HYPOTHETICAL:

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HYPOTHETICAL International Manufacturing Corp.
(IMC) wishes to purchase Atlantic Circuits a
circuit board manufacturer with plants in Mexico
the U.S. and Germany. IMC believes that it can
operate the plants more profitably by expanding
production and streamlining costs. What sorts of
pollution control and permitting requirements
must IMC worry about
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• Today
• Why do governments regulate for environmental
  health and safety protection
• How do governments regulate for environmental
  health and safety protection
• IMC/Atlantic Circuits scenario
• Different approaches to regulation

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Why Regulate Do you support laws that regulate
private activity to protect the environment Why

• because pollution is morally wrong
• because pollution harms people directly
• because pollution harms people indirectly
• because pollution harms other living things

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• ENVIRONMENTAL ECONOMICS
• KEY IDEAS
• Externalities
• Public Goods
• Characteristics of public goods
• Tragedy of the Commons
• Free rider problem
• Prisoners Dilemma

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Who Regulates Federalism National Government
why national standards Local Government
Uniformity/efficiency Transboundary
pollution Sophistication/ capacity race to the
bottom local administration proximity to
costs and benefits of pollution and its regulation
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• Alternative Regulatory Approaches to Pollution
  Problems
• Command and Control Regulation
• Ex ante proscriptive and prescriptive rules
• Enforcement deterrence
• 2. Incentives-based Regulation performance
  standards
• Ends prescribed means left to firms
• Marketable permits and taxes (EU carbon tax US
  acid rain program Kyoto and CO2)
• 3. Liability-based approaches (polluter pays)
• 4. Information Disclosure
• 5. Voluntary Codes

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Command and Control Model Pollution
Permitting Standards prescribe how much pollution
may be emitted and under what circumstances via
a permit Air pollution (e.g. US Clean Air Act
or CAA) Water pollution (e.g. German water
law) Integrated (air water land) pollution
(e.g. EU IPPC Directive)
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• Water pollution from the IMC/Atlantic plant
• TSS
• BOD COD
• Metals
• Other toxics organic solvents

• Air pollution from the IMC/Atlantic plant
• SO2
• NOx
• Metals
• PM
• CO2

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• Pollution Permitting What kind of standards
• Technology-based What amount of pollution
  control is possible Feasible Economical
• By pollutant By industry By firm
• Environmental Quality-based How much
  pollution can the receiving environment take
  How much should it take
• How are these environmental goals achieved Is
  progress being made

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• German Federal Water Act (just like the U.S.
  Clean Water Act)
• a permit for wastewater discharge may not be
  granted unless such discharge satisfies certain
  minimum requirements best available technology
  which are to be met everywhere in Germany
  irrespective of the quality of the waters
  (uniform emission standards differentiated
  according to sectors of industry).
• More stringent requirements and even bans on
  discharges can in individual cases be imposed by
  water authorities in the light of immission
  considerations in order to safeguard the water
  quality envisaged for specific water uses.

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• Holistic or integrated approaches
• The EU IPPC Directive
• Cross-media approach
• Mandates national regulation
• Permitting
• BAT limit values
• environmental quality planning and EQ-based limit
  values where necessary

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National standards applied locally through
individual permits
U.S. state environmental agencies
German lander environmental agencies
BAT/EQ-based air and water pollution standards
IMC/Atlantic Circuits
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Enforcement
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• Enforcement
• Civil Enforcement
• courts
• administrative fines
• Criminal Enforcement
• Should environmental violations be punished as
  crimes Why or why not
• When should government use criminal enforcement
  in response to environmental violations

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UNEP (2000) Latin American laws intended to
regulate the use of natural resources often
include provisions to punish non-compliance.
However the rules and regulations often include
no criminal or administrative sanctions. An
exception is the Brazilian Environmental Crimes
Law passed on March 1998 perhaps the most
modern legal text focusing on environmental
crime. Rules and regulations are hard to enforce
because many institutions cannot monitor
compliance and systematic enforcement can have
negative economic effects.
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• Brazilian Environmental Crimes Law criminalizes
  conduct which causes or may cause damage to the
  environment including
• to  kill hunt capture or use any animal species
  
• to inhibit the reproduction of animal species
• to conduct painful or cruel experiments using
  animals
• to cut trees in forest reserves to cause damage
  to such reserves and to cause forest fires
• to extract minerals from public forests without a
  license. 
• to damage or destroy Brazils cultural heritage 

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Problem lack of enforcement and monitoring
resources no credible threat of penalty
undermines deterrence Response high profile
enforcement cases to make an example of
violators. NGO enforcement
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Incentives-based Regulation
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Global Warming Hypothesized Relationship
FUTURE EFFECTS
GLOBAL WARMING
GHG EMISSIONS
Is the climate changing
If so are GHGs the principal cause
Will the costs of global warming exceed the
benefits
Will the benefits of stopping or slowing global
warming exceed the costs
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To reduce pollution emissions why prefer
marketable permits to the traditional CAA
approach
TRADITIONAL APPROACH Regulators want 30TPY
emissions reduction Co. A Co. B Co. C
must each reduce 10tpy 10tpy
10tpy _at_4/ton _at_3/ton _at_1/ton pollution
reduction cost TOTAL COST 40 30 10
80/yr.
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MARKETABLE PERMITS Regulators want 30TPY
emissions reduction Co. A Co. B Co.
C _at_4/ton _at_3/ton _at_1/ton If each company is
allocated pollution rights (permits) equalling
last years emissions minus 10 tons. They can
either spend money to pollute less or buy or sell
their existing rights to pollute. C overcomplies
(i.e. reduces its pollution by 30 tons) and
sells to B and A the excess rights to pollute.
Costs incurred 30 (plus transfers A/BC).
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U.S. Acid Rain Program
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Should IMC/Atlantic expect to be involved in
emissions trading Will it have to pay
environmental taxes

• GHG trading (Europe vs. elsewhere)
• Fossil fuel combustion
• GHGs covered
• carbon equivalents vs. GWEs
• Kyoto and the CDM

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• Environmental Taxes taxes force firms to
  internalize pollution externalities
• Carbon or btu taxes
• Volumetric wastewater taxes
• UNEP (2000)
• In 1997 Brazil approved a National Law of
  Hydraulic Resources which includes water charges
  .

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Environmental Taxes German Wastewater Charges
Act The Wastewater Charges Act of 1976 (last
amended in 1994) provides that a charge shall be
payable when wastewater is discharged directly
into a body of water. The charge is the first
eco-tax levied at the federal level as a steering
instrument. It ensures that the polluter-pays
principle is applied in practice since it
requires direct discharges to bear at least some
of the costs that their use of the environmental
medium water involves.
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• What if during its pre-acquisition
  investigations IMC finds that
• Atlantic had leaking underground hazardous waste
  storage tanks which have since been removed
• Atlantic hired an inexpensive contractor to
  dispose of its hazardous waste but the waste was
  dumped illegally (without Atlantics knowledge)
• Drums of toxic chemicals with Atlantic labels on
  them were found buried under a childrens
  playground

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• Polluter Pays Liability
• What does it mean to make the polluter pay
• Who should pay
• one who violated the law by releasing hazardous
  material to the environment
• What if polluter acted legally
• one who acted carelessly
• What if polluter was careful

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• Polluter Pays Liability
• What does it mean to make the polluter pay
• Who should pay
• one who benefited by shifting pollution costs to
  the environment/society
• Does company who generated wastes always benefit
  from improper disposal
• One who benefits from cleanup
• Landowner Does it depend

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• Environmental Auditing and Management
• What is environmental auditing Why might firms
  spend resources on this task
• What is environmental management Why would
  firms want to use these techniques
• What if anything should regulators do to
  encourage firms to use these techniques

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ENVIRONMENTAL LAW Voluntary Codes International
Codes Voluntary Industry Codes ISO
14000 Responsible Care/CMA EMAS National
Voluntary Codes E.g. Netherlands How and why
do voluntary codes arise
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International Trade and the Environment

• NAFTA Preamble
• pledges free trade consistent with environmental
  protection ... and sustainable development
• pledges to strengthen the development and
  enforcement of environmental laws and
  regulations.

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• Free Trade
• Short term Race to the bottom
• Longer term Race to the top
• NAFTA WTO and the extraterritorial application
  of law
• product characteristics
• product production process
• Who brings complaints under WTO/GATT

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• Venezuela v. U.S.
• What disparate treatment is alleged Is this
  discrimination in your view

Gasoline rule individual refinery baselines vs.
statutory baseline Did the rule treat foreign
gasoline differently Exceptions XX(b)
(necessary to protect environment) and XX(g)
(conservation of exhaustible resources)