It would be incorrect to suggest that all the federal air pollution laws and regulations have accomplished nothing. Lawrence White find, for example, that the motor vehicle standards have led to substantial reductions in emissions. White also finds, however, that alternative approaches could have done as well at much less cost. And all in all the clean air gains over the last decade are less than one might expect could be achieved from polices costing over $25 billion a year.
Economists are not surprised by this unimpressive performance. Crandall notes that “no organization could possibly cope with the continuing flow of legislation and the detailed regulatory responses required of EPA.” For example, there are more than 200,0000 existing stationary sources subject to air-emission limitations. Approximately 23,000 of these are major sources, each capable of emitting more than 100 tons of pollutant per year. Though 94 percent of these major sources are in “compliance” this does not necessarily mean that they have done anything. Typically it means that they are continuing to use the required “best engineering practices.” In most cases the firms are certified on the basis of their own reports that they are complying with the state plan and all relevant standards. The General Accounting Office has found many errors in reports of compliance. As one would expect, the over 1,400 major sources not even “certified” as being in compliance are the most serious sources of pollution.
These uncertified major sources use the courts to fight the EPA regulations with great vigor. As one authority notes, each sources argues that “(1) he is in compliance with the regulations; (2) if not, it is because the regulation is unreasonable as a general rule; (3) if not, then the regulation is unreasonable in this specific case; (4) if not, then it is up to the regulatory agency to tell him how to comply; (5) if forced to take steps recommended by the agency, he cannot be held responsible for the results; and (6) he needs more time.” The EPA, unable to fight every battle, negotiates as best as it can, and , for the worst violators, it often welcomes agreements promising future action. If not carried out, these agreements are then subject to renegotiations.This back-and-forth between regulators and private industry will sound familiar to any actuary who has had to defend a rate filing against a hostile department of insurance. Some background. In every state (except Wyoming, bless them), insurance companies have to file their rate plans with the state department of insurance (DOI). The department then reviews the filing and sometimes comes up with a litany of objections, the best of which are only borderline relevant. The insurer must often argue with the state DOI: our methodology is sound and you misunderstood it, the statute you cite does not apply in this case, your instructions contradict other instructions you gave us on a previous round of objections, etc. My job is in part to respond to these questions. It is interesting to see that this process takes place in other regulated industries. I'm curious if the process is just as dysfunctional in emissions regulation, an area where unlike insurance regulation there is an actual externality/market failure problem.
I was going to write a much longer post about the pointlessness of regulation in theory and the dysfunction of regulation in practice. I'll save that for another post that I can dedicate specifically to insurance regulation. But it seems like my experience with the regulatory state generalizes pretty well.
The above post is leading up to an argument for pollution taxes, rather than having "emissions standards." You can see the problem from the excerpt: What standard ought to apply to my factory? This kind of unclear law leads to endless argumentation, legal battles, and delays. A tax gets around this by essentially saying, "Pollute all you want, but you will pay the social cost of that pollution."