Control-Based Legislation

From Thermal-FluidsPedia

Control-based legislation (also called command-and-control legislation) relies on directives (commands) on how polluters should reduce their pollution and by how much. These policies are enforced by imposing fines, penalties, and taxes for non-compliance. Under command-and-control (CAC) plans, firms are required to deploy the Best Available Control Technology (BACT) to control emissions. Although this approach dictates a fair and balanced regulation to all players irrespective of their size, it is not necessarily an efficient one. For example, consider two firms A and B producing essentially the same product and residing in the same geographical area. Because of its size and the cleaner technology it employs, A has a lower cost per unit of pollution reduced than B. From a fairness standpoint, A and B must reduce emission per unit output by the same amount. From an efficiency standpoint, it is best if A reduces emission by a greater amount than B, keeping the combined emission the same. The combined cost of emission abatement by the two firms will be lower.

In the United States, environmental regulations are largely based on the CAC approach for most pollutants and are administered by the EPA through such statutes as the 1990 US Clean Air Act, which imposes penalties for those entities that violate the federal and state guidelines on the type and amount of toxic substances, handling, use, and disposal. The rules are imposed uniformly for all polluters without considering costs and circumstances. The problem with this approach is that it is, by definition, “not cost efficient” and can sometimes be outright ridiculous. For example, EPA regulation requires that 30 percent of the organic matter must be removed from inflows to sewage treatment plants. Although this regulation makes sense most of the time, it does not make sense in Alaska, which has some of the purest waters in the world. To comply with regulation, Alaska had to build a new $135 million treatment plant to remove 30% of almost nothing. Alaskan officials requested a waiver but were turned down. As a result, Alaskans had fish guts dumped into the water just to be removed again downstream before it entered the treatment plant. Although the EPA mandate was satisfied, the water was more polluted than it would have been if nothing had been done at all (1).

The one exception to CAC legislation is the distinction it makes between new and old sources. Under this ruling, older sources (such as cars) do not have to meet the same stringent standards as newer equipment. The reasoning behind this decision is both technical (higher costs are associated with cleaning the older sources) and political (it is much easier to pass regulations restricting firms that are not yet around or are in infancy). The problem with this approach is that it promotes the use of older and dirtier equipment for much longer, reduces the incentive for putting additional resources into research and development (R&D) work, and slows down investments in costlier, newer, and cleaner technologies. This is a serious objection that has been raised against any technology-based regulations for both new and old sources. The fear of developing better technologies is that, under BACT, firms may then be legally obligated to upgrade their pollution control equipment at existing and newer facilities. Over the long run, this approach becomes less cost-effective as the pace of technological innovation slows, and the cost of pollution abatement becomes higher.

Question: Examples of the CAC approach are the imposition of gasoline taxes and CAFÉ standards discussed in Transportation, both of which were designed to increase fuel efficiency. Comment on the viability of these approaches.

Answer: The main problems with gasoline tax are that both clean and dirty cars are taxed at the same rate and taxes must be quite high to be effective. The main concern raised against CAFÉ standards is that higher gasoline efficiencies promote more driving, and as a result total vehicle-miles traveled may increase.

References

(1) Dilorenzo, T. J., “Unfunded Federal Mandates: Environmentalism’s Achilles Heel?” Contemporary Issues Series 62, Center for Study of American Business, December 1993.

(2) Toossi Reza, "Energy and the Environment:Sources, technologies, and impacts", Verve Publishers, 2005

Further Reading

Chapman, D., Environmental Economics: Theory, Application, and Policy,” Addison-Wiley, 2000.

Goodstein, E. S., Economics and the Environment, 4th Ed., John Wiley & Sons, 2002.

Siebert, H., Economics of the Environment: Theory and Policy, Springer Verlog, 2004.

Dauvergne, P., Handbook of Global Environmental Politics, Edward Elgar Publishing, 2005.

Journal of Environmental Economics and Management (JEEM), the journal of Association of Environmental and Resource Economics.

Ecological Economics – Direct Science Elsevier Publishing Company, the journal of the International Society for Ecological Economics (ISEE).

Environmental Economics and Policy Studies – Published by Springer-Verlog, New York is the official journal of the Society for Environmental Economics and Policy Studies.

External Links

US Agency for International Development (http://www.usaid.gov/)

National Center for Environmental Economics (http://yosemite.epa.gov/ee/epa/eed.nsf/pages/homepage).

United Nations Development Program (http://www.undp.org).

United Nations Environment Programme (http://www.unep.org).

Intergovernmental Panel on Climate Change (http://www.ipcc.ch).

World Resource Institute (http://www.wri.org)

Union of Concerned Scientists (http://www.ucsusa.org).