Reforming Environmental Regulation

Environmental regulation expanded greatly during the 1970s and 1980s. By requiring firms and consumers to account for pollution costs, the Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act have all limited environmental waste. At the same time, each of these environmental regulations imposes significant costs on the private economy. Although the United States already spends more on pollution abatement than any other industrialized nation, this total is sure to rise sharply in the years ahead.

Significant uncertainties surround environmental issues and the costs and benefits of various means of environmental regulation. For example, in the case of acid rain, studies show that simple mitigation strategies can be much more cost effective than the types of regulatory controls favored by Congress. Similarly, there may exist more efficient alternatives for correcting externalities associated with gasoline consumption. A rise in gasoline consumption increases the nation's vulnerability to oil price shocks and pollution. The most direct way of dealing with such problems would be to impose a user fee per gallon on gasoline consumption that is commensurate with resulting externalities.

The scope and importance of environmental concerns will become more clear as better information becomes available and more effective methods of regulation begin to yield results. At this point, it seems clear that economic incentives decrease compliance costs by allowing firms the flexibility to meet environmental regulations in the most efficient manner possible. With economic incentives tied to environmental objectives, rather than to the means used to achieve them, firms and society in general benefit through a practical approach to protecting the environment.

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