Environmental Regulatory Law: Command and Control Market Based, and Reflexive

Environmental law and policy is critically important and endlessly fascinating. To see its importance, just imagine the United States today without federal regulation of air and water quality, pesticide use, and solid and hazardous waste disposal. No matter how far the nation has come in addressing environmental issues, there remains much to do in terms of environmental sustainability. Federal and state laws have only begun to address such important environmental issues as global climate change, point and nonpoint sources of water pollution, ambient and indoor air pollution, groundwater pollution and groundwater depletion, and fisheries collapse. Scientific uncertainty, market failures, risk tradeoffs, cognitive biases, and fundamental policy disagreements make it extremely difficult to agree on solutions to many of these remaining problems. International pollution issues such as controlling emissions of global warming gases, climate changes, ozone depletion, and transboundary waste disposal are to be integrated with their domestic counterparts. Moreover, the increasingly controversial trade and environmental debates concerning WTO, GATT, and NAFTA, as well as the international trade in hazardous chemicals issues need to be explored. Environmental law and policy already has picked the low hanging fruit. The remaining problems continue to challenge even the wisest and most patient policy experts (Salzman and Thompson 2010).

Orts (1995) lists three types of environmental regulatory laws: command‐and‐control, market based, and reflexive. Each of these types of regulation aims to protect the environment, but each does so by reinforcing and subordinating different ethical and economic values and relationships. Commands and control law sets standards for pollution and imposes fines and penalties for companies that exceed those standards. From a regulator’s point of view, this type of regulation can be seen as following the ethical mandate to strictly enforce the public’s desire for a clean environment. However, from the point of a business person this type of regulation can be oppressive and unrealistic, and violates the freedom of business managers and owners. Orts states four objections to the command and control approach to environmental law.

• “Command‐and‐control depends too much on administrative agencies which are vulnerable to political influence.” For example, environmental protection can be severely weakened if the President appoints directors who do not care about the environment.
• “Command and control is too static.” Technology changes and regulatory agencies cannot keep pace. Another problem is how to set the proper standards for pollution. How do we know what is the right amount of pollution?
• “Command and control becomes too complex and unwieldy.” Regulatory agencies churn out more and more rules, until it becomes virtually impossible to keep track of them.
• “Command and control is too harsh and punitive.” Instead of rewarding and encouraging good environmental behavior, it punishes bad environmental behavior.

Orts (1995) notes that there are some instances in which command and control regulations are in order. They work, for example, if we are dealing with a highly toxic material, such as mercury, that can kill human beings in very small doses. The value of protecting human life clearly outweighs our freedom to dispose of mercury in landfills or water ways. In other areas, such as controlling emissions of coal‐fired utility plants, Orts notes that the command‐and‐control approach has given way to a market‐based approach. This approach reinforces the value of autonomy and freedom, but it has limitations as well. Orts raises concerns about four issues.

1. “Pollution charges and taxes.” Companies must pay for the privileges of polluting the environment. This can make markets more efficient. One problem with this approach could be how to define the proper charges and tax levels.
2. “Expanding property rights to include the natural environment.” If we can define property rights for endangered environments, we can use existing controls, such as the courts, to protect the environment. Unfortunately, some environmental problems, such as air pollution, are not easily recast in terms of property rights.
3. “Tradable pollution rights.” Companies can trade the pollution rights they buy on the open market, allowing pollution to be controlled in the most efficient way. This can work for oligopolies, where the traders are few. It would be unwieldy for dry cleaners, though.
4. “Environment marketing regulation.” Government or nongovernment organizations certify products as environmentally friendly. This allows consumers to buy those products that harm the environment less than other products. There are at least two problems with this. First, how do we set standards for “environmentally friendly products”? Second, this will work only if consumers are willing to select products on the basis of the environment.

Despite their problems, market‐based approaches try to work within common business incentives. By allowing businesses to buy and trade pollution rights, the environment is treated more like other factors of production. It also allows managers more freedom to tailor their environmental plans to their particular production and location characteristics, and it does so without the extreme restrictions on managerial freedom of the command‐and‐control. Reflexive environmental law tries to work within the institutional environment not only of business, but also of the society in which business operates. Reflexive law tries to set up an institutional environment that reinforces autonomy and a clean environment.