The failure of EPA's water quality reforms: from environment-enhancing competition to uniformity and polluter profits.

• Author: Morriss, Andrew P.

Since 1970, pollution control in the United States has centered on national level regulatory approaches built on federal command-and-control regimes. Enacted in reaction to well-publicized "failures" of markets, common law, and state and local regulation such as the "killer smogs" of the 1950s and 1960s (1) and the "burning" of Cleveland's Cuyahoga River in 1969, (2) modern environmental statutes shifted authority away from states, local governments, and private property holders to the national government.

Nationalization has its costs, however. In particular, the top down approach risks transforming the goal of environmental regulation from the laudable one of protecting and enhancing environmental quality to the less laudable one of special interest rent-seeking. Centralized decision making lowers the cost of capturing agencies (there is only one to capture) while increasing the benefits (capturing one is capturing all). Shifting decisions to the national level, therefore, increases the incentives for capture unless institutional safeguards are added. Recent water quality regulatory initiatives by the federal Environmental Protection Agency threaten to transform water pollution control and make rent-seeking more prominent.

Air pollution controls have been especially subject to rent seeking rules that have retarded progress and increased the cost of pollution controls implemented, all to the benefit of special interests. (3) On the other hand, water quality pollution control regulations have been relatively immune from rent-seeking because their decentralized implementation prevented polluting special interests from using national level regulations to override local interests in clean water. At the same time, competition among states and localities has limited local special interests' ability to gain concessions from state governments. Recent "reforms" of EPA's water quality program, however, threaten the delicate balance that has produced water quality improvements. (4) We argue that water quality is better improved by further decentralizing water pollution control efforts rather than by increasing centralization. Because EPA's recent regulatory changes move water pollution control in precisely the opposite direction, we contend that they should be significantly modified or abandoned.

Section I reviews the history of federal and state regulation of water quality and highlights the delicate balance of authority that has emerged between various levels of government. Section II examines why federalism is particularly important in water quality efforts. Section III summarizes the EPA's recent water quality regulatory initiatives. Section IV offers alternatives to EPA's approach, emphasizing common law and property rights solutions to continuing water quality problems.

1. EVOLVING FEDERALISM IN WATER QUALITY REGULATION

   Water pollution regulation in the United States has long been a matter for a federal-state partnership. The modern Clean Water Act largely relies on a "command-and-control" approach to limiting the discharge of effluent in waters through permits. Due to differences in implementation, the top-down command lines in water pollution control have been less clear than in other areas of pollution control. (5) These differences emerged because although the Clean Water Act gives the federal EPA authority over technology-based standards, it also gives the states authority over the issuance of permits. (6) The degree of federal control over state permit programs, an issue that has generated substantial litigation over the years, (7) has remained unclear. (8)

   Although early federal water pollution control measures required states to take some minor specific actions, such as designating water bodies as suitable for recreation, propagation of aquatic life or other specific classifications, the first major federal legislation on the subject, the Water Quality Act of 1965, left water quality issues primarily to the states. (9) The centralizing era of federal water pollution control efforts did not begin until Congress passed the Federal Water Pollution Control Act Amendments, commonly known as Clean Water Act ("CWA"), in 1972. (10) Although the CWA required that its goal of enhancing and protecting the quality of the nation's waters be achieved while respecting the authority of the states to regulate the use of their own waters, (11) the Clean Water Act brought an increased federal role to the partnership. (12)

   The CWA broadened state requirements for establishing water quality standards ("WQSs") and directed the newly created federal Environmental Protection Agency ("EPA") to develop and publish, in "consultation with appropriate Federal and State agencies and other interested persons, ... criteria for water quality accurately reflecting the latest scientific knowledge" on a wide range of subjects. (13) Based on these numerical water quality "criteria," the CWA then required states to develop WQSs that apply to interstate waters and submit them to the Administrator of the EPA. (14) The Administrator reviewed states' WQSs to ensure that the states' WQSs were not inconsistent with the requirements set by the federal statute. (15) (If states fail to submit proper standards, the Administrator may impose a WQS.) (16)

   The CWA structure thus significantly increased the federal role in determining water pollution policy by providing the federal government with broad authority to require state governments to act in accordance with federally established criteria. Nonetheless, the significant discretion provided to states "indicates the Congress intended that states rather than the federal government should make most basic decisions about water policy and related land uses." (17) Indeed, until recently, EPA afforded "states considerable latitude ... to set WQSs that differ from EPA's own recommendations, or from those established by other states. Thus, from a national perspective, the system of ambient standards established under the CWA is characterized by considerable variation among states, even those in the same geographic region with similar or identical environmental conditions, and even those that share a single, interstate water body." (18)

   Although these WQSs constitute a major portion of the nation's water pollution control system, they have been implemented largely through a permit program, the National Pollutant Discharge Elimination System ("NPDES"). The NPDES restricts the entry of pollutants into state waters by requiring point-source polluters to obtain permits from the states. (19) The permits specify which pollutants, and how much of each pollutant, may be emitted from sewage treatment plants, factories, or other pollution sources into specific bodies of water. (20)

   States have significant discretion in designing these permit programs. (21) While the federal government designs the technology standards for particular effluents, it is the states that actually issue the permits. The states thus are the decision-makers that choose the specific limits included in each permit. The permit programs are large--over 350,000 permits have been issued and the number is growing rapidly. (22) Because of this large volume, federal oversight of state decision making is necessarily limited as a matter of practice--EPA simply lacks the resources to conduct a thorough review of each permit decision. (23)

   The technology-based point source regulation of the NPDES permits is supplemented by water-quality-based regulation. The CWA requires states to identify water bodies in which the NPDES permits are not sufficient to achieve water quality standards and to establish a priority ranking, which considers the severity of the pollution and the designated use of the water. (24) As part of this process, states must establish the "total maximum daily load," or TMDL, for specified pollutants. (25) TMDLs specify the amount of particular pollutants allowable in a particular waterbody and allocate the pollutant load to sources. (26) Until EPA's recent regulatory initiatives, the TMDL process did not have a major impact on state water quality decisions. (27) Indeed, the TMDL process and water quality sections of the CWA were "virtually ignored by the states and the federal Environmental Protection Agency." (28) Note that this does not mean that the states ignored water quality issues, merely that they did not address them through the CWA mechanism.

   The states' role in the federal/state partnership yielded a form of environmental command-and-control regulation with far more flexibility than found in the comparable air pollution statutes. (29) Just as with air pollution control, the EPA sets effluent guidelines on a point-source basis for each major U.S. industry. And just as with air pollution, to obtain an operating permit, industrial operators must demonstrate that satisfactory pollution control machinery will be in place and operating. (30) With EPA approval, state pollution control agencies are given delegated authority to issue permits, monitor and enforce outcomes for both air and water pollution. (31)

   Unlike the air pollution statute, however, the CWA does not set national ambient water quality standards to be met in each body of water across the nation. (32) States classify the streams in their jurisdictions, and neither the classification schemes nor the criteria used are uniform across states. (33) As a result, compared with the air pollution control regime, it has been costly, if not impossible, for an industry to obtain a uniform regulatory outcome by plying the halls of EPA and Congress. Uniform national command-and-control regulation of the sort employed for air quality, and until now avoided by water quality regulation, enables polluting industries to cartelize within a regulatory regime. Typically, the regulation requires a reduction in output, and so regulators limit entry by imposing regulatory barriers to...