Environmental Evolution

The relatively small size of the nation's population and limited scale of its economic activity once permitted Americans more or less to ignore the by-products of industrial and agricultural production and indeed of human and other animal consumption. The air, water, and land were more than capacious enough to absorb, dilute, disperse, or obscure the residues of human activity. And if one area became inhospitable, the solution was simple: move on.

Those carefree days had long since passed by the 1960s, when the public's quickening environmental concern laid the groundwork for landmark legislation mandating clean air and water. The air over urban and industrial areas had become foul and their waters filthy, and moving on no longer was practical. The freedom to pollute was curtailed sharply, and none too soon.

One may quibble about the efficiency of the Clean Air Act Amendments of 1970, the 1972 amendments to the Federal Water Pollution Control Act, and other laws passed at the height of social concern about the environment. Nevertheless, these laws have been at least somewhat effective. Millions of tons of pollutants that otherwise might have soiled the skies never became airborne. Fish now swim and spawn in once-deadly waters. The grossest forms of pollution have been stopped and in many cases reversed.

Now that the largest volumes and the most visible forms of pollution are under partial control, national environmental policy is beginning to address different needs, to accommodate new knowledge, and to adapt to changing views of governmental responsibility. Five new directions in environmental policy can be identified, beginning with an evolution of concern away from so-called conventional air and water pollutants and toward toxic substances and other hazardous pollutants. Second, there is growing awareness of the interrelatedness of various environmental insults. Third, environmental policy gradually is shifting back to the state and local levels and away from the federal level. Fourth, economic incentives and other novel approaches are being used more often to attain environmental standards. And finally, executive branch oversight is on the rise, not only for environmental policy but for all federal regulation.

Focus on toxics

The early targets of U.S. environmental policy were air pollutants such as total suspended particulates, sulfur dioxide, ozone, carbon monoxide, and oxides of nitrogen and water pollutants like biochemical oxygen demand, total suspended solids, and fecal coliform bacteria. Today, with policy controls in place for these conventional pollutants, attention is turning toward others, for example, trichloroethylene, benzene, DBCP, ethylene dibromide, and radon.

Environmental statutes increasingly reflect this change in emphasis from conventional (or common) to toxic pollutants. Take the five most recent major environmental laws—the Safe Drinking Water Act of 1974; the 1975 amendments to the Federal Insecticide, Fungicide, and Rodenticide Act; the Toxic Substances Control Act and the Resource Conservation and Recovery Act, both of 1976; and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, better known as the Superfund law. All these deal not with the highly visible and often odoriferous conventional pollutants of concern in the early 1970s but rather with much more insidious threats—invisible, odorless pollutants that even at very low levels can pose significant threats to health.

The costs of complying with pollution control statutes reflect the evolution away from conventional toward toxic pollutants. In 1985 the nation spent a total of about $45 billion to comply with the Clean Air and Clean Water acts; once that figure would have just about equaled the compliance costs associated with all federal environmental regulatory statutes. That no longer is the case. Within the next five to ten years, regulations written pursuant to the Resource Conservation and Recovery Act as amended in 1984, the Superfund, and the Toxic Substances Control Act will necessitate additional expenditures by regulatees of $5 billion to $10 billion a year, at least.

On the whole, the new emphasis on toxic pollutants is salutary. For a long time the nation ignored smaller volumes of pollutants with long-term chronic health effects in favor of pollutants that at extremely high levels may have short-term acute health effects. Many of these latter problems, although by no means all, have been addressed successfully. Indeed, the real triumph in federal environmental regulation to date has been the improvement in ambient air quality in large metropolitan areas associated with reductions in the levels of sulfur dioxide and other conventional pollutants. Now it is time to pay more attention to toxic and hazardous substances.

The danger is that we may give up altogether our interest and concern about conventional pollutants and exaggerate risks associated with toxic and hazardous pollutants. In fact, research now underway suggests that at least some health risks associated with toxic and hazardous pollutants about which the public is most fearful may be vanishingly small, particularly in comparison with health risks associated with existing ambient concentrations of sulfates and fine particulates. It is undeniably important that the nation recognize new threats to health in the environment, but no one should think we have put all conventional pollution problems behind us.

All problems are related

The awareness of an intrinsic link between what seem to be separable environmental problems is not new. In the 1960s Allen V. Kneese and his colleagues at RFF began thinking and writing about what they called the materials balance principle—the extent to which environmental problems are interrelated. The Environmental Protection Agency (EPA) was created in 1970 in part to take explicit account of the fact that air, water, hazardous waste, and other kinds of problems cannot be addressed in isolation. Nevertheless, and probably quite predictably, as the EPA program offices became inundated with their own specific problems, over time they began to ignore the effect that regulatory decisions in one office may have had on regulatory problems in others.

Two brief examples demonstrate the interrelatedness of pollution problems. Using complex and expensive equipment commonly called scrubbers to remove sulfur dioxide (SO2) from flue gases at coal-fired power plants produces 3 pounds of sludge for every pound of SO2 removed. Hence, a federal program to control acid rain that would remove 8 to 10 million tons per year of SO2 via scrubbing would leave 24 million to 30 million tons a year of sludge. Yet a congressional subcommittee considered precisely such a program at the same time as another subcommittee seriously contemplated identifying scrubber sludge as one of the wastes that no longer could be disposed of in landfills. In the second example, the EPA recently examined the sources of hazardous air pollutants in several areas and found that the usual suspects—petroleum refineries and chemical plants, for example—contributed less than was expected. Rather, in these areas, a surprising share of the hazardous pollutants in the air had leached there from landfills and municipal sewage treatment plants. Clearly, even the routine disposal of solid and liquid wastes can exacerbate other pollution problems.

Fortunately, the EPA has begun seriously to take into account the interrelatedness of environmental problems. In Philadelphia and in Santa Clara County, California, the agency has examined pollutant interrelationships and tried to draw some inferences about potentially better ways to manage the whole of the environmental problem in a particular area. Similar study efforts are just under way in Baltimore and Denver.

It is one thing to recognize that all environmental problems are related and quite another to act on that knowledge. Laws have been written to address threats to environmental quality one at a time, and given the current deadlock over amending or simply reauthorizing the existing laws, it will be extraordinarily difficult to deal with these problems through new laws. Nevertheless, statutes that would permit the coordinated address of environmental problems at the level of an airshed, watershed, or metropolitan area would be a welcome addition to the statutory arsenal.

Environmental federalism

Federal statutes always have reserved important responsibilities for state and local government. In the water pollution arena, for example, laws mandate that some standard-setting and most monitoring and enforcement take place at the state and local levels. The Clean Air Act left the power to regulate already-existing sources to the states. Contrary to popular assumption, therefore, the federal legislation in the 1970s did not usurp all state and local authority.

Nevertheless, much of the authority over environmental problems did flow to Washington ten to fifteen years ago. Now the pendulum appears to be swinging back: over the past three or four years the rate at which responsibilities have devolved to lower levels of government has accelerated. For instance, many states have assumed the function of issuing permits to facilities that emit pollutants to the air or water. The same is true for hazardous-waste disposal facilities. And the current EPA leadership more or less has insisted that certain hazardous air pollutant problems be addressed locally, rather than at the federal level as the Clean Air Act appears to require. The logic is that the problems in question are so distinctly local that it is nonsensical to issue uniform federal standards for them.

In addition, several states, most recently Wisconsin, have passed their own legislation to control acid rain, despairing no doubt in part at the unwillingness of the Reagan administration and Congress to agree on a federal plan. Similarly, cleanups of hazardous waste dumps are proceeding more rapidly in the states than at the federal level. (Given the snail's pace of federal progress it would be difficult not to proceed more quickly in this area, but this is not to underestimate the almost intractable problems plaguing federal action.)

The shift of responsibility from the federal level to the states and localities is mostly good news. In my opinion, a number of environmental problems now addressed uniformly at the federal level are more appropriately handled at the lower levels. The examples that most immediately come to mind are drinking water standards and certain nondispersive air pollutants (other pollutants can drift for many hundreds or even thousands of miles and clearly would be inappropriate for local action). And I see no reason why the degree of cleanup at hazardous waste sites should not be determined by state or local authorities rather than be uniformly specified in Washington.

But beware of absolutes. Not all problems—and acid rain is an obvious example—lend themselves to decentralized standard-setting or control at regional or local levels, and decentralization for its own sake or to cut the federal budget is bad policy. The real trick in the sensible decentralization of environmental policy is to specify those problems that are mostly loca1 in nature and hence better addressed at that level, while at the same time recognizing that there is a very significant federal role in any kind of problem associated with transboundary pollution. As it happens, many of the most important problems do involve substantial transboundary pollution.

An old refrain

Economists at RFF and other academic institutions long have advocated the carefully considered use of economic incentives in environmental policy. Finally, in 1975, the EPA almost inadvertently adopted the idea through something called the offset policy. Basically, the notion of offsets was born in a desperate attempt to allow new economic growth in areas where the air quality standards would have prevented it; the idea was to allow growth in those areas if existing sources of pollution could be induced to cut their emissions by more than new sources would add. In addition to the offset policy, the EPA has developed the bubble policy, in which numerous sources within a firm are treated as if they are contained in a giant bubble, thus permitting offsets among them; and banking, whereby firms may "bank" emission reductions achieved now for later use against future emission additions.

All of these policies dangle the carrot of incentive before a firm. If a company reduces its emissions, it receives a payoff, whereas the traditional "command-and-control" approach offers no incentive to go beyond the standard. Indeed, there are substantial disincentives to going beyond what the standards require because of the costs involved and because new emission-reduction technologies often serve to ratchet the standards downward.

In theory, the new incentive-based policies will save money or reduce emissions, or both. Keeping in mind that the nation now spends some $45 billion annually to control air and water pollution, only a small percentage of those costs saved by substituting economic incentives for command and control would generate substantial sums. Ten percent saved, for example, translates to $4.5 billion, and in the current budget situation politicians are casting longing eyes on even million-dollar savings.

It is tempting simply to stand back and applaud the growing use of economic incentives in environmental policy. But it is possible to go too fast in this direction and to discredit the idea in the process. Indeed, in actual practice some uses of economic incentives may have allowed more rather than less pollution in a given area. This is a technical issue, but basically it involves the baseline from which trades among sources are measured. Is this baseline to be defined as emissions permitted or as actual emissions? If firms are emitting much less than permitted, and if they are allowed to trade off against their permitted emissions, the net effect might be more rather than less pollution.

Environmentalists are suspicious enough of economic incentives as it is, and they will have a legitimate complaint if the net effect of introducing them is more rather than less pollution. It is incumbent on economists and policy analysts alike to look at incentive-based policies very carefully to make sure that they really deliver what is advertised—less spending while maintaining the same level of environmental quality, or more environmental quality for the same expenditures on control.

Executive branch oversight

Given the controversy that the current administration has generated in its regulatory oversight efforts, it may surprise some that such oversight did not begin with the election of President Reagan. Rather, Executive Order 11821 in the Ford administration created the Cost of Living Council, one of whose functions was to scrutinize the mass of federal regulation to see whether it was unnecessarily inflationary and whether it might have adverse economic impacts disproportionate to its benefits. Similarly, President Carter issued Executive Order 12044, which created the Regulatory Analysis Review Group and charged it to examine the most important regulations coming out of the EPA and other federal regulatory agencies to make sure they were not duplicative, conflicting, or otherwise counterproductive. Indeed, in many cases the Reagan administration's regulatory watchdogs are the very same people who were members of President Carter's RARG group, and some even go back to the Cost of Living Council under President Ford.

So executive branch oversight of the regulatory process is not a novel idea. What is new, however, is the broader authorities given the Office of Management and Budget (OMB), the designated regulatory overseer in the Reagan administration. Now OMB not only can delay regulations at the proposal stage but also when final regulations are about to be issued, after they have been through the notice and comment period.

Is oversight a good idea? Some vociferously disagree, but my answer is an emphatic yes. With fifty or more federal agencies having some degree of regulatory power, it would make absolutely no sense not to have some kind of executive branch oversight.

It was not until 1920 that the federal government shifted to a system in which the administration submitted a unified budget to Congress. Before then, each cabinet department submitted its own request to Congress, and the administration had no idea how much was being appropriated or even requested for the Agriculture Department, say, or the War Department, or the Treasury Department, until Congress voted on these requests. The federal budget is the source of enough trouble now; imagine what it would be like under the old system.

Yet many people take exception to a similar kind of oversight over the diverse activities of the regulatory agencies. To be sure, I occasionally take issue with the way that oversight is exercised. For example, regulatory oversight as practiced by OMB in the Reagan administration has been secretive—much less visible to the public and interested parties than in the Ford or Carter administrations. But the basic idea to me seems almost essential to good government. That executive branch oversight from time to time gets out of control and is misused does not invalidate the tool itself.

My list of five new directions for environmental policy is personal; it may be too short for some and too long for others, and everyone will have his or her own emphases. But sixteen years after the nation decided to get serious about its environmental problems, the nature of the challenge has changed, new tools are available, much has been learned, and much remains to be done. Regardless of the details, new directions are a fact, and they will help shape the quality of life in the 1990s and beyond.