Federalism and Environmental Regulation: A Normative Critique
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Description
Vesting control over environmental regulation at the federal level is most commonly justified in both the legal academic literature and the legislative arena by two normative rationales. First, advocates of federal control argue that in its absence interstate competition would result in a “race to the bottom.” Second, they maintain that federal regulation is necessary to prevent interstate externalities. This chapter shows that the race-to-the-bottom justification is analytically flawed, at least as a general argument for federal minimum standards. In contrast, although the presence of interstate externalities provide and analytically unimpeachable argument for federal intervention in cases in which the states cannot engage in Coasian bargaining, the federal environmental statutes have done little to mitigate such externalities and may in fact have exacerbated the problem. The race-to-the-bottom rationale for federal environmental regulation posits that states will try to induce geographically mobile firms to locate within their jurisdictions, in order to benefit from additional jobs and tax revenues, by offering them suboptimally lax environmental standards. The ensuing competition has the same structure as a prisoner’s dilemma: a noncooperative game with a dominant strategy that is socially undesirable. Because they cannot coordinate their actions, states rationally choose a standard of environmental protection that is undesirably lax. The problem of interstate externalities arises because a state that sends pollution to another state obtains the labor and fiscal benefits of the economic activity that generates the pollution but does not suffer the full costs of the activity. Under these conditions, economic theory maintains that an undesirably large amount of pollution will cross state lines. Although they are sometimes conflated, the race to the bottom and the problem of interstate externalities are analytically distinct. Interstate externalities can be prevented by limiting the amount of pollution that can cross interstate borders, thereby “showing” upwind states the costs they impose on downwind states. As long as the externality is eliminated, advocates of federal regulation concerned about controlling interstate externalities should not care whether the upwind state chooses to have poor environmental quality—a central concern of the race-to-the-bottom advocates. Conversely, if an upwind states chooses a high level of environmental quality within its borders and encourages the sources in the state to have tall stacks and locate near the interstate border, so that the effects are felt only in the downwind state, the situation poses an interstate externality problem, not a race-to-the-bottom problem. These two rationales are also distinct from, but sometimes confused with, public choice arguments for vesting responsibility for environmental regulation at the federal level. Such public choice arguments claim that state political processes undervalue the benefits of environmental regulation or overvalue the corresponding costs, relative to the federal process, and that the outcome of the federal process is socially more desirable. Even if there were no interstate externalities, or if industry were wholly immobile so that there could be no race to the bottom, environmental standards would still be more protective at the federal level if, as the public choice argument posits, environmental groups are more effective as this level. Conversely, the interstate externality and race-to-the-bottom arguments for federal environmental regulation may apply even if states properly value the benefits of environmental protection. The analysis of public choice issues surrounding federal environmental regulation is outside the scope of this chapter.
Source Publication
The New Federalism: Can the States be Trusted?
Source Editors/Authors
John A. Ferejohn, Barry R. Weingast
Publication Date
1997
Recommended Citation
Revesz, Richard L., "Federalism and Environmental Regulation: A Normative Critique" (1997). Faculty Chapters. 1941.
https://gretchen.law.nyu.edu/fac-chapt/1941
