Among OECD countries, differences in environmental standards and their enforcement could affect a country's competitiveness in the international marketplace. With respect to control of air and water pollution, it appears that policy differences between the United States and other developed countries are relatively minor. Yet in the management of hazardous wastes, laws such as Superfund may put the United States at a disadvantage in international trade.
Ten years ago discussions of the economic effects of environmental regulation centered almost exclusively on domestic concerns. Analyses were typically aimed at uncovering the effects of particular air pollution regulations on electricity prices or unemployment in the coal mining industry, or at determining the increase in local taxes required to finance a new municipal waste treatment plant to preserve water quality. Only in the occasional macroeconomic analysis of the impacts of federal environmental regulation was an international concern like the balance of trade even discussed. Yet it is important to know something about the competitive effects arising from the environmental programs that each country puts in place on its own.
In the United States, annual environmental compliance expenditures are on the order of $90 billion. Of this total, approximately $30 to $35 billion results from regulations under the Clean Air Act, $30 billion from regulations under the Clean Water Act, and $30 billion or so from a variety of laws covering drinking water contamination, pesticides and herbicides, chemical production and use, and solid and hazardous waste disposal.
If Congress approves proposed amendments to the Clean Air Act, which seems likely, clean air spending will increase by about $30 to $35 billion annually by the year 2005. Annual compliance expenditures for water pollution control will likely remain relatively steady during the 1990s, unless controls are tightened on non-point sources of water pollution such as farms and feedlots, urban streets, and storm sewers.
Environmental compliance expenditures are growing most quickly in the hazardous waste area. Total expenditures necessitated by federal hazardous waste laws such as the Resource Conservation and Recovery Act of 1976 and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980—better known as Superfund—are probably in the vicinity of $10 to $15 billion annually. It appears that these expenditures will continue to grow rapidly for several reasons. First, the average cost of a cleanup at one of the 1,200 abandoned hazardous waste sites on the Environmental Protection Agency's National Priority List is now about $30 million. By some estimates, there may be as many as 400,000 possible candidates for that list. In addition, according to a report released by the Congressional Budget Office (CBO) in 1990, costs to the federal government of complying with relevant state and federal hazardous waste laws could exceed $150 billion. Moreover, the Environmental Protection Agency (EPA) is on the verge of issuing new regulations pertaining to the cleanup of wastes at currently operating hazardous waste sites. If these regulations are approved, compliance costs will be in the tens of billions of dollars.
What about the share of the gross national product (GNP) that goes to environmental protection? If the United States now spends about $90 billion annually for environmental protection, this amounts to about 1.7 percent of the GNP. This figure is consistent with recent data from the Organization for Economic Cooperation and Development (OECD) that compares the U.S. share of gross domestic product (GDP) devoted to environmental compliance with that of several other western countries. According to the OECD, the United States spent 1.65 percent of its GDP on environmental expenditures in 1985. By comparison, France spent 0.86 percent; West Germany, 1.52 percent; the Netherlands, 1.33 percent; Norway, 0.82 percent; and the United Kingdom, 1.25 percent. While Japan was not included in this analysis, earlier comparisons suggest that Japan's environmental spending is 1 to 2 percent of its GDP.
Air and water pollution control
Most of the information available on differences among countries in environmental regulation pertains to air and water pollution control. Yet it is difficult to compare water pollution control standards in the United States with those in other countries. This is because the Clean Water Act of 1972 shifted the U.S. federal focus away from water quality standards and toward the establishment of technology-based effluent guidelines or limits for particular classes of pollution sources. As a result, individual states are empowered to establish their own ambient water quality standards. These standards are based on desired uses and vary from state to state. In the absence of national water quality standards, there seems little point in selecting individual state standards for comparison with water quality standards in other countries.
However, the United States does have national ambient air quality standards. The two pollutants for which it is easiest to make international comparisons are sulfur dioxide (SO2) and total suspended particulate matter (TSP). Data are sometimes available for nitrogen dioxide (NO2) as well. In 1985 the Congressional Budget Office assembled data on comparative ambient standards for these three pollutants. Based on data compiled by the OECD in 1977, the CBO found that U.S. ambient standards were comparable with, although generally more lenient than, those of Japan, West Germany, and Canada.
More recently, the Environmental Protection Agency reviewed ambient air quality standards for sulfur dioxide and nitrogen dioxide in the United States, France, West Germany, the United Kingdom, Japan, and Canada. The United States appeared to have somewhat less stringent standards for sulfur dioxide, although differences in the way these air pollutants are measured often make reported standards difficult to interpret. Gaps in the data notwithstanding, U.S. standards for nitrogen dioxide were comparable with those of the other countries.
Although a country may have very stringent standards, it may do little to enforce them. Thus actual air quality may provide a better picture of the commitment of individual countries to environmental protection. In 1988 the Environmental Protection Agency collected data on average ambient sulfur dioxide concentrations in several countries in order to compare national environmental efforts. According to the survey, the United States had lower levels of SO2 than the United Kingdom, Japan, and Canada in 1975. Due to greater efforts by the last three to reduce SO2 emissions, the average concentrations of SO2 in all four countries were similar by 1984.
Ambient standards represent the goals of environmental policy. These goals are pursued through a set of individual source discharge standards—that is, limits on the amount of pollution that factories or other sources may emit. Thus it is useful to examine what is known about comparative differences in the way similar sources are regulated.
In 1984 the Organization for Economic Cooperation and Development compared emissions standards for particulates and sulfur oxide from electricity generating plants in the United States, Canada, Japan, Australia, New Zealand, and seven European countries. For total suspended particulate matter, the U.S. emissions standard was among the most stringent examined. However, the OECD's comparison of emission standards for sulfur oxide from electricity generating plants in the United States, Canada, Belgium, West Germany, the Netherlands, Sweden, and Japan showed that U.S. emission limits were among the most lax.
In contrast to the United States, other OECD countries take a more cooperative approach to the enforcement of environmental regulations.
More recently, the EPA surveyed sulfur dioxide and nitrogen dioxide emissions limits for large, new combustion facilities (such as power plants or industrial boilers) in the United States, France, West Germany, the United Kingdom, Japan, and Canada. With the exception of the United Kingdom, which has no formal SO2 and NO2 emissions limits, the agency found the United States to have the least stringent sulfur dioxide and nitrogen dioxide emissions limits among the countries surveyed. In the same survey, the EPA also compared emissions standards for mobile sources of nitrogen oxide (NOx) such as cars and light-duty trucks. According to this survey, which was based on comparisons of different model years, the U.S. standard for NOx is slightly less stringent than Japan's but much more stringent than that of Europe and that of Canada, which only recently imposed an NOx emissions limitation on vehicles sold within its borders. Should proposed amendments to the Clean Air Act be passed, emissions of all mobile source pollutants will be further reduced in the United States over the course of the next fifteen years.
Regulatory approaches
All the OECD countries have air and water pollution control policies based on ambient environmental standards, and all use specific source discharge standards to achieve environmental goals. Variations in ambient standards and source discharge standards are important in understanding how environmental policy can affect the competitive positions of firms in different countries, but they do not tell the whole story. It is also important to consider the overall approach to regulation in various countries, including enforcement styles.
Most analyses of international environmental policies call attention to the differences among countries in the degree of cooperation between regulators and the entities being regulated. In the United States, an adversarial relationship exists between the two. This often results in inflexibility in interpreting or enforcing rules, which can raise the expense of compliance. It can also lead to time spent in litigation, significantly increasing the total cost of environmental protection.
In other countries, a more cooperative approach to enforcement is taken. In Japan and the United Kingdom, for instance, there appears to be more room for negotiation between regulated firms and officials responsible for ensuring compliance. This may mean that additional time is provided for meeting source discharge standards if a firm encounters difficulty in installing required pollution control equipment. In Japan, however, this cooperative spirit does not extend to the perpetual avoidance of environmental controls. Air and water pollution sources in that country are fully expected to meet any and all environmental standards. In fact, according to the Congressional Budget Office, Japanese air and water pollution sources are likely to bear higher pollution control costs than their counterparts in the United States, Canada, or West Germany.
Adversarial relationships between U.S. regulators and regulated entities often result in inflexible interpretation or enforcment of rules, and may raise compliance costs.
Another feature of environmental regulation peculiar to the United States is the more stringent regulation of new, as opposed to existing, technologies and pollution risks. Many experts suspect that this bias in environmental regulation may be retarding development of innovative technologies that might be more efficacious from an environmental standpoint than the technologies they would replace. Some evidence suggests that the European Community is moving toward stricter regulation of new air pollution sources and possibly of new chemicals. However, there is little information available on the way individual countries treat new versus old pollution sources and risks, even though this distinction is critical to understanding the effect of regulations on international competitiveness.
Although there are gaps in data, it appears that policy differences in the control of air and water pollution among the OECD countries are relatively minor, and they also appear to be growing smaller. While the ambient and source discharge standards differ somewhat from country to country—Japan's standards tend to be more strict and those of the United Kingdom, and several other European countries tend to be more lax—the differences are not particularly great and will probably narrow with economic and environmental integration in Europe. In fact, environmental policy in Europe will increasingly be dictated by the European Community (EC) as a supranational entity, rather than by individual countries acting unilaterally. Thus differential treatment of capital investment in air and water pollution control is steadily narrowing. This is not necessarily the case for all aspects of hazardous waste policy.
Regulating hazardous waste
There is no generally accepted definition of hazardous waste. Because each country chooses its own definition, hazardous waste regulations vary. Indeed, in many cases the precise definition of hazardous waste is left purposefully vague; in lieu of a rigorous definition, a list of substances deemed hazardous is often specified.
The type of system that a country develops to identify, transport, and control and monitor hazardous wastes depends, in large measure, on its regulatory approach. As noted above, differences in regulatory styles are not nearly as great among European countries as they are between the United States and Europe. As a result, regulation of hazardous wastes in the United States differs somewhat from that of European countries. Whereas European governments and industries work together in the formulation and implementation of hazardous waste regulations, the strict federal command-and-control procedures used to regulate hazardous wastes in the United States provide relatively little flexibility or interaction among regulators and those being regulated.
Differences in U.S. and European hazardous waste regulations are clearly evident in the nature and form of liability for injury caused by improper shipment, treatment, or disposal of hazardous substances. For example, under the Resource Conservation and Recovery Act the EPA can bring legal action against anyone who handles wastes in a way that presents an imminent hazard; therefore, site operators, landowners, transporters, and generators are all potentially liable. In European countries, liability for environmental or public health damages is narrowly defined and does not usually cut across generators, transporters, and disposers.
In the next few years, however, European countries can be expected to make more direct use of liability for hazardous wastes damage in their regulatory strategies. A proposed directive from the European Community would create civil liability for damage caused by existing hazardous waste sites. Strict liability for damage to the environment would be attributed to the producer of the hazardous waste. In addition, West Germany will probably adopt a law to address the problems of environmental liability, and the United Kingdom will take the first step toward liability for damages by requiring producers of hazardous waste to exercise a duty of care.
Regulatory differences
Generally speaking, the laws regulating the current generation, transportation, and disposal of hazardous waste in the United States and Western Europe do not seem to be so different as to impart a competitive trade advantage to Europe. While European regulations are somewhat more flexible and less strict than those in the United States, it is hard to imagine that this translates into observable competitive advantage. Moreover, future hazardous waste regulation in Europe will probably become more inflexible as European countries strive for regulatory uniformity and rely more on command-and-control approaches similar to those of the United States. However, the United States has one law aimed at cleaning up hazardous waste sites for which there is no equivalent among its trading partners. In particular, the Comprehensive Environmental Response, Compensation and Liability Act, or Superfund, imposes regulatory burdens that other OECD countries do not.
Along with the Resource Conservation and Recovery Act (RCRA), Superfund governs most hazardous waste regulation in the United States. The two laws have very distinct purposes. Superfund is intended to ensure that potentially harmful abandoned hazardous waste sites are identified and cleaned up. RCRA is concerned with the generation, transportation, treatment, and disposal of newly created wastes. In a sense, Superfund is a backward-looking law that addresses the environmental and health risks associated with past disposal practices, while the forward-looking RCRA prescribes and ensures the safety of future hazardous waste generation, transportation, storage, and disposal activities.
Many European countries have laws similar in intent to RCRA, but none of these laws are as restrictive and comprehensive. Moreover, no European country has a Superfund law. If differences in competitive advantage exist between the United States and Europe because of environmental protection legislation, it is probably due to the fact that the United States has a Superfund law and its trading partners do not.
Superfund is considered a bill collector's statute. Its provisions for strict liability and for joint and several liability are designed to make it easy for the federal government to find a private party to pay for a site cleanup. (Strict liability holds a party liable for damage regardless of how prudent its waste disposal practice may have seemed initially if that practice is now considered harmful; joint and several liability holds that all contributors to a disposal site could be held responsible for clean-up costs and that any one contributor could be held responsible for the entire cost of cleanup, no matter how small its contribution.) These liability provisions are not necessarily designed to provide efficient incentives for generators, transporters, and disposers to take due care in waste management activities; rather, they are designed to ensure that clean-up costs are not borne by the federal government. Disputes over responsibility for clean-up costs have led to substantial expenditures on litigation, costly site remediation, and slowed cleanup. Although data are limited, it has been estimated that 30 to 70 percent of all current expenditures related to Superfund take the form of legal fees, as opposed to expenditures for the actual removal or stabilization of hazardous substances at waste disposal sites.
While the high cost of litigation and site remediation is clear, the costs of the natural resource damage provisions of Superfund, which hold all potentially responsible parties liable for damage to natural resources, as well as clean-up costs, may not be so apparent. Since such natural resource damage cases are just being initiated by federal and state trustees, the potential size of damage costs is not yet evident. However, the costs associated with one of Superfund's provisions—that the size of damage awards be at least equal to the cost of fully restoring a site to its undamaged state—could be very large.
Europe currently has few plans for cleaning up abandoned hazardous waste sites. Moreover, it is unlikely that the European Community will enact a law with the provisions of retroactive, strict, joint and several liability with the intention that federal governments would find private parties to pay for the cleanup of abandoned hazardous waste sites. The EC argues against the retroactive nature of strict liability, claiming that it is impossible to link environmental damage to the party or parties who caused that damage. Furthermore, no European policymakers have made any move toward enacting joint and several liability to finance cleanups. Instead, some European countries plan to raise funds for cleanups by levying taxes on some chemical products or on special types of wastes, which would be selected, in part, on the basis of their toxicity. Policies aimed at cleaning up abandoned hazardous waste sites will no doubt be enacted in Europe in the future, but having had the opportunity to study the performance of Superfund, it seems doubtful that Europeans will adopt a similar law. Thus if the United States is at a competitive disadvantage as a result of Superfund, it can expect to remain so in the foreseeable future.
It is unlikely that European countries will adopt legislation with the same liability provisions that have made Superfund so costly.
The fact that the United States is the only country with a comprehensive, strict, joint and several liability-based system to provide for the cleanup of sites on which hazardous wastes were stored or disposed of in the past may prove costly to U.S. businesses. In view of the impending expansion of natural resource damage suits under Superfund, as well as corrective action requirements about to take effect under the Resource Conservation and Recovery Act, the United States can be expected to increase considerably its annual expenditures on hazardous waste management. The higher costs that the United States pays for managing hazardous wastes, as compared with other OECD countries, could begin to have noticeable negative effects on some U.S. firms and on entire U.S. industries.
While air and water pollution control and some aspects of hazardous waste management are similar in the United States and in other western democracies, there are greater differences in the environmental standards of these countries as compared with the standards in rapidly developing countries such as Taiwan, South Korea, and Brazil. As developing countries move to improve their environments, it will be important to see if they adopt the same sorts of environmental protection measures as the OECD countries have. Also ripe for research are the environmental fates of Fast Germany, Poland, Romania, Czechoslovakia, and the other newly democratizing countries of Eastern Europe. In time, these countries could become worthy economic competitors; thus it is incumbent upon U.S. policymakers to monitor whether these countries continue to sacrifice environmental quality in order to become, and then remain, competitive in international markets.
Raymond J. Kopp is director of and a senior fellow in the Quality of the Environment Division at RFF. Paul R. Portney is vice president of and a senior fellow at RFF. Diane E. DeWitt is a research assistant in the Quality of the Environment Division.
A version of this article appeared in print in the October 1990 issue of Resources magazine.
A version of this article appeared in print in the October 1990 issue of Resources magazine.
