How Earth Day triggered environmental rent seeking.

• Author: Yandle, Bruce
• Position: Essay

America's first comprehensive federal statutes for protecting air and water quality became law in the early 1970s. When enacted, the Clean Air Act of 1970 and the Federal Water Pollution Control Act of 1972 were administered by the newly created Environmental Protection Agency (EPA). The EPA itself was formed in 1970. The statutes took a top-down, command-and-control approach that set technology-based standards for hundreds of thousands of air and water pollution discharge points nationwide. The laws required stricter and more costly controls for new plants than for existing plants. Deliberately selected by Congress and President Richard Nixon, the new-source/old-source bias signals in a few words how this one-suits-all approach provided an ideal hothouse for raising rivals' cost through inspired rent seeking.

As regulatory concrete was subsequently poured across the landscape, common-law environmental protection on which forty-nine of the fifty states had relied, along with state and local laws and ordinances, was pushed aside. (Because of its French heritage, Louisiana law rested on the Napoleonic Code.) With the new laws in place, environmentalists, industrialists, and assorted other bootleggers and Baptists celebrated as their revenues and profits headed north (Buchanan and Tullock 1975; Maloney and McCormick 1982; Yandle 1999). Now, more than forty years later, the EPA reports that major indicators of environmental quality are headed south. It has been a costly journey. (1)

A command-and-control system was not the only regulatory template Congress considered when the new statutes were constructed. Indeed, before striking the final deal, legislators reviewed the relative merits of a variety of regulatory approaches. These approaches included the use of economic incentives, where fees are charged for the right to discharge; performance standards that set desired outcomes to be enforced without specifying precise ways of getting there; as well as technology-based command and control. On its face, the latter approach has long been recognized a priori as the more costly and, on that basis, the least desirable option. For that reason, Senator Edmund Muskie of Maine, the chairman of the Senate committee that designed the 1970 Clean Air Act, pushed forward a draft law that rested on performance standards. But as the statute was making its way to final form, Earth Day intervened. In conjunction with that momentous event, actions were taken that caused Muskie to revise sharply the nation's first major environmental law--and the template for future laws--and to replace performance standards with the more costly and troublesome technology-based standards. As a result, the nation stumbled coming out of the gate in the uncertain search for cleaner air and water.

How did all this happen? And what did Earth Day have to do with delivering an ideal rent-seeking result?

This essay tells the story of how Earth Day brought dramatic change to the nation's first major environmental statutes and triggered the rise of regulatory rent seeking. To provide the institutional stage on which the federal environmental saga began, the article begins with a discussion of common law and how that legal system worked to protect environmental assets but did not work at all as a rent-seeking vehicle. The story then focuses on actions inspired by Earth Day 1970. It ends with a discussion of lost ground and the possible rediscovery of common-law principles.

Common-Law Environmentalism

For centuries before 1776, the English-speaking world relied on common-law protection of environmental assets. What might be called common-law environmentalism then became embodied in the U.S. legal environment as states were formed out of the English colonial experience (Yandle 1997; Meiners and Yandle 1999). Common law, or judge-made law, evolved on the basis of court actions that involved specific controversies between individual parties where rights-based remedies were sought when one party imposed unwanted cost on another right holder. In the U.S. experience, common-law court rulings formed bodies of state jurisprudence. These legal principles and precedents could then be called on in dealing with intrastate as well as interstate pollution disputes. Such disputes could be appealed through the federal court system and ultimately to the Supreme Court. Although a judge's decision in a state court applied only to the parties before the court and did not instantly constrain any others, common-law court decisions formed precedents to be considered, followed, or overturned in future cases that might emerge in any state common-law court. Common-law environmentalism did not work perfectly, but it, along with state statutes and ordinances, worked effectively in providing a rule of law for protecting environmental assets. The nation somehow survived and experienced healthy prosperity for two centuries before the start of the federal environmental saga.

How Common Law Worked

The environmental component of common law falls into a category called "nuisance law." At common law, a private nuisance action involves private parties where one party demonstrating damages linked to actions taken by another party can obtain a court-recognized cause of action against the offending party. If successful in the suit, the plaintiff's court-ordered remedy involves payment of damages and/or an injunction banning the producer from imposing future harm. Put simply, a common-law judge can shut down polluters, which happened in the past but is an action as scarce as hen's teeth in the post-EPA world. (2) In a large number of settings, public-nuisance actions involve a group of similarly situated damaged parties who, with evidence of damages in hand, can seek action against an offending party by way of a public defender. Judges in these cases can also impose injunctions and require payment of damages.

Unlike statute law and regulations that came to dominate U.S. environmental law, common-law actions were based on real harms, not on technical violations of a regulation, and provided real remedies to damaged parties. Experience with common-law cases, coupled with wisdom of the ages, enabled the formation of default rules with respect to pollution. At common law, parties downstream have the fight to undefiled water or air that passes their way from upstream users. Although the rule does not immediately settle cases, it does provide certainty with regard to having a common-law cause of action and may provide a basis for contracting around the rule.

Unlike the case with statute law, where violators generally pay a fine to the U.S. Treasury but pay no damages to harmed parties and then simply go back to work, common-law decisions were not necessarily the last word with respect to shutting down a polluter's harmful actions. Parties to the controversy could contract around the common-law rule. Put another way, once rights were assigned by the court, trade could take place. A party who might want to avoid the cost of eliminating discharge or shutting down could bargain with downstream parties and purchase the use of the downstream parties' environmental rights. (3) Alternately, the discharger might purchase the property rights to all affected land and in this way internalize any cost associated with discharge. We can gain insight into how common law worked by reading Ronald Coase's essay "The Problem of Social Cost" (1960). Indeed, the essence of the Coase theorem itself derives from the common-law practice of contracting in the presence of a property rule.

Why Was Common Law Pushed to One Side?

So if common law is so great, why was it pushed aside in the rush to...