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Environmental Markets Work Better than Indecipherable Regulations

  • Jonathan Wood
  • F Delventhal

    One of the greatest strengths of free market environmentalism approaches to environmental problems is that they facilitate the development of new information about the environment and provide an effective means for people to act on that information. Where there’s a market for some environmental benefit, the people who value it have a strong incentive to discover more information about it and, thanks to the price signal, others can act on that new knowledge without having to know it themselves.

    For instance, suppose a plucky environmentalist discovers that a farmer’s practices reduce water quality to a distant stream through a complex hydrological process. If there’s a cost effective substitute or a means of mitigating its effects on the stream, the environmentalist can pay the farmer to change his behavior. If the price is right, the farmer will change his behavior without having to understand the complex process by which his past practice affected the stream.

    Environmental regulation, however, can struggle to overcome this information problem, unless implemented through market-based means. If regulation broadly forbids activities that harm stream quality, it may be very difficult for the average person to understand what activities result in distant impacts. In the textbook example of pollution—a factory directly dumping waste to a stream through a pipe—this isn’t a concern. But environmental issues are not always so straightforward; many are better analogized to the “butterfly effect”—the idea that a butterfly flapping its wings in Australia can cause a hurricane in Florida—because small, seemingly innocuous activities have distant cumulative effects.

    For instance, the Ninth Circuit recently ruled that the County of Maui violated the Clean Water Act by discharging pollutants into a navigable water (the Pacific Ocean). However, the county was not doing anything directly to the ocean. The court’s ruling was based on the county’s wastewater treatment plant discharging treated sewage into the ground, which migrates through the ground to the water table, mixes with the groundwater, then migrates through the groundwater to the ocean.

    Perhaps a county can reasonably be expected to hire the army of hydrologists, engineers, and lawyers to determine its liability in this complex situation, but what’s an ordinary property owner who lives dozens of miles from the nearest navigable water to do? Presumably, the purpose of every environmental regulation is to guide human action in an environmentally friendly direction, not to arbitrarily punish people for actions they had no reason to know might be prohibited. Vague or indecipherable laws fail this test, giving no guidance to people about what’s required of them until after the fact. That’s not only unfair to the people punished; it’s also ineffective environmentalism because it’s usually much easier, cheaper, and effective to avoid environmental harms than mitigate them after the damage has been done.

    The Clean Water Act is a particularly good example of this problem because even Supreme Court justices cannot figure out what it means. The Court has taken up the question of what “waters of the United States” means several times without figuring it out. The most recent time, the Court was utterly divided, splitting into three opinions with very different interpretations, none of which received the support of a majority of the justices.

    Although nine of the brightest legal minds in the country can’t figure out what this phrase means, you could go to jail if you guess wrong. Recently, the Ninth Circuit upheld the criminal conviction and 18-month federal prison term of a 77 year old vet who built several ponds on his private property (and encroached on neighboring Forest Service land, but that wasn’t relevant to the Clean Water Act violation). The ponds marginally changed the water flow to the nearest navigable water, which is 60 miles away.

    Acknowledging that “it might not be fair to expect a laymen of normal intelligence to discern what was the proper standard to determine what are waters of the United States[,]” the court concluded that binding precedent required the conviction to be upheld. A harsh result indeed.

    Markets can avoid that cruelty. If someone was willing to pay the property owner to preserve his property for the benefit of distant waters, that price signal could have effectively guided his actions without requiring him to be an omniscient expert in hydrology and legal interpretation. Not only would that approach avoid excessive reliance on criminal enforcement, but it has the prospect of addressing environmental issues before they arise. That’s far better for the environment than idiosyncratic enforcement of unclear criminal laws after the fact.

    Written By
    • Jonathan Wood
      • Vice President of Law & Policy

      Jonathan Wood is vice president of law and policy at PERC, leading PERC’s Conservation Law and Policy Center.

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