The economics of risk
June [?] 1986
Illinois Issues introduction: The economics issue in the debate on controlling toxics may never be clear-cut unless the public accepts the premise that the price of the modern world and its products of convenience carries an extra price tag to assure the greatest safety. In this fourth article on toxics and risk, the author discusses how economics figures into the calculations of business, environmentalists, politicians, and regulators. Some take the long view, others the short when adding up the economic effects of regulating toxics—and not regulating them. Further complicating any computations is the reluctance of government to place an economic value on human health, but toxics do exist, and by definition they are poisonous to humans.
This article is one of a five-part series. For more, see "Toxics and risk" on the "Nature & environment" page.
John Marlin, the veteran environmental lobbyist who now sits on the Illinois Pollution Control Board, has some neighbors who walk their dog every day. The dog leaves mementos of its trek on Marlin's front lawn, and by doing so leaves Marlin with an unwelcome confirmation of an economic law. "My neighbors get the benefit of exercise and companionship," Marlin explains, while Marlin pays the costs of shoveling the stuff off his lawn. "Extrapolate from that dog poop and you have a typical environmental problem," Marlin concludes, smiling. "The price of a particular good or service in no way reflects its total social costs."
In Marlin's version, the public are the dog walkers, industry the dog, and government the harried homeowner chasing after both with a shovel. To apportion better the costs and benefits of the use of toxic industrial substances is the implicit aim of pollution control programs. The principle of economic responsibility underlying existing pollution programs is simple: The polluter pays. But who is the polluter? The company that creates a toxic product or by-product or the consumer who buys it? What if the polluter can't pay? Should the costs of not polluting be borne by the customers of the product, the shareholders of the company or the general population which benefits from a cleaner world? Is it appropriate even to consider dollar costs when human life is at issue?
Those traits that render toxics so troublesome toxicologically—their persistence, their variety, their potency, their ubiquity—makes the economics of their production and control just as complex. Some analysts have found it useful to consider toxic pollution as an economic problem with environmental consequences rather than the reverse.
According to classical economics, when the costs of producing a good or service are reflected in the price paid for it, an economy may be said to be functioning efficiently, and the net social welfare is improved. Price becomes a brake on socially destructive activity. Those elegant rules perfectly govern only the world that exists in textbooks, not the messy and imperfect one outside them. There, price mechanisms often don't do a good job of reflecting all the so-called external effects of production such as the damage to health and property caused to third parties by pollution. Those costs must be paid otherwise, by the parties themselves or by taxpayers acting on their behalf—a nonproductive and thus inefficient use of resources.
The failures of the pricing mechanism provide the rationale for government intervention in the economy. "The object of environmental regulations," writes Ken Costello, an economist with the Illinois Department of Energy and Natural Resources (DENR), in a 1985 study, "should be to decrease damages (risks) when this produces a net benefit for society." The immediate aim of such intervention is social welfare, not economic efficiency, which is one reason why, by classical economic standards, regulation tends to be woefully inefficient. The failures of economics set the regulatory agenda, in other words, and the failures of regulation complicate economics.
As Richard J. Carlson, director of the Illinois Environmental Protection Agency (IEPA), puts it, toxics tend to migrate to the point of least regulation. Regulation can limit the lawful disposal opportunities available to generators of toxic industrial wastes; similarly, toxic products become subject to this amendment of the laws of supply and demand by protective restrictions of their sale or use. The price of each is driven up, which in turn provides a disincentive for their use and creates markets for cheaper alternatives.
The point of least regulation, of course, also is the point of least cost to the polluter. Less regulated waste disposal technologies thus enjoy a cost advantage. Land disposal, for example, being out of sight, was generally out of mind until Love Canal, N.Y., and Wilsonville, Ill.; technologies no more complex than a bulldozer were then required to comply with the rules that then governed the practice. More stringent recent standards for construction and monitoring have pushed the cost of opening a new 200-acre hazardous waste landfill in Illinois in the mid-1980s to between $8 and $12 million, according to industry estimates. Even so, landfilling remains relatively cheap; cost comparisons are not much more than guesses, but the best guesses show that incineration or chemical deactivation of each metric ton of highly toxic wastes to be as much as 30 times more expensive than landfilling. That landfilling of toxics has declined since 1980 may be attributed to the fact that the costs of doing so have gone up; the fact that landfilling continues at all may be blamed on the fact that its costs have not gone up enough.
The price one pays to buy a gallon of toxic waste does not reflect all the long-term costs associated with its burial. In a recent position paper, the Illinois Environmental Council stated, "The state in effect subsidizes landfills because landfill operators are not made to pay the total costs of operation." The reference in this case was to landfills for ordinary garbage, but the same is true of land disposals of more acutely toxic waste. Lax design standards and inadequate financial guarantees of post-closure care by the owners mean that the potential costs of contamination and cleanup (including illness) along with the costs of shifting to alternate water supplies or declines in adjacent property values, will have to be paid by nearby residents and/or their local governments. Downstream damages to fisheries or drinking water supplies were an immediate spur to regulation in the 19th century; it is only recently that it has been recognized that pollution costs can be pushed "downtime" as well: The acids dumped on bare ground atop an aquifer 50 years ago may only today be infiltrating drinking wells, and the cancer diagnosed today may be the result of exposure on a job 20 years ago. Private costs are thus transferred to both present and future publics.
Markets are dynamic, and the regulatory process anything but. The migration of toxics from one lowest cost disposal medium to another has looked at times like a cross-country chase, with regulators usually bringing up the rear. Regulators in Illinois have learned to anticipate the effects of their rules on the flow of toxics through the economy. For example, the impending general ban on the landfilling of hazardous waste in the state scheduled for 1987 is expected to accelerate a shift toward alternate disposal methods such as incineration, which began a few years ago with the gradual imposition of tougher landfill design and monitoring standards. Banning waste burial in the earth accomplishes little if it ends up being buried (figuratively speaking) in the sky instead. That is why the IEPA submitted for Illinois Pollution Control Board approval a set of what the agency calls the most comprehensive state regulations of toxic air pollution in the country.
Economists concern themselves with the macroeconomic effects of regulation, the net social benefits "downstream." Plant managers are concerned about what might be called the upstream effects, or regulation's microeconomic effects on this factory or that county. The dilemma for regulators is thus posed: The economic benefits of polluting tend to be concentrated while the costs tend to be diffused. Put another way, the unregulated market tends to maximize short-term private profit at the expense of long-term public profit. Regulators, not surprisingly, often find themselves up to their necks in midstream as they try to alter the arithmetic of such transactions.
While many toxics control regulations are ultimately backed by criminal penalties, regulators more typically resort to economic means of suasion. The threat of financial damages from civil suits is one such persuader, along with fines levied for non-compliance, denials of permits (which prevent firms from using a productive resource), forfeitures of performance bonds, disqualifications of firms as bidders on government contracts, and tax reductions via deductions and credits on certain pollution control equipment.
The aim of incentives is to persuade corporate citizens to undertake a socially beneficial action by making it financially beneficial as well. Unfortunately, practice often confounds the principle. For example, more than a few regulations are adopted for their symbolic political value, without regard for their economic effects. Congress, the states, the courts, and the USEPA often differ in their interpretations of key anti-pollution statutes. In some cases the mechanisms which might achieve a given desired result are politically suspect because they require regulatory intrusions into the production decisions of the private sector; in other cases, such as proposed state bans on leaf-burning, they are regulatory intrusions into the habits and convenience of too many citizens.
What one person calls an incentive often looks very much like a bribe to someone else. One needn't be a radical environmentalist to ask why polluters deserve incentives to do what public policy obliges them to do anyway. Incentives thus may be seen as little more than ways to offset costs from the public purse which are more properly borne out of private ones.
Such incentives have a long if not noble history. A recent example is the massive subsidies paid to municipalities in the 1970s for the construction of sewage treatment plants needed to comply with Clean Water Act standards. Especially when the economy is sluggish, the principle that the polluter pays gives way to a more pressing political question: Are private purses deep enough?
The direct yearly costs to industry of installing and running various pollution control equipment, mainly for the control of conventional pollutants, are estimated already to run to as much as $200 million in Illinois. As stricter toxics control regulations are gradually approved and applied, such costs can only increase. A recent estimate by the Congressional Budget Office suggests that overall compliance costs for all industry in the United States could nearly double from 1983 to 1990, and there is little reason to think that the increase in Illinois would not be proportional.
That estimate of costs includes only money paid out by business. It does not count money which fails to come in as a result of pollution spending. Firms selling in very competitive markets (especially firms facing competition from less regulated foreign companies) are often unable to pass on cost increases to customers without losing sales. Absorbing such costs may mean trimming profit margins, laying off workers, or deferring investment in new plants.
Costs imposed by regulation, in short, have the same kinds of effects on a firm's competitive advantage as any other cost of doing business. This issue of degree remains unsettled. There are no reliable studies of the relationship between toxics regulation and job loss in Illinois nor of Illinois's competitive situation in general; national studies show only a modest increase in job loss due to conventional pollution controls since 1971.
In fact, the link between toxics regulation and job loss resembles that between casual exposure to most toxic substances and human disease, being plausible and worrisome but still largely unproven.
In the absence of proof, Illinoisans are opting for prudence. What Tom Reid of the Illinois Manufacturers' Association says about community right-to-know laws has been said by most industry spokesmen about most toxic regulations: "Our big concern is, will it increase costs for Illinois manufacturers? We have to be competitive."
John Marlin of the rule-making Pollution Control Board is sympathetic. "The board is not at all interested in shutting down industries or eliminating jobs." Variances are granted to specific plants for which compliance with any board rule is likely to cause hardship. Marlin continues, "We're not going to shut down a major industry if there is not a control technology available to enable them to meet standards."
Jobs are not all that are at stake. A safer environment offers its own conventional economic returns on investment. Marlin recalls driving to Chicago along Route 66 from Peoria as a boy.
"We'd hit Joliet and we'd see this brown pall hanging over the city. Our eyes would begin to water, and soon one of us would cough. You felt as if your skin was peeling off. Today it's a rare day when those brown palls appear. These quality of life issues are important economically," Marlin explains, because people who consider building a factory in Illinois have to consider living here as well, and home is a little less like heaven when the tap water tastes like paint thinner.
Toxics control profits
Toxics controls offer some unconventional economic returns as well. A few years ago, environmental attorney Jim Yoho spoke at a public meeting to urge the application of strict emissions controls on a planned incinerator at the University of Illinois. "How many athletes are going to want to go to the U of I and play downwind of carcinogenic emissions?" Yoho asked of the student newspaper, adding, "Such emissions would hurt the university's chances to play in the Rose Bowl."
The trade in toxics, like the trade in gasoline or grapefruit juice, is sensitive to price. As regulations make the handling, consumption and disposal of toxic substances more costly, companies and consumers alike will tend to use them less. The landfilling of hazardous wastes, for example, has declined dramatically in Illinois. In 1980, four-fifths of such wastes reported to the IEPA's waste tracking system were buried; by 1984 the portion of that waste category so disposed had fallen by half, to two-fifths.
With cheaper options for the use, transport and disposal of industrial toxics gradually being closed by regulators, a few managers are abandoning the traditional Three D's of corporate pollution policy—Damn, Deny and Delay—in favor of the new Three R's—Reduce, Reuse, Recycle.
Process changes or substitutions of raw materials can reduce the amount of toxic materials needed for production. If the volume of hazardous materials used can't be reduced, the volume of wastes which must be shipped away and landfilled can be, through on-site treatment and/or reuse. The Moline-based Deere & Co., reports reductions in the volume of toxic waste amounting to 80 percent in recent years. Deere engineers designed and built the company's own treatment plant which can remove heavy metals and oils from up to two million gallons of liquid waste a year, leaving behind a chemically neutered, land-disposable sludge. The facility has returned a profit on investment of 40 percent, measured against 1980 landfilling costs; the company hopes to license its design to other firms.
In some cases, the potential for the in-house capture and reuse of such products is sizable. One such effort has focused national attention on Allied Corporation's chemical plant in Metropolis in Massac County. Instead of storing caustic calcium fluoride in ponds, the company has devised a process to recycle that waste into hydrofluorine acid, a key raw material used in the plant. The system cost $4.3 million to build, and Allied officials expect it to pay for itself in just four years, both in reduced waste storage and raw materials costs.
Just as an old pair of shoes grown too small could be given to the little boy next door, so Illinois business has taken to trading what it can't reuse. In 1981 the IEPA and the Illinois State Chamber of Commerce (ISCC) set up the state's Industrial Materials Exchange Service (IMES), an information clearinghouse by which prospective customers are informed about the availability of unwanted materials (including surplus goods as well as hazardous wastes). Margo Siekerka of the IEPA reports that in 1985 some $7 million worth of materials thus changed hands.
The potential for profit from pollution clearly exists, but few firms are likely to find the alchemist's potion, as Allied did, which will turn waste into gold. Smaller firms tend to be hardest hit by waste reduction requirements, especially those operating with aging plants and which have limited access to capital and expertise needed for plant modifications. Such firms contribute only modestly to the state's pollution load (perhaps one percent of its hazardous wastes, according to IEPA estimates). The economic costs of compliance would be expected to fall heavily, however, on the thousands of dry cleaners, plating firms, garages, tree sprayers, print shops, and laboratories that generate small quantities (less than 220 pounds per month) of toxic leftovers.
Such firms have been subject to state hazardous waste disposal regulations since 1979. Gary Miller of the Illinois Hazardous Waste Research and Information Center recalls a trip he made to Chicago in the fall of 1985 where he discussed the federal Resource Conservation and Recovery Act (RCRA). "I spoke to the Center for Neighborhood Technology at a meeting they had for electroplaters and food processors about the [1984 amendments which made many such businesses subject to] RCRA requirements. They told me that one electroplating firm goes out of business in Chicago every month. They turned to me and said, 'We need help.'"
The state of Illinois has been more sympathetic. The Illinois Environmental Facilities Financing Authority, for example, was set up to issue low-cost revenue bonds to help pay for equipment designed for the reduction, recycling, and reuse of toxic industrial wastes. Other such equipment can qualify for a further subsidy in the form of an exemption from the state sales tax.
Subsidy for equipment which doesn't exist yet is not much of an incentive, however. A bipartisan consensus has boosted a state-backed research and information service aimed at the bewildered Illinois business. The Hazardous Waste Research and Information Center was set up in 1984 roughly along the lines of the Cooperative Extension Service, the public-supported technology-transfer system that links the individual Illinois farmer with a network of agricultural experimenters. Funded by the fees levied on hazardous waste disposal facilities, the center shares with its agricultural model the belief that economic well-being is an expression of the sound management of a productive resource.
"We're here to help industry clean up its act," explains director David Thomas. "It's hard to put an economic evaluation on some of the things we do. We tell a company to take some housekeeping steps, like not storing certain materials together. Simple things, but they can prevent an accident and make the workplace safer for workers, and in some cases reduce the waste that's produced. It may look like we're pro-industry, but these things prevent waste generation, which is what environmentalists want, too."
The economic anxiety of the politically connected has always been felt rather keenly in Springfield, and those anxious about the costs of toxics control are no different. The General Assembly tends more toward economic rather than regulatory solutions than does the Congress. The authors of the state's pioneer Environmental Protection Act of 1970 established economic reasonableness as a criterion of its environmental programs. In fact, the General Assembly has seen its role largely as mitigator of federal regulations' punishing economic effects on Illinois business. And Gov. James R. Thompson as long ago as 1979 was calling for "balance between the ideal of a perfect environment and the realities of an industrial society."
Regulators, however, cannot endorse the governor's suggestion that environment and economy are separate entities. One of the realities of an industrial society is that people get sick from pollution; one of the prices of a perfect environment would be unemployment, which exacts its own costs in reduced nutrition, depression, alcoholism, and family violence. In some cases a concession of economic limits to regulation is implicit in the language of the statute; such an instance is the injunction in the federal Toxic Substances Control Act of 1986 to control only those substances which pose what the act describes (but does not define) as "unreasonable risk."
True, other statutes specifically establish human health effects as the sole allowable criterion for regulatory standards. But the letter of many an environmental law is violated in the process of trying to preserve its spirit. IEPA director Carlson points out that if an agency with only limited funds controls Toxic A to a vanishing point, it will consume agency resources needed to control Toxic B which may pose health risks just as dire. "We make cost judgments all the time," he says.
Carlson points by way of example to the problem caused by naturally occurring radiation which poisons some drinking water wells in Illinois. According to the relevant federal standard-setting protocol, the recommended maximum contaminant level for known human carcinogens is zero. Rendering public water supplies so innocent of many such contaminants is technologically impossible; when it is not, the costs of doing so can be onerous. Thus the federal rules allow the cost and technical feasibility of treatment to be considered. "That's why we have a five pico/Curie per liter standard instead of zero," Carlson explains. It is a standard, he adds, which would be expected to produce one additional case of cancer among a million thirsty people who drank two liters a day of the affected water every day for 70 years.
Toxics control standards thus confirm a general rule of environmental protection, which is that you pay for what you get. As the Congressional Budget Office confirmed in 1985, standard-setting for toxics "does not take place in a vacuum, and . . . a great deal of economic judgment is implicit, if not explicit." DENR's Ken Costello goes further, stating, "Any sound environmental policy should implicitly balance costs and benefits." "Costs" in this sense include not just direct and indirect costs to business and industry, but the cost to public bodies and the economic dislocations caused by the diversion of resources to pollution control.
Formal cost-benefit analyses as a means to establish the most economically efficient health standards are generally precluded by the key federal statutes regulating toxic and other pollutants, although such analyses are widely used in comparing compliance technologies and similar questions. Compliance costs to both industry and enforcing agencies are relatively easy to compute. Benefits are much harder to compute in dollar terms. Many of the benefits derived from toxics controls are deferred (the prevention of cancers for instance) until years after the cost of control has been incurred. Similarly, the costs of bans on the landfilling of certain toxics such as halogenated compounds, such as have been in effect in Illinois for some time, will realize a benefit at some unknown future date when that landfill does not leak and does not contaminate water supplies. Analyses so speculative are better done with a crystal ball than a computer, and would probably be at least as accurate.
Analysis is further confounded by the fact that so many of the benefits of a safer environment are, in the economist's jargon, "outside the market." John Marlin is not the only policymaker in Illinois who asks how one can attach a dollar value to an old age free from cancer or the suffering of an asbestos installer dying an early death. One can estimate the reduced earnings of the diminished life of a ghetto kid brain-damaged by lead poisoning, but it is impossible to estimate the value of a life diminished in so many other ways.
The dilemma is moral as well as methodological. By accepting economic limits on controls of a given toxic or class of toxics, regulators, in the words of Pollution Control Board chairman Jacob D. Dumelle, "are in effect authorizing disease by allowing its use." Such a policy is morally repugnant to some, but it is also legally problematic. Victims of environmentally induced illness would in effect be deprived of their rights to life and liberty, and any regulations having that effect would be subject to even closer legal scrutiny than at present.
The implicit valuation of human life in dollar terms goes on all the time, as consumers do when they balk at paying extra for optional safety equipment in new cars. The issue is less whether to put a dollar value on life than whether to do so openly. It is a point on which most regulators would welcome guidance, yet it is usually shunned as outside the bounds of normal political debate.
Until some means of comparing human costs and benefits is perfected, such calculations will continue to be made according to other criteria. Politics will always be a distorting influence (or a corrective one, depending on one's view). Toxics controls, like those imposed in the 1970s on dischargers of conventional pollutants, were first clamped on large industries such as chemicals, petroleum refining, and metals. To some extent this targeting was an inevitable economic decision—more pollution control per permit, so to speak. It also was, and remains, politically expedient. The big corporations are both profitable and politically vulnerable; as Sid Marder of the ISCC puts it, no politician can be seen being helpful to large corporations.
Big companies tend often to be big polluters, of course. But whether they pose a proportionately bigger risk to populations than other less regulated classes of polluters is disputable. (In most cases the estimate has not even been made.) For example, toxic contamination of surface waters by pesticide runoff from farm fields is acknowledged to be a serious problem in Illinois. So is automobile-related smog and lead pollution. Cost-effective means to ameliorate each exist, but none has been applied to date.
William Forcade is a member of the Pollution Control Board where he, like his fellow members, must try to make equitable regulation efficient and vice versa. The USEPA, for instance, has warned Illinois that ozone emissions must be reduced by 21,000 tons or the state will risk the loss of a quarter-billion dollars in highway aid. "If we get all of those 21,000 tons by putting new controls on the coatings industry [a major source of volatile organic compounds which are ozone's percursors], they will go to court and accuse us of being arbitrary," Forcade explains. "If we get it by controls on evaporative emissions at gas stations—well, there are 20,000 gas stations in Illinois. If they go to the General Assembly . . . ." A toxic-free environment is a benefit for which everyone is willing to pay — as little as possible. "The process is a lot like a game of musical chairs," Forcade has concluded, "in which the object is to not be the last person standing."
Level political field
Across the board, equity and efficiency are compromised by political exigencies. The official concern for what has been called "administrative tractability" is only one of the reasons why small-scale waste generators, farmers, automobile drivers, municipal sanitary landfills and consumer convenience services are or were exempted from close regulatory attention. Each affected population is sizable, each faces compliance costs in excess of any immediate individual benefit, and each is able to cite the others' exemption from compulsion as grounds for their own and thus make exemption plausible. However crude the methods used by public health "risk guardians," the science of political cost-benefit analysis is well advanced.
Which polluters earn a regulator's attention is partly the result of statutory mandates, but just as often it follows from agency budgets. Private sector organizations often must choose among competing capital needs in complying with regulatory edicts, of course. In the public sector, decisions about the allocation of economic resources for a given task are largely outside an agency's control. A petrochemical company may have a stingy board of directors, but none has to deal with the General Assembly.
An agency like the IEPA, dependent on appropriations from state and federal budgets, functions in its own highly competitive economic environment. Less money for permit and monitoring staffs often means not just less regulation but a different kind of regulation. Skimpy enforcement budgets tend to bias regulators toward specific control technologies rather than so-called performance standards, for instance, because it is easier (and thus cheaper) to count machines than it is to count molecules.
The breadth and complexity of toxics pollution is leading more informed observers to ask questions about the fundamental nature of current regulatory approaches. In effect they are asking whether those means are appropriate to such an ambitious end. The means most in use currently is the "command and control" type of regulation, in which a public body sets specific emissions limits for specific pollutants administered via a permit system and which are enforceable in the civil and/or criminal courts. When the list of proscribed substances is modest, such regulations, if applied gradually, pose no insuperable administrative or economic difficulties. But when that list extends to dozens of substances (as it already does in the drinking water regulations) or potentially to hundreds, such an approach becomes burdensome to regulator and regulatee alike. As Dave Thomas of the Hazardous Waste Research and Information Center points out, "There are so many regulations that almost everybody is out of compliance somewhere." Such a situation can be taken as evidence of incompetence, malfeasance or bad faith by the parties to regulation, and examples of each are not rare. But regulations which can't be complied with by the well-meaning defeat the purpose of regulation.
Joel Hirschhorn, a senior associate with the Congressional Office of Technology Assessment, told an Illinois waste reduction conference in Chicago in 1984 that a lack of innovation follows inevitably from regulatory bias. Hirschhorn pointed out that the federal RCRA rules (on which Illinois' program, all 1,200 pages of it, is based) favor managing waste over eliminating it. In effect they prescribe bigger and better barn doors while the horses continue to slip out of the barn on the federal rules.
Increasingly, opinion in Illinois and elsewhere tentatively tends toward seeking economic incentives in addition to, if not in replacement of, existing regulations.
A few such incentives are already in place. Indirect state incentives such as tax breaks and research and development assistance have already been noted. In addition, the $6.06 per cubic yard state levy on landfilled hazardous waste functions mainly as a modest revenue-raiser but also serves as an economic disincentive to landfilling.
Such a mixed system can send mixed economic signals to polluters. When the committee on alternative technologies of the Illinois Hazardous Waste Task Force made its report in the fall of 1983, it noted that the four small commercial chemical treatment plants then in Illinois were operating at less than full capacity; much the same under-utilization plagued the state's fledgling commercial incineration business. The committee blamed regulatory and economic factors that steer wastes to landfills and other low-technology disposal methods and urged that fees for land disposal be increased, in effect, making it a less economically attractive option.
Some recycling of regulations may be needed before a recycling industry can get profitably underway in Illinois, according to Jack McVaugh of the Chemical Industry Council of Illinois. McVaugh concluded at the 1984 DENR conference that regulations defining hazardous wastes (which had been toughened by Congress in its 1984 RCRA amendments) were so restrictive that commercial recyclers might end up being officially designated as licensed waste treatment facilities; that is not a status likely to endear them either to investors or to the communities in which they wish to locate.
However much an economic incentives approach recommends itself to economists and administrators, many environmentalists remain skeptical. "When they work, I prefer to see market-oriented measures operate," says John Marlin. "The problem is, how do you make them work?" In the absence of detailed data on the risks imposed by specific waste streams, incentives can be just as wasteful of resources as the regulations they supplant. Costello reluctantly calls "waste end" taxes based on degree of hazards "unworkable at this time."
Just as confounding is the complexity, and thus the uncertainty, of people's economic behavior. "People will not pay more for a product that is made in a pollution-free plant when they can buy the same product made $2 cheaper in a dirty plant," asserts Marlin. He adds, "If you wait for an industry as a whole to respond to changed markets and adopt a certain pollution control procedure, you'll wait a long time. I'm not saying the present regulatory process is perfect, but it does move things along."
At a minimum, economic incentives add to regulators' bag of tools. The state's generally porous geology and its reliance on groundwater suggested the possible risk from leaking landfills; the debacle at Wilsonville suggested their inevitability. The strategic direction of the state's toxic program turned away from land disposal before the Congress followed suit. The state's land disposal fee was in place as early as 1980; later, the IEPA allowed several solvent reclamation and wastewater treatment companies to operate under generic permits rather than the more cumbersome waste-stream-by-waste-stream permits. According to Robert Kuykendall, then manager of the agency's division of land pollution control, the effect of such policies would be "a more competitive posture for treatment versus land disposal in the marketplace." According to IEPA data, the percentage of hazardous waste which was land-disposed was cut in half between 1980 and 1983, while the percentage of such waste that was treated in some way increased tenfold.
How much of this shift can be attributed to state incentives is not clear. Most opinion in Illinois holds that the extended financial liability to which dumpers were held under the terms of the 1980 Comprehensive Environmental Response, Compensation and Liability Act has been much more persuasive. Even if the state's regulators had the impulse, they lack the opportunity so long as states serve as surrogates of federal rule-makers. A Congress distrustful of the Reagan administration's commitment to toxics control is pushing for even more prescriptive regulation; the White House counter-campaign to introduce cost as an ingredient in regulatory proceedings has been repeatedly stymied (mainly in the courts) as violating legislative intent.
Until that historic wrangle is resolved, regulators might recall the cautiously optimistic lesson John Marlin draws from anti-pollution campaigns of the past. "One hundred years ago municipal sewer systems such as we have today were unheard of," he notes, adding that the costs of running them is a routine part of economic life in cities. "In the not-too-distant future, the price of every product will reflect the costs of minimizing, reducing or eliminating the environmental hazard resulting from its production." Until then, regulators will be armed against toxics, however improbably, with carrots and sticks as well as shovels. ●
Economic impact studies in rule-making
"What level of Chemical X should we consider acceptable in a given medium?" asks William Forcade, an attorney and member of the Illinois Pollution Control Board. "The feds demand that the decision be made exclusively on health data which takes into account the effects of Chemical X on the most sensitive individual. Illinois law, however, insists as a general concept that any regulations we approve to control Chemical X should be 'technically feasible and economically reasonable.' " To satisfy the conditions of state law, board members must consider precisely those aspects of a case that federal rules forbid them to consider.
This conflict of priority complicates the work of Forcade and his colleagues on the board. "Say we get a chemical about which we don't have much information and which has the potential for causing great harm, but whose control will have great impact on the state's economy," Forcade says in illustration. "We rehash that issue, six, maybe eight times a year. In many cases the demands on the decision-making process are simply irreconcilable. You can set a number based on health effects alone, and you can set a number based on technological feasibility and economic reasonableness. Seldom will they be the same number." John Marlin, another member of the Pollution Control Board, describes such cases as "individual judgment calls."
The result is a body of regulation that seeks to balance economic and environmental interests where they are seen to conflict, and which in the process seldom fully satisfies the demands of either. The process may never be coherent, but Illinois at least makes an official attempt to make it more convenient. Beginning in 1978, formal economic impact statements have had to be prepared and entered into the record for consideration by the board as part of its rule-making process. Whenever a proposed rule is added to the board's docket, staff from the Department of Energy and Natural Resources (DENR) make a preliminary inquiry of the parties that may be affected to elicit relevant data, such as the costs of compliance and the effects on health. DENR reports this information to the Economic Technical Advisory Comittee (ETAC), which decides whether a full, formal economic impact study is required and what its scope should be. Appointed by the governor with approval of the Senate, each member of ETAC is the representative of a specific interest: labor, public health, commerce, industry, agriculture, local government, and citizens at large. Studies required by the board are performed by private consultants under contract.
The results of the full studies, however, are seldom clear cut. For example, data provided by industry on compliance costs for a proposed regulation usually are comprehensive, but data on health effects rarely are, especially when exposure to toxics is involved. "That sort of thing is very hard to quantify," explains Bonnie Meyer, coordinator of DENR's economic impact analysis program, "but we try to see that these questions are at least addressed in the record." Reliable estimates of the direct and indirect costs of regulation are scarce, and as Marlin puts it, "Often the economic data is no better than the environmental data."
Are such studies worth doing as a result? Marlin concedes that they draw members' attention to aspects of a situation they might overlook. Forcade considers the provision of discrete economic information one of the better things about the rule-making process in Illinois. Other comment is not so flattering. Privately, several officials familiar with the process agree that there is credence to the view that the intent of the 1978 law, which was drafted by and passed with the backing of the state's business communities, was "to slow the process down." In typical cases, the process takes at least a year, from the decision to authorize a study to the end of the post-study period of review and comment.
It should be noted that these studies are advisory to the Pollution Control Board, which is not obliged under the state law to adopt only those rules alleged to have, according to Chairman Jacob D. Dumelle, "a positive financial benefit. ●