Reforming Environmental Policy: Zycher's Proposal and My Response

A discussion on how to reform federal environmental policy.

Environmental protection is important, but there's a strong argument that the nation's environmental laws and regulations are in need of reform. Over at the Law & Liberty Forum, the American Enterprise Institute's Benjamin Zycher makes the case for reforming environmental policy. Zycher's essay begins:

Environmental protection can be an important government function, in particular because private incentives, as reflected in market prices, often do not capture the full social value of environmental quality, or perhaps more precisely, changes in that quality. In the standard analytic framework, private actors cannot capture the value of environmental improvements, or do not bear the full costs of environmental degradation, unless "transaction" (negotiating) costs are zero, so that resulting environmental quality is lower than the optimal level.

At the same time, the political incentives shaping environmental policies and their implementation are hardly immune from various kinds of distortions, the upshot of which is promulgation of environmental policies that might be too stringent, insufficient, or counterproductive. Given that such policies have the effect of transferring wealth among interest groups, economic sectors, and geographic regions, it is not difficult to predict that the complex congressional bargaining process yielding actual policies might fail systematically to result in "optimal" outcomes, particularly given the shifting nature of majority coalitions.

After diagnosing the failures of contemporary environmental policy, Zycher suggests two possible reforms: modifying the National Environmental Policy Act and abandoning Chevron deference.

In my reply, I endorse much of Zycher's critique of contemporary policy, but I express skepticism about his proposed solutions. In particular, I am skeptical that NEPA reform and the elimination of Chevron deference would do much to improve federal environmental protection efforts.

There are many reasons why so many regulatory interventions do not achieve their environmental goals, and Zycher is also correct that policymakers lack sufficient incentive to make things better, particularly at the federal level. The economic stakes of environmental policy decisions can be quite substantial, creating ample incentive for rent-seeking. Powerful economic interests have much to gain from ensuring that environmental measures suppress competition and increase profits.

Improving these efforts requires dramatic reform. It should begin with the wholesale rejection of the dominant "market failure" paradigm upon which most regulatory interventions are founded.

Resource scarcity and pollution problems tend to arise where the underlying institutional framework upon which markets rely is lacking. Where ecological resources are fully incorporated into the system of private property and voluntary exchange, protected by the rule of law, waste is minimized and resources are used efficiently. Where, however, this underlying institutional framework is lacking—or where transaction costs are high—environmental problems are more likely to accumulate.

Much of the environmental progress of the past several decades can be credited to market-driven technological innovation and the embrace of property-based resource management. As the experience with marine fisheries amply demonstrates, the shift from centralized regulation to property-based resource management generates substantial economic and ecological gains. The catch is that not all environmental problems are so readily amenable to such property-based solutions and, as Zycher notes, the underlying political incentives do not always encourage the adoption of such policies.

Given the broad and deep failings of contemporary environmental law, Zycher has made a curious choice of reform targets: the National Environmental Policy Act and Chevron deference. Reforms in these areas might produce some economic savings, but neither will do much to reorient environmental protection efforts. . . .

While I share Zycher's concerns about contemporary policy, I am not at all sure that he has trained his fire on the proper targets. Reforming NEPA may reduce the time and expense involved in government projects and ease some permitting delays, but it will not address the substantive burdens of environmental regulation. Abandoning Chevron may limit the regulatory ambition of progressive administrations, but it will also hamper deregulatory initiatives and risk a return to the days when federal judges felt more free to dictate regulatory priorities to recalcitrant agencies—a risk that is only magnified by the current and immediately foreseeable composition of the D.C. Circuit.

The primary burdens imposed by NEPA fall upon government directed and funded projects. Thus, reforming NEPA will not do much to free private economic activity from unnecessary or inefficient regulatory burdens. Insofar as NEPA is a problem, it might be more fruitful to find ways of freeing productive activity from NEPA's reach, perhaps by limiting federal involvement.

Chevron deference may have problems, but Chevron is not an inherently pro-regulatory doctrine. Indeed, Chevron was born out of the Reagan Administration's efforts to adopt market-oriented regulatory reforms, and (barring an unusual burst of legislative initiatives) Chevron deference will be essential to any deregulatory moves the Trump Administration tries to make. Whatever arguments tehre are against Chevron deference, the claim that it stands as an obstacle to market-oriented reforms or an obstacle to deregulation is not among them.

Zycher offers a final rejoinder here, where he also responds to reply essays by Patrick Allitt, and William Dennis.