Eco-Industrial Policy

Some would have environmental bureaucrats run the economy

THIS year marks the 20th anniversary of Earth Day. Since that time, we have placed more and more responsibility for protecting the environment on the shoulders of federal bureaucrats. As a nation, we are moving toward greater state control of consumers and businesses in the hope that our bureaucrats will create for us a society free of environmental risks. In principle, this sounds great. If the feds can reduce cancer deaths by demanding that suspected carcinogens be removed from the air or the water, most people will gladly support such policies. As long as people do not see a direct connection between federal environmental policies and their consumption of VCRs and ice cream, such policies will receive widespread support.

In all single-minded missions, however, there is a point at which zeal supersedes common sense. We may have already passed that point in the case of the environment. Consider two proposals circulating in Congress, which illustrate the dimensions of the industrial policy that the Environmental Protection Agency will be charged with administering.

Under current law, most firms are required to obtain construction permits for industrial facilities, but do not have to obtain operating permits from the federal government. The proposed Clean Air Act amendments would require almost all stationary emission sources - such as your local dry cleaner, bakery, and fast-food establishment - to have an operating permit approved by EPA.

This dramatically expands the power of federal bureaucrats to meddle in the affairs of ordinary people. And by increasing costs, it discourages the formation of innovative new businesses. This proposal provides incentives for firms to locate abroad, and does little to improve the environment.

The second example involves the regulation of toxic air emissions, such as benzene and asbestos. The president's proposal would reduce risks to about 1 in 10,000, which is less than 1/2 percent of the probability of dying in a car accident. Other bills would go further, requiring a risk estimate of 1 in 1 million.

If the more extreme number is chosen, EPA estimates conservatively that job losses could reach 200,000, a figure that dwarfs the direct job loss from acid-rain legislation. People in many regions and industries, including petroleum, steel, paper, and pharmaceuticals, would lose their jobs. The projected cost would be in the tens of billions, and the risk reductions would be very small.

We should not blindly embark on an industrial policy of this magnitude, developed by starry-eyed, well-intentioned congressional staffers and EPA bureaucrats, who do not have to pay for their acts of ``mercy.''

We now spend about $85 billion on the environment annually, and the figure will exceed $100 billion if the new Clean Air Act amendments pass. If policies are enacted to address concerns about global climate change, this figure could increase by a factor of five. That is, we could be spending over 5 percent of GNP on environmental improvement.

What can be done to protect the environment wisely, but to avoid an economic nightmare?

1.Spend more money on research. We understand very little about the environment and ecosystems. Instead of indulging themselves in a sea of green rhetoric, our leaders should design a long-term research program to encourage promising scientists and policy analysts to specialize in environmental studies and research.

2.Create environmental priorities. Environmental groups tend to cry wolf about all environmental problems. In contrast, industry often takes a Panglossian view. Clearly, some problems, like lead emissions, are more important than others. The EPA should make it its business to rank risks and explain that some problems may be serious while others are comparatively trivial. The regulation of hazardous waste under the Resource Conservation and Recovery Act, where billions are being squandered, is a candidate for the trivial category.

3.Evaluate how policies are working. It is important to determine whether public policies are doing something to fix the perceived problem. For example, it's fashionable these days to promote waste minimization because of the difficulty in disposing of wastes. But with all the laws on the books that make it exceedingly expensive or impossible to dispose of hazardous wastes, is a large EPA bureaucracy really needed to stimulate businesses to reduce their waste streams?

4.Choose the right tool for the right problem. Federal bureaucrats and politicians believe that they are in a better position to know how to solve local pollution problems than the local folks. The feds should stay out of local problems, such as toxic emissions from specific plants, and focus on critical regional and global issues, such as acid rain and the depletion of the ozone layer. Regulation should provide appropriate incentives for innovation. And federal policies should recognize that pollution problems are different in Los Angeles, New York, and Peoria. Requiring all areas to adopt the same control equipment for automobiles, for example, does not make sense.

5.Ban micromanagement of individual and business decisions. Yes, I am dreaming - since this is how bureaucrats and politicians earn their keep - but micromanagement deters innovation and is often expensive. Congress should set environmental goals, and the EPA should take the lead in meeting these goals.

6.Design regulatory approaches that permit environmental progress and economic growth to go hand-in-hand. This means placing greater reliance on private-sector initiative in solving environmental problems. President Bush's market-based proposals for controlling acid rain and automobile pollution are an important step in the right direction.

7.Reintroduce policy analysis and science into the debate. The regulatory review process in the White House is all but dead, and EPA's policy office has had minimal input into critical legislation since Mr. Bush entered office. It's time to temper program advocacy and environmental zeal with a reasoned discussion of what our environmental investment is really buying. And when the taxpayers pay over half a billion dollars for a scientific study, such as the one for acid rain, some government official should explain why the results were not considered in developing policy.

We are wasting billions lining lawyers' pockets and paying for politicians' rhetoric when we should be learning how to define and meet the environmental challenges we now face. We are, moreover, mesmerized by the promise that supercentralized controls will save the earth. Meanwhile, as we increase micromanagement of the economy through environmental and social regulation, America's ability to compete successfully in the global marketplace diminishes.

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