Headlines over the past year about hazardous waste in the Love Canal in New York, the Valley of the Drums in Kentucky, radioactive dumps around Denver, and so on have increased attention on the problems of toxic waste disposal. Clearly, great efforts will be required in the coming years to regulate how such materials are handled, and new approaches will be needed. The problem is shot through with uncertainties of all sorts, and the magnitude of the task seems appalling when one considers the hundreds of new substances advertently and inadvertently introduced into the environment each year.
While there is no evidence that Congress specifically considered the role of the economic incentive system when it enacted the existing set of laws to regulate toxic substances, the de-facto alteration of incentives associated with these laws may be their most important impact over the long run. For example, the costs of reporting and pre-market testing provisions of the Toxic Substances Control Act will significantly increase the cost of introducing a new substance that is potentially hazardous. Similarly, certification requirements for applications of certain pesticides which are considered dangerous but for which there is no good substitute will increase the cost of using those pesticides.
Another legal area that affects economic incentives is liability rules. While liability is often hard to establish in the environmental risk area, in the past there has been a tendency to bail out those who have engaged in an activity which later turns out to have produced environmental risk, and the well-known Price Anderson Act, which limits liability of utilities in the event of a nuclear accident, is still on the books. In the past it was perhaps justifiable for the public to assume some of the liability for the environmental risks produced since, because of lack of testing and information-generating activity, risks were often discovered long after the fact. But in the new situation— when testing is done in an effort to anticipate possible ill effects—a clear imposition of liability on the entity introducing the substance should go far in assuring that the tests are done carefully and the results interpreted cautiously.
Another type of incentives policy that might have salutary qualities vis-à-vis regulation in some instances is the imposition of a tax or fee on the potentially hazardous substance. For example, in the case of pesticides, the Congress has required, or gives the EPA administrator discretion to require, in certain instances, certification of applicators and restrictions on the kinds of crops to which a pesticide may be applied. It is at least arguable that a stiff fee on such a pesticide would result in the use of that pesticide only for purposes where there is no substitute of lesser hazard and in its careful application. This would avoid most of the cost of the present approach, and it might be more effective since the present provision would seem, on the face of it, to present very difficult enforcement problems.
One cannot say that study of the role of economic incentives in hazardous materials policy is in its infancy; it is not yet born. It is, however, one of the most important, even urgent, areas for research by environmental economists.
A version of this article appeared in print in the January 1980 issue of Resources magazine.
