Environmental economics: a market failure approach to the commerce clause.

• Author: Lee, Mollie

NOTE CONTENTS INTRODUCTION I. THE COMMERCE CLAUSE THREAT TO THE ENDANGERED SPECIES ACT A. The Endangered Species Act B. The Supreme Court's Economic Requirement C. The Lower Courts' Response II. THE MARKET FAILURE APPROACH: ENVIRONMENTAL PROTECTION AS ECONOMIC REGULATION A. Environmental Harm as a Market Failure B. Doctrinal Support for a Market Failure Analysis C. Defending the Market Failure Approach D. Evaluating the Endangered Species Act as a Response to Market Failures CONCLUSION INTRODUCTION

When Congress passed the United States' major environmental statutes in the 1970s and early 1980s, (1) it acted under its constitutional authority to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." (2) At the time, courts and Congress shared an expansive understanding of the Commerce Clause. (3) The idea that there were limits on Congress's Commerce Clause authority was an "intellectual joke," (4) and the standard law school treatment of Commerce Clause powers boiled down to the explanation that "Congress can do whatever it wants." (5)

However, congressional authority to enact environmental legislation has been called into question by recent Supreme Court cases suggesting that Commerce Clause regulation is valid only if Congress is regulating "economic activity." (6) While lower courts applying this new doctrine have held that environmental regulation is valid Commerce Clause regulation, they have had difficulty explaining why. In particular, they have struggled to identify the economic activity regulated by certain environmental statutes.

The Endangered Species Act (ESA) is especially vulnerable under the Court's new Commerce Clause analysis. Many environmental statutes may be upheld because they directly regulate industrial activity, which courts regard as sufficiently "economic" for Commerce Clause purposes. (7) This logic is more difficult to apply to the ESA, however, because the statute seeks to protect threatened and endangered species by prohibiting any actions that harm designated species, rather than by regulating specific types of commercial activity. For decades, the wide reach and strict prohibitions of the ESA have generated resistance, (8) and the Court's new Commerce Clause doctrine has created an opening for a wave of legal challenges to the statute. In response to the Court's renewed attention to the economic nature of Commerce Clause legislation, opponents of the ESA have challenged applications of the statute that have only a questionable link to economic activity.

In particular, they argue that Congress lacks the authority to regulate intrastate activity impacting species that have no commercial value and that exist entirely within a single state. (9) These arguments have gained a certain degree of traction, with respected jurists such as then-Judge John Roberts expressing doubt that "regulating the taking of a hapless toad that, for reasons of its own, lives its entire life in California constitutes regulating 'Commerce ... among the several States."' (10) Currently, this remains the minority understanding, and all of the circuit courts hearing Commerce Clause challenges to the ESA have upheld the statute. However, they have failed to present a convincing account of how the ESA can be understood as economic regulation.

This Note argues that the ESA and other environmental statutes do address economic activity, although not in the various ways suggested by the circuit courts. Instead, I draw on environmental economics to argue that environmental statutes should be understood as a response to market failures. These market failures occur because environmental damage is likely to be an externality, environmental benefits are a public good, and environmental assets are frequently common resources. All too often, these factors lead rational people to engage in environmentally damaging behavior because it confers a net personal benefit, even though it imposes a net cost on society. On this account, the economic activity regulated by environmental statutes is the economic decision to pursue an activity despite its cost to society.

Part I explains how the Court's continued focus on distinguishing between economic and noneconomic activities threatens environmental regulation generally and the ESA in particular. It begins with a brief overview of the ESA and its legislative history. It then explores the growing importance of the economic inquiry in the Supreme Court's recent Commerce Clause cases. Part I concludes by assessing the ways in which lower courts have responded to this new doctrinal turn and focuses on their attempts to describe the ESA as regulation of economic activity.

In Part II, I propose a market failure approach as a more convincing way to identify the economic activity regulated by the ESA and other environmental statutes. Under this approach, courts should find that a statute regulates economic activity if Congress could have enacted the statute to address a market failure. The market failure approach would supplement, rather than replace, the Court's current Commerce Clause analysis. This approach draws on environmental economics literature, which explains environmental harm in economic terms. It translates this understanding into a doctrinal context, suggesting that environmental regulation is economic in nature because it changes commercial actors' economic calculations by requiring them to internalize the environmental externalities of their decisions. I present doctrinal support for this approach, identify its limitations, and demonstrate how it could be used to uphold the ESA.

1. THE COMMERCE CLAUSE THREAT TO THE ENDANGERED SPECIES ACT

   1. The Endangered Species Act

      When Congress enacted the ESA, it did so with very little debate and with overwhelming public support. (11) The environmental movement was at its peak, (12) and a nation of newfound environmentalists was eager to respond to well-publicized stories about threats to the bald eagle, blue whale, polar bear, and other "charismatic fauna." (13) Endangered species already received some protection from statutes enacted in the prior decade, (14) but these statutes were limited in scope, and it soon became apparent that they were inadequate to prevent further extinctions. (15) Thus, in 1973 Congress adopted the ESA as a comprehensive approach to protecting threatened and endangered species throughout the nation. Congress relied chiefly on its Commerce Clause powers in passing the statute, (16) but the legislative history contains no explicit discussion of this constitutional authority. However, congressional findings and testimony suggest that Congress understood species extinctions as a problem with both commercial causes (17) and commercial consequences. (18) The causal link between commercial activity and species extinction is particularly prominent in the legislative findings for the statute. There, Congress noted that "various species offish, wildlife, and plants in the United States have been rendered extinct as a consequence of economic growth and development untempered by adequate concern and conservation." (19) While this finding suggests that Congress understood economic activity to be a primary cause of species extinction, Congress did not choose to protect endangered species by directly regulating economic activity. Instead, the ESA prohibited any activity that would jeopardize the continued survival of threatened and endangered species.

      The operative provisions of the statute reflect this focus on species rather than on the various activities that threaten them. Section 4 of the ESA requires the Secretary of the Interior and the Secretary of Commerce to identify threatened and endangered species and to "list" such species. (20) The Secretary is also required to designate critical habitat for each listed species? (21) Entire species are protected by section 7, which requires federal agencies to consult with the Fish and Wildlife Service to ensure that their actions will not jeopardize the continued survival of listed species. (22) Individual members of threatened and endangered species are protected by section 9, which prohibits any person from taking, selling, importing, or exporting any protected species. (23) Section 9 applies to private actors as well as federal agencies, (24) and therefore it "raises the most concerns about the scope of congressional authority because it relies on the Commerce Clause to regulate all non-federal lands, including private property." (25)

      For this reason, recent cases challenging the ESA have focused on section 9, arguing that the prohibition against species takes is unconstitutional as applied to private landowners. "Take" is a term of art that the ESA defines to mean "harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or ... attempt to engage in any such conduct." (26) The prohibition against "harming" listed species has acquired particular significance. Department of Interior regulations define harm as "an act which actually kills or injures wildlife," including "significant habitat modification or degradation where it actually kills or injures wildlife by significantly impairing essential behavioral patterns, including breeding, feeding, or sheltering." (27) The Supreme Court upheld this definition in Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, (28) with the result that individuals may commit illegal takes through development activities that alter the habitat of threatened or endangered species.

      In the initial version of the ESA, Congress placed an extremely high value on endangered species. The statute prohibited any taking of threatened or endangered species, and it did not provide a mechanism for balancing other economic considerations against the value of preserving a species. (29) Shortly after the ESA was enacted, however, the absolute prohibition against species...