By Jonathan H. Adler
Businesses routinely lobby to avoid heavy burdens from government regulations. But some businesses lobby in favor of regulations that give them a market edge. Environmental regulations are riddled with provisions that are less about saving the planet than about helping a particular industry or special interest.
The latest example comes from a business group that supports restrictions on energy use in the aftermath of the Kyoto Treaty. The Business Council for Sustainable Energy is calling for ratification of the UN treaty, and it supports deep cuts in greenhouse gas emissions. In 1996, it joined with the Natural Resources Defense Council and other environmental groups to prod the Clinton administration into action.
The council is a coalition of wind, solar, natural gas, and geothermal power producers and related firms-companies such as Enron and Solar Turbines and associations like the Solar Energy Industries Association. These companies have a clear economic stake in global warming policy. They would benefit from restrictions on fossil fuels, whether through a tax on carbon-based energy, controls on the supply of these fuels, or other regulations. The loss to coal and oil companies could well be the council members’ gain.
Then there is ethanol.
Under the 1990 Clean Air Act, the Environmental Protection Agency was told to develop a formula for a new gasoline to be sold in the nation’s smoggiest cities. Producers of ethanol, a fuel derived from corn, wished to ensure that their product would be added to the mix, even if this meant higher gas prices for consumers and reduced air quality.
They lobbied, and in 1993 the Clinton administration issued a regulation explicitly guaranteeing that ethanol and ethanol derivatives would receive a 30 percent share of the market for oxygenate additives used in the reformulated gasoline. The Environmental Protection Agency issued the rule even though lower-cost additives existed that were just as clean, if not cleaner. The rule was designed to boost farm income and help corn growers, not help the environment. The cost to consumers was estimated at between $48 and $350 million. By the EPA’s own admission, the rule might have increased air pollution. As one outraged environmentalist commented, “It’s not the role of the Clean Air Act to make mandatory markets for ethanol.” Fortunately, a federal court agreed, and the ethanol rule was thrown out.
Another example of special interest intervention to strengthen regulation can be found with fluorescent bulbs. The federal government promotes the use of fluorescent bulbs to reduce energy consumption (through projects such as the EPA’s Green Lights program). In many cases, switching to fluorescents saves companies money, but for some companies, the savings are more than offset by environmental regulations.
Unlike incandescent bulbs, fluorescents must be treated as hazardous waste when large companies dispose of them, following detailed and expensive regulations under the Resource Conservation and Recovery Act (RCRA). This greatly increases the cost of lighting disposal and could even expose firms to broad Superfund liability.
Recognizing this problem, the EPA is considering reclassifying fluorescent bulbs so that more companies will use them. But hazardous waste treatment companies are alarmed because they may lose business. The Environmental Technology Council, which represents such firms as Laidlaw Environmental Services and Evergreen, says that its members will suffer “economic and competitive harm” if fluorescent bulbs do not have to be disposed of like toxic chemicals. The ETC fears the loss of a government-created market.
Hazardous waste incinerators, another group within the toxic waste treatment business, have their own market protection program. The Alliance for Responsible Thermal Treatment (ARTT), which represents private hazardous waste incinerators, has sought greater regulation of cement kilns, which can burn toxic waste as fuel in the cement- making process. Burning toxic waste in cement kilns typically costs less than using hazardous waste incinerators. So, ARTT has given money to the American Lung Association’s campaign against the use of cement kilns for the burning of hazardous waste. In 1994 and 1995 ARTT gave the Lung Association $260,000 to fund “educational campaigns” against cement kilns in several states. One ARTT member company, Rollins Environmental Services, went so far as to give a local activist group $250,000 to fund a lawsuit against a competing cement kiln.
Companies can also increase profits to restrict imports of competing goods from overseas. Thus, in 1989 the European Community banned the importation of U.S. beef produced with bovine growth hormones. The EC defended the restriction as a health measure, despite the lack of any credible scientific evidence linking hormones in U.S. beef to any health threat. The restriction did, however, protect European ranchers from U.S. competition.
Although European interests have been the worst offenders in the use of environmental regulations to keep out trade, American companies have tried to use regulations that way, as well. For example, the Corporate Average Fuel Economy standards (CAFE) that have been in effect since the 1970s were crafted to penalize high-end foreign manufacturers such as Volvo and Mercedes Benz, which don’t make many small, fuel-efficient cars. (The standards also protect U.S. jobs because they don’t allow domestic companies to meet the standards simply by importing small foreign cars.)
Perhaps the most famous example of business (and labor) using environmental laws to achieve special advantage was the passage of the 1977 Clean Air Act. This act protected eastern coal companies and their unions from competition from cleaner western coal, while appearing to satisfy environmentalists, who wanted tougher rules restricting sulfur dioxide emissions from power plants.
The act required that power plants add costly sulfur dioxide “scrubbers,” even though switching to low-sulfur coal would have enabled many companies to reduce their emissions by as much as-or more than-the scrubbers would. The new scrubber requirement destroyed the comparative advantage of western low-sulfur coal.
Unsatisfied with this measure alone, eastern coal producers and the eastern-based United Mine Workers, with the support of the Sierra Club and the National Clean Air Coalition, pushed for additional provisions to protect coal-miners’ jobs in the East. Congress passed a provision allowing state and federal officials to order power plants to use regionally available coal, if the use of coal from elsewhere in the United States might put local mine workers out of work.
Ironically, one effect of the 1977 amendments was to increase sulfur dioxide emissions in some regions of the country. Since all new coalfired plants had to have scrubbers, companies extended the life of older coal-fired plants, delaying the environmental gains that would be achieved by a switch to more modern facilities. In addition, the amount of scrubber sludge requiring disposal increased substantially.
Of course, not all environmental rules are the result of special interest pleading. Some are the result of genuine environmental concern; others start out that way, only to be manipulated behind closed doors during the legislative or rule-making process. In some cases, industries have been virtually created by environmental regulations, and their continued existence depends on tough regulations, whether they help the environment or not. In any case, the proliferation of exceedingly complex environmental rules and statutes is an open invitation for companies seeking an advantage over their competitors. This is an invitation that few profit-seeking companies will pass up.
See Bruce Ackerman and William T. Hassler. 1981. Clean Coal, Dirty Air. New Haven, CT: Yale University Press.
Jonathan H. Adler, a PERC research fellow in the summer of 1998, is Director of Environmental Studies at the Competitive Enterprise Institute. His article on global warming was the cover story of the August 17, 1998, National Review.