Revitalizing environmental federalism.

• Author: Esty, Daniel C.

INTRODUCTION

Politicians from Speaker Newt Gingnch to President Bill Clinton, cheered on by academics such as Richard Revesz, are eagerly seeking to return authority over environmental regulation to the states.' In the European Union, localist opponents of environmental decisionmaking in Brussels rally under the banner of "subsidiarity."(2) And in debates over international trade liberalization, demands abound for the protection of "national sovereignty"(3) in environmental regulation. All of these efforts presume that a decentralized approach to environmental policy will yield better results than more centralized programs. This presumption is misguided.

While the character of some environmental concerns warrants a preference for local control, a sweeping push for decentralized regulation cannot be justified. Not only are some problems better dealt with on a national (or international) basis, but each environmental issue also presents a set of subproblems and diverse regulatory activities, some of which are best undertaken centrally. While the current decentralization rage represents thinking that has come full circle in the past thirty years,(4) this article urges not another 180-degree turn but rather a break with unidirectional conclusions about the proper governmental level for environmental policymaking. In trying to stabilize the "environmental federalism" debate,(5) I argue that what is required is a multitier regulatory structure that tracks the complexity and diversity of environmental problems.

Part I reviews how environmental protection efforts can go awry.(6) It makes clear that under the environmental rubric falls a diverse set of public health and ecological harms that range widely in scope, duration, severity, and ease of prevention or abatement. It also shows that each separate regulatory problem presents a unique set of technical and analytic challenges, potential "structural" or jurisdictional mismatches encompassing important "choice of public" questions, and public choice concerns. Simplistic notions of regulatory reform -- including attempts to establish a single, appropriate level of governmental intervention -- are doomed to fail. Grounded in the hard realities of environmental policymaking, Part I sets the stage for later arguments highlighting the significant degree to which current decentralization theory assumes away the very issues that make regulatory intervention necessary in the environmental domain.

Part II describes the environmental federalism debate to date. It reviews the political arguments made in support of national environmental laws in the late sixties and early seventies, including Professor Richard Stewart's influential 1977 articles(7) advancing the theoretical case for federal regulation. It then turns to the abundant "second-generation" environmental federalism literature that questions many of the claims about the advantages of federal regulation that underlie "first-generation" thinking. Building on Charles Tiebout's seminal analysis of jurisdiction competition, it considers the work of William Fischel, Wallace Oates and Robert Schwab, and the recent work of Richard Revesz and many others who argue that decentralized environmental regulation offers significant social welfare advantages over more centralized policymaking.(8) Some commentators go so far as to argue that decentralized regulation should be considered "presumptively beneficial."(9)

Part III critiques the second-generation orthodoxies using the theoretical framework developed in Part I. It begins by asking, for example, if we really want every state or hamlet to determine for itself whether polychlorinated biphenyls create additional cancer risks greater than [10.sup.-6], and if so, at what cost these risks are worth worrying about. Sound environmental policies depend on good science, which, in turn, requires a level of investment in sophisticated technical analysis that many smaller jurisdictions are in no position to make. Given such capacity problems and the significant economies of scale in environmental analysis, Part III contends that across-the-board decentralization is unlikely to yield better results and may court disaster by weakening the scientific underpinnings of our policies.

Part III next makes clear that many environmental policy deficiencies arise from "structural failures" that occur when the scope of environmental effects does not match the jurisdiction of the regulating authority. Regulators tend to ignore extrajurisdictional harms (or benefits), which results in a skewed regulatory cost-benefit analysis. While some welfare loss arises because states are forced to pay for nationally mandated levels of environmental protection that their citizens would not have chosen, these "internalities" are relatively easy to fix without wholesale decentralization. Externalities -- which occur when physical, economic, and psychological harms spill across jurisdictional lines -- pose a greater policy difficulty. As Part III points out, insofar as the central reason for environmental regulation is to mitigate the impact of market failures that emerge from uninternalized externalities, drawing more lines on the map only multiplies the potential for transboundary spillovers.

Part III also assesses the applicability of regulatory competition theory in the environmental realm and finds it limited. Many environmental problems exhibit threshold effects, time lags, and uncertainties that obscure the benefits of addressing them, especially in contrast with the visible and tangible gains of economic growth and jobs. While economists downplay fears of a race to the bottom, politicians cannot escape the image, in Ross Perot's memorable words, of a "giant sucking sound" as U.S. factories and jobs go down the drain to jurisdiction with more lax environmental standards and lower compliance costs.(10) The slow and silent accumulation of greenhouse gases leading to climatic change and agricultural declines thirty years from now on someone else's political watch is far less likely to be taken seriously by politicians obsessed with today's poll numbers and next year's elections. As Part III illustrates, the prospect of systematic miscalculations in the tradeoffs between environmental and economic goals makes the state-versus-state competitive dynamic likely to unleash welfare-reducing strategic behavior rather than efficiency improvements.

Finally, Part III focuses on whose views should "count" in the policy calculus. Modern Americans have a complex community identity with regard to environmental issues that makes this "choice of public" question nontrivial. Does the Grand Canyon, for example, belong only to Arizonans, or is it the birthright of all Americans? Devolution may neither improve the representativeness of environmental decisionmaking in any meaningful way nor reduce "public choice" distortions in the policymaking process. In making this observation, Part III ultimately recasts the second-generation arguments for decentralization as a set of policy rationales that sometimes will be salient within an overall argument for a multilevel regulatory structure designed to obtain the issue-specific advantages of both centralization and devolution.

The article concludes with a call for a presumption against presumption. It suggests that the challenge is to find the best fit possible between environmental problems and regulatory responses(11) -- not to pick a single level of government for all problems. The optimal environmental policy level and approach will depend on the problem at hand and what sorts of regulatory failures are most significant.

1. TOWARD OPTIMAL ENVIRONMENTAL REGULATION

   Before delving into the question of what level of government is best positioned to address environmental issues, it is important to establish why environmental regulation'2 is needed at all, what problems it seeks to correct, and how governmental intervention designed to improve social welfare might fall short. With a clear picture of optimal environmental regulation in mind and a firm understanding of how policy failures arise, we then can assess the relative merits of decentralized and centralized regulatory structures.

   1. Starting Points

      Harms to the environment represent a diverse set of physical, biological, and chemical threats to human health or to the health of ecosystems on which we depend for sustenance or about which we care because of some other sociological, historical, or aesthetic reason. In short, such harms pose a threat to social welfare.(13) This is not merely because environmental quality is an element of well-being, but also because environmental resources -- air, water, and land -- are inputs in all processes of production, if only as a place to dispose of waste. As a result, if social welfare is to be maximized by allocating resources with optimal efficiency, environmental resources must be valued properly in light of full social marginal costs.(14)

      As externalities, environmental harms represent a threat not only to allocative efficiency and social welfare maximization, but also to the security of property. While not every spillover intrudes on the spillee's enjoyment of his land, those that do raise an issue of property rights. Whether or not one believes in a natural right to a clean environment,(15) a longstanding norm of behavior, embodied in the common law of nuisance, protects property owners from unreasonable and uncompensated spillovers.(16) Our sense of justice and fairness thus is offended when pollution harms go uncompensated or uncontrolled.(17)

      More fundamentally, efficiency cannot be discussed without establishing the boundaries of property rights, which in turn requires normative assumptions about what constitutes an environmental harm or an externality.(18) Does A have a right to use his land in a way that affects B? We generally answer this question by reference to the...