A positive political economic theory of environmental federalization.

Author:Johnston, Jason Scott
Position:III. Examining Federalization: Centralized Environmental Regulation as Regional Economic Protectionism and Political Pork through IV. The Failure of Federalization: Climate Change as a Case Study, with footnotes, p. 1584-1617

    These summary histories of late twentieth-century state and local efforts to curb air and water pollution are stories of relative success, but they also depict how state and local environmental regulatory efforts were slowed by an appreciation of the cost of environmental improvement. What they reveal most dramatically, perhaps, is how widespread the perception was that cleaning up local environments could also hurt local economies. As I argue below, federalization of both air and water pollution control succeeded when a sufficiently large number of U.S. states had reached the stage where they could agree not so much on the optimal level of pollution reduction but on the need to shift at least part of that cost to other, less developed states.

    1. The Clean Water Act: Succeeding Through Subsidies

      If, as argued above, both industry and local citizens in heavily industrialized localities with water pollution problems wanted water pollution reduced, then simple public choice economics suggests that there should have been no barrier to the passage of locally efficient pollution control measures. That is, with both the benefits and costs of pollution control being internalized to a particular locality, that locality would have the proper incentive to reduce pollution. However, concerns of loss of industry were real, and cost is cost. Where there is a way for industrialized localities to receive the benefits of cleaner waterways but shift at least part of the cost elsewhere, then such a move would have made such localities better off relative to a world in which they bore the entire cost. The best solution for such industrialized communities would be to have other less polluted and less developed localities help pay for water pollution reduction.

      1. Water Pollution Control Federalization

        The stage for comprehensive federal water pollution regulation was set during the 1960s. It was during this period that the causes and costs of rectifying the water pollution problem afflicting industrialized areas was clearly identified. Federal-state conferences held under the Federal Water Pollution Control Act of 1961 pointed to both industry and municipal sewage treatment (or the lack thereof) as the prime culprits in the water pollution problems facing Cleveland, Detroit, and other Great Lakes metropolitan centers. (153) Yet these conferences repeatedly foundered on the issue of the degree of sewage treatment needed from municipalities. The head of Detroit's water and sewer system was concerned that the cost entailed by higher treatment standards would deter suburban communities from hooking up to Detroit's system; the massive cost of digging up Cleveland's antiquated combined sewer system (in which street runoff and sanitary sewage were combined, overloading treatment facilities during intense rain events) led to continuing local political opposition. (154) Cities such as Detroit and Cleveland were clear that their willingness to upgrade wastewater treatment facilities was contingent upon the federal government coming through with the promised subsidies. (155) The stalemate was broken only when Great Lakes governors succeeded in lobbying for a much larger federal construction grant program to finance the construction and upgrading of municipal sewage treatment facilities. (156)

        These lobbying efforts succeeded in the Clean Water Restoration Act of 1966. (157) In passing that law, Congress ignored the Johnson Administration's river basin approach to pollution abatement--an approach that would have tended to reduce state-level authority--and instead vastly increased federal funding for municipal waste treatment plants from $150 million to $450 million for fiscal year 1968, rising steadily to $1.25 billion in fiscal year 1971. (158) The Act removed the ceilings on the federal share of individual projects and set a fifty-percent federal share for projects in states that paid twenty-five percent and established enforceable water quality standards. (159)

        The Vietnam War intervened, however, and federal contributions throughout the 1960s fell short of the promised amounts, with only $214 million of the $700 million authorized for 1969 actually appropriated. (160) By 1972, the federal government had contributed only seven percent of New York's Pure Waters construction program. (161) At the same time, upgrading municipal treatment facilities became increasingly important because a larger and larger share of industrial wastes were being discharged into municipal treatment systems. In Milwaukee, for instance, the biological oxygen demand of the industrial effluent sent to the city system was equal to that from a city of approximately 1.6 million. Since the Milwaukee system served a population of approximately one million, the industrial load made up well more than half of the (BOD measured) total load sent to that city's system. (162) The vastly increased industrial load on municipal wastewater treatment systems gave municipalities an additional argument in seeking increased federal funding in the 1972 Clean Water Act.

        The stated goals of the Federal Water Pollution Control Act Amendments of 1972 (163) (FWPCA) are to obtain zero discharge of pollutants into the nation's waters by 1985, and as an interim goal, to get all waters to the fishable and swimmable state by 1983. (164) Like the CAA, the FWPCA represents a stab at cooperative federalism, under which the federal government has both standard-setting and enforcement authority but States retain the primary role in reducing water pollution. In the water quality area, cooperative federalism means that each State is responsible for categorizing bodies of water within the state. While the FWPCA itself directly authorizes pressure from the federal EPA on States to eliminate water quality use categories below fishable-swimmable (i.e., industrial use, or low water quality), there are over one hundred different categories used by States across the country. Moreover, aside from high quality watersheds (for which there are uniform anti-degradation criteria) there are no uniform standards for what counts as fishable-swimmable or any other use designation. (165)

      2. Cooperative Federalism Under the Clean Water Act: Federal Subsidies, Local Standards

        Perhaps the most important aspect of the Clean Water Act's "cooperative federalism" approach was the requirement (added by the 1977 Amendments) that the EPA set separate "pretreatment" standards for industrial discharges into publicly owned treatment works (POTW's). (166) Although the federal law clearly requires the EPA to require industrial facilities that discharge into POTW's to meet a nationally uniform "best available technology" based cleanup standard, (167) the EPA took over almost ten years to promulgate its first set of categorical pretreatment standards (industry-wide standards for particular specified toxic pollutants). (168) Moreover, the standards are actually implemented and enforced at the local level. It is the POTW's themselves who have the job of permitting industries that are discharging into their systems and monitoring permit compliance. (169) The only federal requirement for industries that discharge into POTW's is a semi-annual discharge report and notification of additional loads that would interfere with the operation of the POTW. (170) Over ten years after the pretreatment program was written into the Clean Water Act, local implementation was, according to one prominent commentator, "in a state of chaos." (171) Most pertinently, he observed that "if the purpose of a national discharge program were to offset the political pressures on states to relax their programs, the pressures are even more formidable at the local level, producing a wide variety of standards and levels of compliance among the local municipal systems." (172) On a state regulatory failure theory of federal environmental controls, the way that the Clean Water Act regulates discharges into POTW's is indeed pathological.

        To understand the delegation to localities of the implementation of pretreatment standards, one must understand also that the main impact of the FWPCA has not been through uniform national water quality standards, but rather through the Municipal Wastewater Treatment grant program. As explained above, the water pollution problem was stalemated at the state level largely because of the longstanding municipal practice of dumping untreated (or barely treated, e.g. by passage through settling ponds) sewage directly into lakes, rivers, and oceans. (173) The municipal wastewater grant program in the 1972 FWPCA broke the stalemate by providing federal funding for seventy-five percent of the cost of constructing municipal wastewater treatment plants meeting the FWPCA requirement of secondary treatment (removal of eighty-five of most pollutants and nutrients). (174) Even after Amendments to Clean Water Act in 1981 reduced the federal government's share of the cost of new wastewater treatment works to fifty-five percent, by 1988 the federal government had spent somewhere between forty-five billion dollars and sixty-nine billion dollars (between roughly $90 and $138 billion in 2014 dollars) paying for new municipal wastewater treatment facilities. (175) This expenditure is a substantial fraction of the estimated total of $300 billion spent on water pollution control during this period. (176)

        As a leading student of state environmental programs has pointed out:

        The municipal wastewater treatment grant program was probably equal parts environmental policy and development policy. Serious water quality problems were limiting the potential growth in some municipalities, and wastewater treatment plants removed this obstacle to growth. In addition, every state was entitled to at least one-half of 1 percent of the total wastewater...

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