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Air pollution regulation.

"Toward a More Rational Environmental Policy," by Richard L. Revesz. December 2014. SSRN #2534018.

Richard Revesz, professor of law at New York University, describes five principles that should govern environmental policy:

* Environmental restrictions on emissions should be governed by cost-benefit analysis and maximize net benefits.

* Environmental objectives should be achieved at minimum cost.

* Environmental policies should be implemented with market instruments such as emission prices or tradable emission permits.

* Grandfathering of emission sources introduces fatal arbitrage problems into environmental regulation and should be severely constrained. (See "New Source Review: What's Old Is New," Spring 2006.)

* The most compelling case for federal regulation is the control of interstate externalities.

From a libertarian perspective, the fifth principle is the most important. And yet one ironic response of states to the passage of the Clean Air Act amendments in 1970 and 1977 and their requirement that states enact plans to reduce stationary source emissions was to mandate taller smokestacks--a cheap solution that solved the intrastate problem by creating an interstate problem.

Rather than just reverse course and require the shortening of smokestacks to revert an interstate problem back into a local matter that the states would have to address, the federal courts, Congress, and the U.S. Environmental Protection Agency have been wrestling with the upwind-downwind problem ever since. The record of the courts and the EPA in tackling interstate pollution (at least partially created by the Clean Air Act itself) has not been very good. In 1984 the Sixth Circuit Court of Appeals ruled that an upwind Indiana power plant with no emission controls emitting six pounds of sulfur dioxide per million British Thermal Units (BTUs) of coal combustion had not violated the law even though it contributed almost half of the ambient pollution in downwind Jefferson County, Ky., and the power plant in Jefferson County emitted only 1.2 pounds of sulfur dioxide per million BTUs of coal combustion after investing $138 million in pollution control.

The EPA did not attempt to deal with interstate air pollution until 1998, during Bill Clinton's second term. That effort was halted by the George W. Bush administration, which instead asked Congress to amend the Clean Air Act and explicitly expand the cap-and-trade market for sulfur dioxide (created by the 1990 Clean Air Act Amendments) to include other pollutants such as nitrogen oxides. The congressional reform attempt ended in 2005 when the bill failed to be approved by the Senate Environment and Public Works Committee on a 9-9 tie vote.

Revesz tells the story of how the courts finally allowed the EPA to implement a pollution reduction plan that minimized costs (specifically an emission rights trading regime) even though Congress failed to explicitly grant such permission through an amendment of the Clean Air Act. (See "An EPA War on Coal?" Spring 2013.) Shortly after the failure of the Senate committee to approve the Bush initiative in 2005, the EPA issued the Clean Air Interstate Rule (CAIR) to implement the Bush proposals administratively. In 2008 the D.C. Circuit Court of Appeals struck down CAIR because a strict reading of the statute was thought not to allow a trading program that reduced emissions based on the cost of reduction rather than the amount of pollution generated.

In 2011 the EPA responded with the Cross State Air Pollution rule, which again allowed the trading of emission reduction quotas, but with constraints so that all upwind states would have to reduce emissions rather than simply buy emission rights sufficient to allow their emissions. In 2012 the D.C. Circuit Court of Appeals struck down the Cross State rule because state emission limits were established on the basis of the cost of reduction rather than how much each state's emissions contributed to the downwind ambient result. In 2014 the Supreme Court reversed the D.C. Circuit and concluded reductions could be allocated in a way that minimized aggregate costs.

For Revesz the story is positive because the courts finally allowed policy to be more rational. But that conclusion is possible only if one thinks that the courts rescuing the legislature from its enactment of "bad" statutes is a good thing and that interstate conventional pollution, itself, was not the unintended result of national attempts to make localities have "better" environments.
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Title Annotation:Working Papers: A SUMMARY OF RECENT PAPERS THAT MAY BE OF INTEREST TO REGULATION'S READERS.
Author:Van Doren, Peter
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Date:Mar 22, 2015
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