and .
Federalism Environmental Protection: Theory
There are three key theoretical questions:
1. Choosing the extent of environmental control
2. Deciding on the methods of pollution control to use
3. Determining and funding the basic research agenda for an environmental problem
Choosing the extent of environmental control -- which level of government will choose
the most efficient level of environmental protection? Some key considerations are:
1. Externalities do the costs and benefits extend beyond the jurisdictional
boundaries of a state or local government? If so, centralized would be better.
The answer is clear when there are no externalities, or when externalities
are significant (e.g. SO2 and acid rain), but what about when externalities
are small (e.g. how much space should a town give to a new park some
people from outside the town will enjoy it)?
Advantages of localized decision making when externalities are small:
Localities can take advantage of unique factors.
Because tastes differ, the end result is different types of
communities, so that individuals can sort themselves by
preferences.
Most standards set minimum, not maximum, levels of control.
Therefore, welfare losses occur in communities with preferences
for less control.
Other types of externalities:
Intergenerational ability of local government to consider future
generations depends on whether future benefits affect property
values or whether government thinks local residents might move
before enjoying benefits.
Safety externality if people are paternalistic, they might want to
protect citizens in other jurisdictions.
2. Information which level of government has the most information about the costs
and benefits of reducing pollution?
In general, federal government has better information about basic health
and environmental effects of pollution.
Local governments have better information about unique local conditions.
Preferences
Demographic characteristics (e.g. number of elderly or children
who will suffer more from air pollution)
Factors affecting costs of compliance (e.g. local labor rates)
Geographic or biophysical concerns (e.g. type of fish in local
water)
However, the federal government can transmit general information to local
governments, giving local governments an advantage.
When externalities are present, there is a tradeoff, since the federal
government better for dealing with externalities, but local governments
have more information.
3. The costs of decision making Does choosing a standard entail large decision
making costs? If so, centralized solution better.
The federal government can take advantage of economies of scale.
However, the federal government can lower decision making costs
for local governments by providing information: e.g. guidelines or
suggested standards based on technical information.
4. Interjurisdictional competition Will a lack of federal standards lead lower levels
of government to engage in competition to attract industry, and will that in turn
lead to standards that are less than optimal? If so, centralized solution better.
There is no empirical evidence on whether governments choose less than
optimal levels of protection.
Also, firms will still choose to locate in areas with lower control costs.
These are likely to be areas with low initial levels of pollution.
Alternatively, note that Adler argues that competition among jurisdictions
is a good thing.
States act as "laboratories," demonstrating which policy options
work best.
5. Government objectives and capabilities Are all levels of government trying to
achieve the maximum welfare of constituents? Do all levels of government have
the resources and expertise to carry out the standard they choose?
Even if local governments set the standards, enforcement may be left to
state or federal governments.
Deciding on the Methods of Pollution Control -- Having set a standard, what level of
government is most likely to choose an efficient method of pollution control in order to
achieve it? Some key considerations are:
1. Information which level of government has the most information to evaluate
cost-effectiveness?
Local governments have more information on specialized conditions.
Composition of local industry
Atmospheric and geological conditions
Federal government likely to have better information about technologies.
2. Economies of scale in production when control devices are needed for
widespread use, manufacturers can take advantage of economies of scale.
Example: better to have one standard for recycled newsprint than different
standards in every state.
3. Externalities are there externalities from selecting certain controls?
Examples:
Reducing emissions by raising the height of a smokestack affects
neighboring regions.
Job losses from regulation, such as coal miners in West Virginia
Effects on future generations (e.g. hazardous waste)
4. The costs of decision making
Federal government can lower costs to local governments by providing
information.
5. Government objectives and capabilities
Will lower levels of government put too much emphasis on attracting or
protecting business?
Consider, for example, Illinois requirement that utilities burn coal
from Illinois, which has a high sulfur content.
Determining and Funding the Basic Research Agenda
1. Information is a public good. Thus, the federal government is best suited to carry
out the research agenda.
Local government could be best suited for problems with a limited
geographic scope, because the free rider problem is not as large.
II. Case I Drinking Water Protection
Background
o The Safe Drinking Water Act (SDWA), passed in 1974, established the first set of
federally enforceable standards for drinking water.
Prior to 1974, the Public Health service published standards, but
compliance was voluntary.
o Congress strengthened the SDWA in 1986
The EPA now issues standards for 86 contaminants, and has specific
treatment requirements,
o 1996 amendments to the SDWA provide the EPA with more flexibility to consider
costs and benefits in setting standards and allow for exceptions for localities that
find it costly to meet the standards.
o Setting the standards
The EPA sets maximum contaminant level goals (MCLGs) that are
nonenforceable, but represent the level at which no known or anticipated
health affects occur.
Then, the EPA sets the maximum contaminant level (MCL), which is an
enforceable standard set as close to the MCLG as is affordable to large
water systems with relatively clean water.
Systems serving 10,000 people or less are eligible for variances if
unable to afford to meet MCLs and health will still be adequately
protected.
Some variances also allowed for places with very dirty water, if
not able to meet standards even with best technology available.
In practice, variances rarely used.
Considering costs was not allowed until 1996.
o Estimates of cost of compliance:
From EPA: $1.4 billion
From American Water Works Association (a group of major private
suppliers of drinking water): more than $4 billion.
Choosing Drinking Water Standards is federal control appropriate?
o Because of economies of scale, costs per-household are greater for small systems.
However, benefits per-household do not vary.
Therefore, standards can pass an aggregate cost-benefit test but be
inefficient for small systems.
o Externalities
Most costs and benefits are local
Some pathogens affect people after short exposure, and thus benefit
visitors.
However, areas depending on visitors, such as for tourism, have
incentive to protect them anyway.
The main externality is the safety concern.
o Information
Differences among communities:
Cost per household varies greatly across communities.
Preferences vary
Federal government has better information on the basic science
o Government objectives
Would local government protect drinking water without federal standards?
The case provides a history of drinking water.
Federal government traditionally played the role of
providing information.
In the 1960s, 130 outbreaks of waterborne diseases were
reported.
One explanation was negligence of local communities.
In addition, there was concern that technology was not
keeping up with new chemicals being emitted into water.
Moreover, enforcement is an issue
Not all states have adequate enforcement
What are the welfare losses from uniform national standards of radionuclides called
adjusted gross alpha emitters?
o The CBO calculated the difference between net benefits under optimal treatment
and net benefits under uniform standards. See Table 2 for complete results.
Households served by small systems lose the most ($651-$774 per year)
Cost per cancer case avoided in the smallest systems is $480
million.
Welfare losses drop as size of system increases
Due to economies of scale
Total welfare loss: $12 million
Even if assume no treatment without federal standards, only one system
has positive net benefits with uniform federal How standard
o applicable are the results to other drinking water standards?
Economies of scale are relevant to other standards.
Many affected pollutants found in groundwater, and thus likely to affect
small and medium sized facilities.
Deciding on the Methods of Treatment
Least-cost method varies by system. Factors include:
Size of system
Initial level of contamination
Existing equipment
o How treatment methods are chosen:
EPA only judges compliance based on whether standards are met.
Treatment method does not matter.
However, local water systems need state approval for control technology,
which often limits the use of less conventional technologies.
To help alleviate this problem, the 1996 amendments require the
EPA to list feasible and affordable treatment technologies for four
sizes of systems, not just large ones. This provides state regulators
with more information.
Determining and Funding the Basic Research Agenda
o Most contaminants are found in several states, so that research is a public good.
As a result, the federal government has primary responsibility for research.
o In addition, New Jersey does additional research.
NJ is the only state where mercury has been typically found in drinking
water.
III. Case II Ground-Level Ozone Control
Background
o Ground-level ozone has significant impact on respiratory health, crops,
vegetation, soil, water, materials, animals, and visibility.
Health concerns include interference with normal activity, especially for
people with impaired respiratory systems, episodic and incapacitating
illnesses, such asthma, and progressive respiratory impairment.
o Ground-level ozone results from a combination of nitrogen oxides (NOX) and
volatile organic compounds (VOCs) in the presence of sunlight.
Highway vehicles and utilities generate the most NOX.
Local businesses (e.g. dry cleaners and bakeries) and vehicles emit the
most VOCs.
o Standards:
Before July 18, 1997, standard was a one-hour measurement of 0.12 parts
per million (ppm).
In violation if exceed standard more than three times in a threeyear period.
After July 18, 1997, EPA raised standard to 0.08 ppm.
In violation if the three-year average of the fourth-highest daily
maximum eight hour average ozone concentration exceeds this
level.
Still have to meet 0.12 ppm one-hour standard. Once meet the
standard, it is revoked for the area, and then the area must make
progress towards the new standard.
o
The 1990 Clean Air Act recognized that ground-level ozone was a regional
pollutant.
It established the Ozone Transport Commission for Northeastern states to
address violations associated with the entire region.
Choosing the Extent of Ozone Control
o Externalities play a large role.
Studies show that ozone flows from the Midwest and Southeast to affect
the Northeast. Therefore, regional or federal control is needed.
However, current regulations measure violations in an area, and do not
account for movements across regions.
Although the 1990 CAA has a provision requiring state plans to address
emissions that contribute significantly to nonattainment areas, this
phrase is not defined.
The case notes that the EPA plans to enact a final rule to deal with
ozone in the Northeast by September 1998. The final rule
published in Federal Register on December 17, 1999.
For those interested, information on the final rule can be
found on the EPA's web site at
http://www.epa.gov/ttn/oarpg/t1/fact_sheets/126fs.pdf.
Also, a benefit-cost comparison of the rule can be found at:
http://www.epa.gov/ttn/oarpg/t1ria.html. See, in particular,
chapter 4 on this page.
To address regional externalities and take advantage of localized information, the 1990
CAA authorized regional organizations
o Created the Ozone Transport Region (OTR) for the Northeast (list of states on
page 41).
The Ozone Transport Commission has a representative from each of the
12 member states, appointed by the governor, and one from the District of
Columbia.
The commission has the authority to assess the degree of interstate
movement of ozone pollutants and to recommend strategies to the EPA.
EPA will approve if it finds that individual state plans do not
address violations caused in other states.
For example, the commission recommended, and the EPA
approved, that each state participate in the California Low
Emission Vehicle program.
Three challenges faced by the commission:
Cannot alter the uniform standards passed by the EPA
Relies on member states to accept legitimacy
Even the additional controls recommended might not be sufficient
to bring the region into compliance.
The commission is not large enough to address all
movement of ozone pollutants.
o In 1995, the EPA formed the Ozone Transport Assessment Group (OTAG)
o
Included the EPA, the Environmental Council of States, and various
industry and environmental groups.
Included all states east of and including ND, SD, NE, KS, OK, TX
However, unlike OTC, had no legislative authority and no decision
making rule. Thus, it depends on consensus.
Consensus more difficult, because states had varying interests.
Many of the non-OTR states would receive few benefits for the
costs they would entail. Thus, they had little to gain by
cooperating with the northeast. (see, for ex., figure 2)
Transactions costs also higher, since OTAG is larger than OTR.
o Concern over interjurisdictional competition led Congress to establish minimum
standards for new stationary sources.
Because of relocation costs, environmental regulations more likely to
affect new sources than existing sources.
Standards include some regional variation.
Concerns:
No empirical evidence of interjurisdictional competition.
Restrictions on new sources might cause old sources to stay online
longer.
Deciding on Methods of Control
o In general, local control has the advantage of information, but economies of scale
and concern over government objectives can give the federal government
advantages. What applies here?
o EPA sets technology standards (e.g. BACT, RACT), but allows states to decide on
specific technologies.
However, EPA regulations limit the number of choices available to the
states.
For example, states need EPA permission to deviate from RACT
(reasonably achievable control technology for high polluting sources).
o The 1990 CAA set new requirements for ozone pollutants, but required no
specific technology.
However, states tend to choose similar technologies that the EPA allows
them to count towards their reasonable further progress requirements
milestones for required reductions of overall emissions set by the EPA.
o Are economies of scale an issue?
During the 1960s, US auto industry successfully opposed federal emission
standards for cars. However, by mid-1960s, state legislation was
beginning, and California had already adopted a program. To avoid
having different standards, the industry pushed for federal standards.
If states want higher standards, the 1990 CAA only allows them to adopt
the California Low-Emission Vehicle program.
o Will local governments select efficient controls?
Despite EPA requirements for inspection and maintenance programs for
motor vehicles, many states have not complied. Why?
States may disagree with the federal standards.
States may argue different factors should be considered to analyze
cost effectiveness.
States may be reluctant to commit to spending money on federal
programs not perceived to be permanent.
Determining and Funding the Basic Research Agenda
o Once again, the federal government plays a leading role.
o States are required to use Urban Airshed Models (UAM) for their State
Implementation Plans (SIPs)
IV. Federalism and Climate Change
We ended class with a discussion of Adler's article on federalism and environmental
policy, relating the issues to the problem of climate change.
Adler notes that state and local governments have often acted before the federal
government. He cites the following pattern:
1. Period of perception
2. State and local governments address the problem
3. Federal regulations come last
The response to climate change, with states such as California and the northeastern states
taking the lead, fits this pattern.
Adler cites the following advantages to decentralization:
1. Regional variation
Not only differences in costs, but differences in environmental
preferences, can be addressed to fit local needs.
2. Local knowledge
3. Innovation
States can act as laboratories for new polices.
For example, California's climate change initiatives include many smaller
programs (e.g. the million solar roofs program) designed to reduce
emissions. This allows other states to see what works and what doesn't.
4. Increased accountability for local politicians
5. "Ecologies of scale"
Problems may be local, regional, or international, but they are rarely
national.
However, in the case of climate change, does this mean that state action on
an international problem is preferred to a national solution?