Borders and the environment.

• Author: Morriss, Andrew P.

1. INTRODUCTION II. RECHARACTERIZING THE DEBATE OVER ENVIRONMENTAL PROTECTION A. A Typology of Environmental Solutions B. A Typology of Environmental Problems C. The Costs of Environmental Protection D. The Benefits of Environmental Protection E. Considering Both Marginal Costs and Marginal Benefits F. What About Borders? III. MARGINAL BENEFITS AND MARGINAL COSTS IN PRACTICE A. Marginal Costs and Benefits in Developed Countries B. Marginal Costs and Benefits in Developing Countries C. Marginal Analysis IV. A MARGINAL-ANALYSIS-BASED ENVIRONMENTAL POLICY A. The Right Yardstick B. Who Counts and Who Does Not C. Avoiding Turning the Developing Worm into Eco-Disneyland D. A Policy Framework V. CONCLUSION I. INTRODUCTION

   Environmental policy analyses often describe the world as a single, interconnected ecosystem. (1) Pollution emitted by coal burned in Chinese power plants darkens the skies in Seoul and Tokyo. (2) Swedish forests are injured by acid rain caused by sulfur and nitrogen oxide emissions in Britain. (3) Sewage from Tijuana pollutes San Diego's beaches. (4) Heavy metals in streams everywhere end up in the oceans. (5) Carbon dioxide emissions everywhere increase global greenhouse gas levels, which many believe is linked to climate change. (6) Emissions from within any nation thus have global impacts. Yet environmental laws generally follow national boundaries. Japanese air pollution control laws cannot restrict Chinese power plants nor can Swedish emission control measures stop British exports of acid rain. Most environmental laws thus address only a part of larger environmental problems.

   Those seeking to address this mismatch between legal jurisdictions and the environment generally suggest one of three types of solutions. One group of environmental protection advocates, typically those in developed countries with relatively stringent environmental protection laws, argues that countries with less stringent protection laws should raise their standards to the higher, developed-world standards. (7) This argument is often heard in the context of trade negotiations, with the developed country environmental pressure groups demanding--often successfully--that trade treaties aimed at reducing barriers to trade include environmental protection standards. (8) The environmental "side agreement" to the North American Free Trade Agreement (NAFTA) is an example of this reaction. (9)

   The second reaction, also largely by environmental groups from wealthy nations, has been to call for international institutions to set standards for environmental protection to eliminate a "race to the bottom" among jurisdictions. (10) The Kyoto Protocol, for example, attempts to set levels of carbon dioxide emissions by signatories. (11) Similarly, the World Trade Organization (WTO) has been moving gradually to include environmental standards as a regular part of trade agreements. (12) Such agreements also tend to emphasize the need for less-developed countries to impose more stringent environmental standards domestically. (13)

   The third reaction, largely from interest groups and governments in emerging nations focused on improving the economic welfare of the poor, is to argue that developing countries should not be expected to bear the burden of restricting emissions to the same degree as developed economies. (14) Once these nations have solved their economic problems, only then will they be able to address environmental issues. Fairness is also an issue: the developed economies that call for restrictions today were major polluters in the past, during their own development. (15)

   At the same time, there is a growing "environmental justice" literature that condemns the location of polluting facilities and use or disposal of hazardous materials in poorer areas, both within countries and across international borders. (16) This literature argues that it is unjust for poorer people to bear more of the risk of environmental harms than richer people do. (17) The solutions proposed are generally similar to those proposed by those concerned with the transnational impact of polluting activities--either action by international institutions or restrictions on trade. (18)

   Reliance on international institutions and restrictions on free trade to solve larger environmental problems are both problematic. International organizations from the United Nations to the Codex Alimentarius are subject to interest group manipulation and high transactions costs due to supermajority and unanimity voting rules. (19) International agreements on environmental issues are costly to negotiate and vulnerable to special interests as well. (20) Restrictions on free trade are costly because they reduce overall wealth; (21) worse, such restrictions often hurt poorer nations the most. (22)

   We propose a new approach to both the "one Earth, many jurisdictions" and environmental justice dilemmas, one that has the virtue of not requiring creation of a new international agreement or institution or modification of trade agreements. Applying a simple economic principle, the notion that gains are possible by shifting expenditures from high-marginal-cost, low-marginal-benefit measures to low-marginal-cost, high-marginal-benefit measures to the idea of a global environment, we argue that citizens of rich nations with stringent environmental protection laws already on the books could do more for the environment, and for people, by shifting future expenditures to funding remediation measures in countries with less stringent, or poorly enforced, environmental laws. Such an approach is economically efficient, environmentally productive, and morally preferable to the alternative of continuing to buy increasingly expensive increments of environmental quality at home. It also has the significant virtue of not requiring additional international institutions or agreements, since it can be implemented through market purchases of environmental quality in poorer countries by richer countries, thus economizing on transactions costs and allowing more resources to be devoted to improving environmental quality.

   Part II argues that environmental issues should be considered as the purchase of environmental goods and services to enable transparent comparisons of the effectiveness of regulatory policies. It next argues that relevant comparison for environmental problems should be made without regard to political boundaries through an examination of the implications of marginal costs and marginal benefits. Part III then examines examples of the real world marginal benefits and marginal costs of various policies in developed and developing countries, arguing that the existence of large disparities favor shifting resources from environmental protection in the former to environmental protection in the latter. Part IV develops a policy framework to implement the analysis.

2. RECHARACTERIZ1NG THE DEBATE OVER ENVIRONMENTAL PROTECTION

   The debate over environmental law initiatives, whether in developed nations or developing ones, is typically cast as a binary choice between being "green" (or "pro-environment") and being, well, "not green." (23) This is a misconception. In some cases there are greener and less green alternatives, but there is rarely a simple binary choice such as whether or not to eat the last breeding pair of an endangered species or dump a barrel of toxic waste into a river. (24) Most choices do not even fit the "more or less green" spectrum, since they include tradeoffs that affect the environment negatively no matter what choice is made. To take a simple example, the Toyota Prius, a major symbol of green transportation, has a total environmental impact at least arguably greater than that of a Hummer, perhaps the most visible symbol of consumer excess at the expense of the environment, once the total life-cycle costs to the environment of building, operating, and disposing of the vehicles are taken into account. (25) As this example suggests, there is often no simple answer to the question of which is the "greener" alternative, when the choices are the vehicle that operates more efficiently or whose construction and disposal creates a smaller environmental footprint. A policy framework built around labeling policies as "green/not green" approaches cannot resolve such choices.

   In addition to the pervasiveness of tradeoffs, environmental policy issues have to be considered in the context of the overall set of policies in which they are embedded. Each policy choice should be considered on its own merits, but a comparative approach is also necessary if rational distributions of resources are to be made. For example, if reducing nonpoint source runoff into rivers and streams produces twice the environmental benefit of more stringent controls on point source discharges into the same rivers and streams for the same cost, surely the difference merits resources being shifted from the latter into the former regardless of the decision about the overall level of discharge reduction sought. (26) Even if the goal is eventual elimination of all discharges, as the Clean Water Act suggests, (27) the decision about where to make the next step toward that goal ought to be affected by the relative benefits and costs of the alternative policies.

   Of course, one might respond by saying "do it all," and, indeed, some people do so respond. (28) Alas, we cannot have it all. Advances in technology steadily reduce the detectable limits for various pollutants, making it possible to push standards further toward zero discharge. (29) Resources are limited and not all of them can be spent on the environment. (30) Our point is simple and does not depend on whether we spend AI Gore's preferred level or Monty Burns's: for any given level of expenditure on activity that impacts environmental quality, tradeoffs among the effectiveness of policies and the costs of policies suggest that the focus should be on how much...