Conservatives like to complain about environmental regulation and the burdens they place on business and the economy. In order to fully discuss issues relating to the environment we need to discuss the costs, reasons, and efficacy of environmental regulations.

Let’s start the discussion with a broad hypothetical: an industrial facility that emits pollutants into the environment. The first question to ask is whether this is a problem or not. It depends on what is being emitted. Let’s just say that it is smoke from burning coal for power, and the smoke is full of soot and carbon and sulfur and nitrogen and mercury (and lots of other toxins). And let’s just say, for the sake of the hypothetical (though it is not hypothetical it is a true fact) that many of those pollutants are quite harmful and can kill if breathed over a long period of time. I would suggest, and I think that most people agree, that this is a problem. Unconstrained emission of dangerous pollution is a problem. That leads to the next question: what to do about the emission of pollutants?

Let’s use a different hypothetical to address this issue: let’s say that a factory dumps a harmful liquid effluent waste into the river. Is this a problem? If the pollution is killing fish or making the water undrinkable, that is clearly a problem for the people downstream from the factory. Let’s deal with the issue of the property rights of the people downstream, which are known as riparian rights. If the factory is making the water downstream undrinkable or killing the fish, the land owners downstream are having their property rights harmed. They have a legal right to be compensated for that harm. At common law they could sue for damages, which would be measured by the economic harm they suffered. If the damage is ongoing it is also possible to sue for an injunction. An injunction is an equitable remedy, and while equity is newer (it dates from the 17th Century in England) than the common law (which dates from the 14th Century), it is a well-established and time tested remedy to harm. So historically those directly affected by pollution could bring a legal action to rectify the harm.

Let’s broaden the hypothetical. There are now lots of factories along the river, it is a big river, and it feeds into a big lake. To take it out of the hypothetical we can all it the Cuyahoga River and Lake Erie. Now it’s not just one factory polluting and harming individual property owners along the river banks. It is easy for a downstream property owner to show harm and prove the source when there is one source of the emissions. It is a different task with multiple polluters and many people downstream, and some only subject to indirect harm.

There are a number of possible ways for those who are injured, or feel aggrieved, to vindicate their rights, or to find some sort of solution. We know this because many of these solutions were tried in this country from the 1950’s through the change in environmental laws in the 1970’s, and we’re seeing the same process repeat itself in developing countries like China and India. One solution is litigation. Throughout modern history those who have been harmed can go to court to seek redress. But in a complex situation like I describe above – lots of facilities and lots of people harmed – how do you identify the cause, show the harm, and clearly prove damages? It’s not easy, and the history of the early environmental movement proves this out. It also does not help matters when the factories have money to hire good lawyers and exert political influence (which often subtly influences the legal system) and those who may have been harmed are poor and politically powerless. Litigation (and lobbying, not to mention bribery – not common in the U.S. today, but still quite common around the world) is expensive. So, without regulation, if we rely solely on litigation, there are still costs imposed on business.

Another possible solution is what lawyers call “self-help.” Self-help means taking action outside the legal or political system to resolve the problem. One common self-help solution used in the 1960’s was to plug the discharge pipe and allow the effluent to back up into the factory. This caused anything from a mess on the factory grounds, to the destruction of equipment. There are other forms of self-help, with the most extreme being to burn down the factory. These impose a cost on business: they have to clean up or rebuild factories, repair equipment, and in some cases hire guards to protect the facility.

People are most likely to resort to self- help when they have no other reasonable options. It was used in the 1960’s because it was extremely difficult to prove harm when there were lots of facilities. It was also used because factories (and the companies that own them) often have the money to hire lawyers and thwart litigation. So both litigation and self-help create financial costs and burdens on business.

Another solution is for the parties to appeal to the government for some other solution. Citizens can seek laws that limit discharges that are difficult to identify but that harm large numbers of people. Businesses seek laws to limit legal liability and the costs of litigation. (But here’s the thing, the more businesses successfully limit their exposure to litigation, the fewer fair and legal options available to potentially aggrieved citizens, and the more likely they are to turn to self-help. We see this in China today.) So a compromise is reached. Government imposes a limited range of regulation, and in exchange businesses obtain limits on their liability. If, for example, a business can show that they were complying with environmental regulations they will be immune from a suit for any resulting harm. That is the trade-off: be regulated but limit liability. So perhaps regulation is actually a desirable option. It removes the costs of potential litigation, the cost of potential repairs from self-help activity, and the cost of hiring an ever larger coterie of armed guards. Not a bad trade off. And that, in very broad strokes, was the issue in the late 1960’s, as the Cuyahoga River burned and the government debated regulating factories to protect the environment.

The nation’s first environmental laws, NEPA, created a fairly simple framework. Every facility that emitted pollution, either into the air or water, had to be identified, and the type and extent of their emissions listed. Then, in certain circumstances, they had to use the best available pollution mitigation technology to reduce the total amount of emissions. In a number of cases, however, there was no requirement to immediately install emission control technology. In certain industries, power generation for example, the requirement was that when the facility was upgraded the pollution reduction equipment had to be added. But if it was not upgraded there was no need to add the technology. A few pollutants were deemed so harmful that they had to be eliminated entirely from the discharge. At first this was a huge cost to business, as they were forced to install pollution control technology. But over time pollution mitigation technology became part of the operational machinery, and the costs came down. I should also note that these requirements created an entirely new industry of engineers who designed pollution control technologies, factories that made pollution control equipment, and consultants who help businesses comply with environmental requirements. So while there was a cost to those industries that created pollution (through burning coal for power, for example), entirely new industries were created.

I should also note that there was another cost to this framework. In those industries that were “grandfathered,” meaning they did not have to immediately install new pollution control technology until they modified their equipment, some chose to put off modifying equipment as long as possible. This made economic sense on one hand, because it deferred the cost of the pollution control technology. But it made no economic sense on the other hand, because new more efficient and less polluting operators came along, and they had a cost advantage because they had new and more efficient equipment. This may have reduced the cost of environmental compliance for some industries, but at the cost of technological competitiveness.

So there was and is clearly a cost to business for environmental regulations. But what conservatives fail to note is that there are costs to business without environmental regulations, and that the regulations created a trade-off, which was the near elimination of self-help (and the costs associated thereto) and the significant reduction in the cost of litigation (and those costs).

This was roughly the history of most environmental laws in the United States and Europe in the late 60’s and early 70’s, and it is the current path of environmental regulation in emerging economies like China and India.

When conservatives complain about environmental regulations the question should be, what is their proposed alternative? Do they want to eliminate regulation and return to litigation? Would that be less expensive for business? Or would they be constantly tied up with environmental laws suits, and eventually bankrupted by litigation costs? Or are they proposing a double whammy: remove regulation and limit legal liability? What do they think would happen then? Would the people who are harmed by pollution simply roll over and take it? My guess is that people would once again resort to self-help. This guess is supported by actual history and experience. And would it really be cheaper to deal with self-help? In some cases it might be, but in others it might not be. I suspect that in most cases it would be far more expensive.

The other question is whether there are different possible models of environmental regulation. What we currently have is a total ban on a hand full of toxic pollutants, and rules requiring limits on other pollutants, which are achieved by requiring that facilities use the best available technology to mitigate emissions.

Is there a better way to limit or reduce pollution? One way is to set strict limits on what can be emitted by certain facilities and certain industries. This would clearly reduce pollutions, but is probably the most intrusive and costly solution. For that reason it was rejected in the United States and largely throughout the world.

Are there other solutions? One idea was to try to apply free market principles of supply and demand to pollution and pollution control. That was done by setting a total upper level of allowable emissions based on the current level of emission. Each facility was then given a quota based on their current emission. If one company wanted to expand its operations it had to find another company that had reduced its emissions, and basically buy the second companies excess emission quota. This had the effect of creating a financial incentive for companies to reduce emission, since they could sell their excess quota. This was tried in the 1990’s to eliminate “acid rain.” It worked brilliantly, far better than expected. It resulted in faster reduction in sulfur and nitrogen based emissions and a cost far less than expected. Because it worked so well, and because it was based on market principles, it was widely embraced by the Republican Party. It was called Cap and Trade, and the McCain – Palin campaign supported it as the best method of pollution control. Unfortunately, after Barack Obama won the Presidency, and endorsed Cap and Trade to reduce carbon emissions, the Republican Party did a 180 and rejected Cap and Trade.

In my view, and based on history, Cap and Trade is the most effective method of pollution control. But because Cap and Trade has become toxic (pun intended), the current hodge-podge of regulations we have is the most effective and relatively cost effective system available.