Backing Into an Incentive System for Resource Policy

During 1977, if you looked very carefully (perhaps through rose-colored glasses) you might have perceived a reluctant but perceptible trend toward user charges and effluent charges as instruments of resource and environmental policy.

• For more than thirty-five years, there have been efforts to have Congress impose user charges on the inland waterways network. In October, for the first time in history, the House of Representatives voted for a waterways charge in the form of a tax on diesel fuel used by barges. That tax was intended to bring in less than 10 percent of the government's annual expenditure on inland waterways. Earlier, in July, the Senate had passed a stronger bill which would impose a system of fees to recover all federal maintenance costs and 50 percent of construction costs. The House action forces the Senate to reconsider its bill. Although the precise outcome is uncertain, it seems likely that at least a limited system of charges will emerge.
• A number of water polluters have had to pay for past pollution, but some are now paying (in effect) for the privilege of some limited future pollution. Two cases illustrate the necessity for compensation for damages caused by oil spills. In October, a barge owner agreed to pay $75,000 to the state of New York for an oil spill in the St. Lawrence Seaway, while $17 million in other claims is still in litigation. In another case during that month, a shipping group agreed to pay $1.1 million to the federal government for an oil spill off Nantucket Island. Lawsuits by fishermen and environmentalists for millions of dollars in potential damages are still pending.

Two other cases linked payments to compensation for future pollution. In June, after five years of litigation, the United States Steel Corporation agreed that by 1980 it would halt the dumping of toxic pollutants into Lake Michigan from its Gary, Indiana, plant. It also agreed to pay $3.5 million in fines and to provide $750,000 for future research on the environmental impact of industrial wastes discharged into the lake. In September, the Bethlehem Steel Corporation agreed to pay the state of Maryland $500,000 in fines for polluting a tributary of Chesapeake Bay at twice the allowable rate; in return the state gave the company a three-year extension, to July 1, 1980, of the deadline for drastically reducing the pollutants it dumps into the tributary (the Patapsco River). Some federal EPA officials doubted the "price" was right, criticizing the time extension as too long and the fine as too light.

• The U.S. Supreme Court upheld a lower court ruling that, to curb air pollution, New York City must "eventually" eliminate both off-street and on-street parking in most of Manhattan below 59th Street, limit cruising by taxis, and charge fees for the use of eleven currently toll-free bridges to Manhattan. "Eventually" may take a long time to occur, however, because a much less restrictive set of compromise measures were being worked out through negotiations between the city, the fed-eral EPA, and environmental groups. The proposal for tolls on the East River bridges was dropped as part of the compromise plan.

The toll proposal had generated great controversy. The New York Daily News stated in an editorial that the toll plan was "half baked" and "ineffective" and demanded an end to "federal meddling in local affairs." When the proposal was dropped, Mayor Beame announced that it "was a dead issue."

Clearly, any trend toward greater (or even any) use of tolls or charges tends to be obscured and limited by "business as usual" in the form of regulation. Often, this seems to occur because tolls and charges are seen only in terms of the costs they levy, costs imposed on what has been perceived as a free good. The benefits and counterclaims for equity are neglected or misunderstood. (The economic rationale for a charges approach is developed in a new RFF study of the potential usefulness of environmental charges. Completed for publication early in 1978, it is entitled Environmental Improvement Through Economic Incentives, by Frederick Anderson, Allen Kneese, Serge Taylor, Phillip Reed, and Russell Stevenson.)

The regulatory approach usually involves the prohibition or limitation of use by fiat, rather than rationing by some sort of pricing mechanism. (That approach was manifest in a related U.S. Supreme Court decision in October, when the Court ruled that local govern-ments may forbid commuter parking in residential neighborhoods as a "reasonable" means to fight air pollution and to encourage car pools and public transportation.) Although the regulatory approach remains dominant, perhaps there is a growing tendency to question its effectiveness, at least for some purposes. Consider the perception of a plurality of Americans (43 to 34 percent in a November Harris survey) that the quality of life is declining; one theme often cited by those disaffected is that the physical environment has not improved "despite efforts to clean up fouled air and polluted waters." Advocates of tolls and charges just may find some encouragement in this gloomy appraisal.