Centralization's key to clean tech development

A. Centralized Federalism Those in favor of centralizing environmental decision making note that federal intervention brings with it a number of important benefits: (i) it is the most efficient way to address spillovers or transboundary pollution; (ii) it provides a degree of uniformity for manufacturers and investors; (iii) it produces economies of scale; and (iv) it promotes distributive justice and a minimum standard of environmental quality, thus preventing a race to the bottom among the states. 1. Interstate pollution and spillovers. Proponents of centralized federalism argue that decentralized environmental decision making can create welfare losses and externalities - costs (or benefits) not fully internalized or priced by the existing market system - that are not easily addressed on a state-by-state basis. n92 In the absence of federal regulation, states [*419] have an incentive to pollute excessively because they are able to externalize the costs of pollution while maintaining the economic benefits of the activities that produce that pollution - such as jobs and tax revenue. Daniel C. Esty argues that "when problems are transboundary in scope, and especially when jurisdictions are in separate countries, decentralized enforcement breaks down entirely." n93 Therefore, "because state boundaries often do not fully encompass airsheds and watersheds, interjurisdictional externalities arise. Given a fixed extent of pollution, it is axiomatic that decentralization will create more borders and therefore more transboundary spillovers." n94 Empirical evidence - along with economic theory - suggests that states and industries will under-provide public goods and positive externalities (because these go uncompensated) but will over-produce negative externalities (because their cost is distributed throughout all of society). "For example, prairie potholes in South Dakota perform various ecological functions. Some of these functions, such as providing habitat for migratory waterfowl, may provide substantial benefits to residents of other states for which South Dakota is not compensated." South Dakota thus lacks a full incentive to sufficiently protect and manage Prairie potholes. n95 "Similarly, ... the existence of Yellowstone National Park provides benefits to all American citizens for which Wyoming and Montana are not compensated." They thus lack the incentive to invest fully in conserving the park. n96 Along these lines, Thomas W. Merrill notes that state environmental policymakers have been reluctant to pursue meaningful regulation of transboundary or interstate pollution. n97 Merrill has identified six factors complicating state efforts to address such "spillover" pollution. First, states often disagree on questions of attribution and whether a source state is legally [*420] responsible for pollution emanating from its facilities. Second, states disagree on questions of causation, or on what standards of proof are appropriate to establish that their pollution injured another state. Third, they differ on questions of standard care and liability, or on whether or not the source state causing injury has acted unreasonably or negligently. Fourth, even when these first three factors are agreed upon, most states will disagree over an appropriate remedy or course of action. Fifth, most states have a litigate-or-settle mentality, and are therefore reluctant to engage in lawsuits given uncertain outcomes and expenses, especially losses in the form of attorney fees and costs. And sixth, few cases of pure or unidirectional transboundary pollution exist. Instead, all states involved in negotiations are usually responsible for pollution going somewhere; that is, pollution is reciprocal. Most states will therefore ignore such problems completely rather than risk admitting liability once discussions about interstate pollution commence. Given that these six factors often compound together, Merrill concludes that the reality is that a legal system does not act like a machine, automatically churning out the prescribed response to identified problems. Instead, it represents a kind of regulatory commons, where effective action is dependent upon alliances of groups overcoming collective action barriers and pressuring administrators to respond. If structural factors act as an impediment to achieving effective regulation in the international arena, it is not unlikely that they will also frustrate effective collective action within a developed legal system. n98 Christina C. Caplan adds that addressing environmental spillovers in a decentralized system is virtually impossible for a number of reasons: First, leaving states to negotiate solutions amongst themselves is time-consuming and costly. Second, negotiation alone may be ineffective, since upwind and upstream states do not suffer the social costs of pollution, and thus have little political incentive to take these costs into account when setting their environmental policy... . Third, downwind and downstream states have little bargaining power with upwind and upstream states. Their only leverage is the threat of a nuisance suit, but such litigation is [*421] time-consuming, expensive, and likely to fail on issues of causation. n99 In this "regulatory commons," states from which pollution originates have little incentive to curb interstate pollution since they benefit from externalizing the harmful effects while enjoying the economic benefits of polluting. Bilateral exchanges and bargaining between the source state and injured states to minimize losses from the spillover are costly, and the position of the injured states is typically weakened precisely because of the dispersion of pollutants. Ultimately, as Rena I. Steinzor notes, devolution, taken to its logical extreme, will cause unacceptable - and irrevocable - harm to [people's] core interests. For state and local officials, unrestricted devolution means that they must shoulder primary responsibility for solving difficult problems, including transboundary pollution. For industry, unrestricted devolution could mean either that chronic violators gain competitive advantage in states with weak enforcement or that a patchwork of expensive and contradictory state regulation emerges. And for the public, unrestricted devolution means not only losing ground in our steady progress to protect the natural environment, but postponing, once again, the long-overdue campaign to conquer maladies ... that so severely diminish the enjoyment of life. n100 2. Uniformity and consistency. Advocates of centralization point out that single federal standards make for a more efficient regulatory environment than a multiplicity of state standards. Differing state standards tend to heighten barriers to interstate trade, and uniformity helps manufacturers and industry by providing a consistent and predictable statutory environment. n101 Proponents of centralized [*422] federalism point out that centralization and uniformity can, in some situations, reduce social costs. A single national currency is cheaper to use than fifty separate state currencies. A uniform national gauge for railway tracks makes more sense than a patchwork of competing rules. Consider the history of daylight saving time, a mechanism recently utilized by the federal government to reduce energy consumption. For a brief period in the late 1950s, Minnesotans waged a battle over whether to adopt daylight saving time. While a majority were in support of "fast time," as it was called then, rural farmers complained that they could not get into the field any faster, "because the morning sun does not dry the dew "on daylight savings time.'" n102 Unwilling to take a firm stand either way, state legislators passed a bill that allowed some counties to adopt their own rules. In the meantime, an alliance of movie theater owners, worried that people would not go to the movies when it was light out, sued the state. Their efforts backfired when the Minnesota Supreme Court issued a ruling that barred counties from adopting a different time from the rest of the state and encouraged the state legislature to resolve the issue. But, in a contortion of legal reasoning that would make a justice's eyes cross, the state's Attorney General declared that the high court's action could not be enforced against counties that kept whatever time they wanted. The result was that some parts of the state were on a different time than others - including within the state capitol, where the Governor's Office adopted daylight saving time, while the Legislature and Supreme Court remained on standard time. n103 Minnesota's rebel counties were joined by others across the nation, until a tangle of state and local legislation created as much confusion as a British farce. At one point, if you drove the thirty-five miles from Steubenville, Ohio to Moundsville, West Virginia and wanted your watch to keep local time, you would have to change it seven times en route. n104 The chaos created by multiple time zones could not stand for long. Congress tired of the hodgepodge of time zones dividing the [*423] nation and in 1966 passed a law that preempted the states and made daylight saving time uniform across the country. Under the 2005 Energy Policy Act n105 signed into law by President George W. Bush on August 18, 2005, daylight saving time was moved up to the second Sunday in March, starting in 2007, in an effort to reduce peak electricity loads in the Midwest and Northeast. n106 Thus, Steven G. Calabresi comments that "sometimes variety is not the spice of life; as to some items it may be a downright nuisance and an expensive one at that. National government eliminates these potential deadweight social costs with general gains in social utility as a result." n107 In terms of environmental policymaking, it may make sense in some circumstances to have single, harmonized standards instead of multiple, confusing rules and regulations. 3. Economies of scale. Absent centralized regulation, independent state regulators can duplicate each other or engage in time-consuming and complex negotiations to divide labor and resources. Technical capacities such as data collection are generally weakened by devolution. Advocates for centralized federalism conclude that "it makes no sense to ask every state, city or town to measure the level, size, and type of particulates in its air, determine their connection to respiratory failure and other health problems, identify the safe level of emissions, and design cost-effective policy responses." n108 The federal government is much better suited for "data collection and quality control, fate and transport studies, epidemiological and ecological analyses, and [highly technical] risk assessments" because of its fiscal power and established research organizations. n109 As one prominent example, consider that the National [*424] Weather Service, a federal agency that "measures rainfall with more than 10,000 gages nationwide, providing data for weather and climate forecasts," and collects snowfall data in cities and rural areas at more than 670 sites. n110 A state-by-state approach towards such a complicated task would present immense transaction costs for building facilities, improving forecasting techniques, and sharing data. As a second example, consider acid rain. Technically referred to as "acid deposition," acid rain "occurs when sulfur dioxide or nitrogen oxide emissions undergo a chemical reaction in the atmosphere and become sulfuric or nitric acid." n111 Emissions in the case of sulfur dioxide first change to sulfates, fine particles that can be transported hundreds and even thousands of miles. Sulfur dioxide can return to land in dry form, becoming sulfuric acid when inhaled or moistened, or as acid rain when washed out of the atmosphere by precipitation. Researching such a complicated form of pollution is especially difficult given that the process converting pollutant emissions into acid rain occurs at high altitudes, and that "prevailing winds often carry the damaging precipitate far from the source." n112 Thus, polluting states have little incentive to study the atmospheric science behind acid rain because polluting regions are not the polluted ones. Furthermore, proponents of centralization note that in highly technical areas like energy and the environment, "although many states may benefit from better information, no state may have an incentive to provide this information on its own" n113 - and none has an incentive to research the situation in other states unless they are directly suffering from the effects of transboundary pollution. The states thus lack sufficient incentives to provide public goods, such as scientific or economic research, that would improve their decision-making capability. Even when they do, their expertise will be tailored to their unique situation and not [*425] necessarily applicable in other areas of the country. Federal information collection can better assess interstate problems, and create a unified set of indicators, making up for disparities in the funding of state environmental programs. Thus, federal regulation can reduce transaction costs related to collection of data, standard-setting, and research and development.