in penalties, how many violators were convicted of environmental crimes in court. Again, the focus was on measuring inputs -- that is, enforcement activity -- not outputs -- that is, environmental quality, which is the ultimate goal of any environmental program. Instead of being encouraged to seek out violations that caused the most environmental harm, or violations committed intentionally or recklessly, environmental agencies were simply encouraged to bring more cases. In practice, this meant choosing the easiest cases instead of the worst ones. In the beginning, when environmental problems were large, this approach may have worked, but as problem after problem was solved or greatly reduced, the inadequacies of this approach became painfully clear.

All of this speaks to a common problem. Once upon a time, American environmental problems were like a haystack, and could be fixed even with inefficient tools. Today, they are like a needle in a haystack, and ordinary pitchforks are no longer enough. Moreover, inefficient laws worked in the United States because in the 1970s, the United States already had a high standard of living and a great deal of resources. A little waste could go unnoticed and, indeed, did go unnoticed for many years. But not everyone can afford to repeat our mistakes. Governments in the developing world are not in a position to waste massive public and private resources, even in the pursuit of a worthy goal like environmental quality. They do not have a lot of money. Underpayment of taxes is a serious problem. Inflexible policies that mandate environmental improvements at too high a cost can have serious unintended side effects and decrease people's overall well-being.

The situation, as I have described it, was especially true at the federal level in the 1980s and the early 1990s, and is partly true today. The good news is that in some areas, some environmental agencies, mostly at the state level, have discovered some of the failings of the old environmentalism and have started to move toward a new paradigm of environmental protection. The old environmentalism, as I have described it, relied primarily on punishment, treated all environmental values as sacrosanct, mandated "one-size-fits-all" solutions, distrusted private property, and relegated important environmental decisions to the federal level. The new environmentalism, broadly defined, involves five basic principles:

• Problem-solving, as opposed to punishment;
• Balancing of different environmental and non-environmental values;
• Flexibility;
• Incentives for private environmental stewardship; and
• Decentralization to the lowest appropriate level.

Let me give a few examples of the new environmentalism in action.

In 1991 and 1992, Coors, the American beer company, conducted a comprehensive audit of its air emissions to see how well it was complying with environmental laws. It found that it was underestimated its air emissions by a factor of 17 -- which surprised both the company and the government, which had long thought that beer companies were only minor polluters. Though it was not required to do so, Coors told the environmental authorities about its findings. As a senior environmental official said at the time, "No good deed goes unpunished." In July 1993, the Colorado Department of Health ordered Coors to pay a fine of over $1 million. This fine was the largest ever imposed by the state for an air pollution violation. Coors claimed it was being unfairly punished for voluntarily doing a study that revealed air pollution problems that both regulators and brewers had missed. Coors also charged that such fines would discourage voluntary corporate environmental audits. The Coors study itself had taken 18 months and cost $1.5 million. In February 1994, the fine was reduced. Coors agreed to pay "only" $237,000 and come into compliance with air regulations within two years.

In reaction to the Coors episode, the state of Colorado adopted an "audit privilege law." This law embodied the philosophy that it's wrong to punish someone for voluntarily discovered, voluntarily revealed information that they otherwise wouldn't have found out about or disclosed at all. The law states that if a company finds out about environmental problems through an environmental audit, this information can't be used against the company in court, and the company is free from penalties as long as it discloses the information to the authorities and promptly fixes the problem. Today, 23 states have adopted such laws. The federal environmental agency, however, is against such laws, claiming that enforcers' jobs become more difficult if laws limit the information that they can use against a company in court. The states do not agree, since most of the violations found by audits are violations that are hard to discover and that inspectors had never reported before; state agencies consider audit laws to be an additional tool. State agencies also wonder what is more important, punishment for its own sake or solving environmental problems. The federal government has tried to make states change their laws by threatening to take back environmental programs that it had delegated to the states. This disagreement between the state and federal governments has been the cause of much bitterness over the past few years.

Another example of state innovation concerns the cleanup of hazardous wastes. Many states, especially in historically industrial areas, are plagued with contaminated industrial sites, or "brownfields." In the past, state and federal laws have mandated that contaminated sites be cleaned up to unrealistically pristine levels before development can proceed. Since cleaning up the sites was so expensive, few owners of brownfields wanted to develop their property, and few prospective developers were willing to buy a brownfield. As a result, many inner cities (where many brownfields are located) were undeveloped, and many developers turned their sights toward "greenfields" -- pristine sites on the outskirts of cities. To solve this problem, many states, including Pennsylvania, Illinois, and Texas, have insistituted "voluntary cleanup programs." Under such programs, developers are given an array of cleanup options that vary depending on how the site will be used. The developers who clean up these properties are then granted certain releases from potential future liability. Voluntary cleanup programs have contributed to the redevelopment of many abandoned industrial areas, creating jobs and saving pristine, undeveloped properties from development. Again, the federal government has been unwilling to help in the implementation of these programs.

In many instances, the government has directly called on the private sector to help in the work of environmental improvement. During the New Deal, the state of Montana built over 100 "water conservation projects" -- irrigation ditches, hydroelectric projects, and so on. Faced with popular pressure to reduce government, the Montana legislature directed the Department of Natural Resource Conservation to transfer some of its water projects to the local water users' associations they were serving. Some water users' associations were at first reluctant to take over the water projects that had always been owned by the state, but most found that they were better off after the privatization. Even before, they had already been in charge of the day-to-day operation of the water projects, and now they had gotten a direct stake in their responsible maintenance. Some of the water projects have been substantially renovated and are in much better condition now than they were before the privatization. As one water users' association president puts it, "the best countries are where the farmers own their own farms, and the people own their own homes, and in this case, we ended up owning our own ditch."

Finally, some states have even involved local communities in the decisionmaking process. One of the most far-reaching and ambitious instances of decentralization is the federal, state, and local partnership in the state of Utah. The Utah Department of Environmental Quality couldn't understand why three different agencies -- the U.S. EPA, the Utah DEQ, and locals Public Health Department -- had to be simultaneously and separately involved in the environmental protection business. Their jurisdictions overlapped in confusing ways; many things didn't get done because each agency expected the others to do it. The state and the federal government were spending valuable resources overseeing the locals, which they could have been using to solve real environmental problems that the locals didn't have the expertise to address. In early 1996, the U.S. EPA, the Utah DEQ, and the Southwest Utah Public Health Department formed a "three-way partnership." They began to work together, and in 18 months achieved more than they would have been able to do separately in three to five years. They cooperatively addressed the pressing problems identified by the locals -- mainly involving septic tanks, groundwater pollution, and the problems related to high rates of growth and development. This partnership is one of the most far-reaching instances of local decisionmaking in the country. Aside from improving wastewater and groundwater protection systems, the partnership has increased the level of trust between different regulatory agencies and between the regulated community and the government.

A common theme in many of these state innovations is the unwillingness of the federal government to give up the control that it has traditionally had. While states are moving toward the new environmentalism, the federal government is trying to keep operating according to the old environmental paradigm that it helped create over the last 25 years. When the federal government and the state government were trying to negotiate an agreement to cooperate on environmental innovations earlier this year, the deputy administrator of the federal environmental agency suddenly suspended negotiations because they were leading to a state of affairs that he considered too innovative. According to him, there was nothing fundamentally wrong with the way environmental policy was made and administered in the United States. In his memorandum to the negotiators, he wrote that the federal government was interested in "minor, and I stress minor, changes." Since then, the federal government has backed down from its position, and now seems to be more willing to negotiate with the states, but how much is still to be seen.

One of the most important institutional changes under way is one that is also taking place in American politics in general. It is a rediscovery of federalism. For a long time, this constitutional principle was seen as merely an obstacle to environmental progress, and therefore was conveniently disregarded. If we know what's best for the environment, why not impose it on everyone? But increasingly, federalism is being seen as an aid to environmental progress. In the first place, progress, including environmental progress, is not an objective concept, and different communities will have different ideas of what constitutes progress and how best to bring it about. And in the second place, even if everyone had the same idea of what constituted progress, society is not a mathematical model, and it is often difficult to know what is the most effective way of achieving these goals. Seen in this light, federalism becomes a process of flexibility -- allowing different communities to do what they think is best -- and of discovery-encouraging experimentation and allowing best practices to emerge.

This is what Americans -- at least, some of them -- have learned from 25 years of environmental regulation. I hope that you will be able to implement rational environmental regulations without having to repeat our costly mistakes. Thank you very much.