The Political Economy of

Environmental Regulation

Introduction

Two main obstacles that stand in the way of effective government action to control pollutionImperfect informationThe opportunity for political influence

The Process of Environmental Regulation

Step 1: US congress passes billStep 2: EPA drafts regulationsStep 3: State governments implement and

enforce regulations

Major Points of the Legal Process

US Regulatory model: “Judicial”. Regulations can be challenged in court.

Regulatory process can be influenced at dozens of points prior to legal challenge

The E.P.A.

Founded in 1970 as and independent agency within the executive branch

Employs more than 16,000 people in 10 offices and Washington DC

Annual budget of more than $6 billion Required to develop, implement, and

enforce regulations under dozens of different laws

1. Imperfect Information The EPA is provided limited resources;

thus, the agency has to determine priorities The EPA sponsors limited research of its

own, so it must turn to industry, environmental groups, or universities for data about costs and benfits

How good is this information?

Regulation with Imperfect Information

Responses to the Reporting Bias Problem

Improve the in-house analytic capability of the agency

Rely on “incentive-compatible” regulation, see Appendix 12.0

2. Bureaucratic Discretion and Political Influence Bureaucrats will retain substantial

discretion in regulatory decision making because of imperfect information: ambiguous and often contradictory goals

provided by Congressuncertainty in scientific and economic analyses

Because regulatory decisions impose substantial costs on industries, firms will devote resources to influencing this process

Bureaucratic Interests

Bureaucrats are likely to use their positions to satisfy three types of goals:Agency buildingExternal career building

○ Revolving Door. Many people working in environmental agencies often go on to work for firms in the industries they regulate.

Job satisfaction

Revolving Doors at EPA

Job SatisfactionIdeology: Environmental or free-market? Exercise of power and authorityThe desire for “a quiet life”

Who Wins the Influence Game?

VotesEnvironmentalists

DollarsIndustry

The Power of Dollars

Dollars can be used to buy a number of things useful for influencing the regulatory debateTechnical studiesLobbying staffThe promise of future jobsAccess to legislators and regulatorsVotes (through advertising)

Balance of Power Environmentalists sometimes have an

edge in the legislative arena Businesses dominate in the regulatory

sphere Environmentalists, anticipating that laws

will be weakened upon implementation, try to push through Congress very stringent goals

Industry, galvanized by this threat, pours more resources into mitigating the regulatory impact

Zero-Sum Game of Political Influence

In a zero-sum game, the gains of one party can only come at the expense of another

This leads parties to overinvest resources in unproductive competition

A Zero-Sum Lobbying Competition

Corporatist Model of Regulation

Is cooperation, rather than competition, in everyone’s best interest?

A “corporatist” model of regulation (common in Europe)Regulations decided in a bargaining context

between representatives of “corporate” groups--the EPA, private firms, and environmental organizations

Problems With Corporatist Regulation

Reduces general public access to decision makers; often perceived as a restriction of democracy

The US does not have a strong labor or social-democratic party to counterbalance business

Environmental groups or the EPA may not represent the public’s general interest

Reducing Influence in the Political Process

Eliminate the status that lobbying now holds as a tax-deductible business expense

Campaign finance reform could reduce efforts by all sides to gain advantage

Environmental federalism: moving more responsibility for regulation to the state level?

Lessons From Communism

Governments can create environmental disasters that rival, if not exceed, those generated by private economic actors (Many of the worst hazardous waste sites in the US resulted from US military programs)

However, in capitalist countries, government is not the primary source of environmental problems

Lessons from Communism

Needed: an effective government process forcing economic actors to internalize the externalities they impose on others.

A demand for environmental protection can expressed most effectively through democratic pressure on government

Information needed for Successful Environmental Policy

The power of information:The Toxics Release Inventory: requires

companies to publicly report on their releases of 450 chemicals suspected or known to be toxic.

Mere requirement of publication of data has lead to significant reported declines in emissions.