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Non-uniform implementation of uniform standards

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Abstract

Regulations are frequently based on a uniform standard, which applies to all facilities within a single industry. However, implementation of many of these regulations does not lead to uniform limits due to considerations of local conditions in real policy settings. In this paper, we theoretically examine the relationships among the stringency of effluent limits imposed on individual polluting facilities by permit writers, environmental protection agencies’ monitoring decisions, and the ambient quality of the local environment. In particular, we explore the establishment of effluent limits when (1) the national emission standard represents only an upper bound on the local issuance of limits and (2) negotiation efforts expended by regulated polluting facilities and environmentally concerned citizens play a role. We find that the negotiated discharge limit depends on the political weight enjoyed and the negotiation effort costs faced by both citizens and the regulated facility, along with the stringency of the national standard and local ambient quality conditions.

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Notes

  1. Since the passage of the 1972 Federal Water Pollution Control Act, which preceded the Clean Water Act, the EPA has developed industry-specific Effluent Limitation Guidelines based on the degree of pollution reduction attainable by facilities in a given industry.

  2. This depiction indicates that permitted effluent limit levels are determined by Effluent Limitation Guidelines, which apply uniformly across all facilities within a particular industry, or ambient water quality concerns, which do not relate to an individual facility’s ability to control discharges.

  3. Upper Blackstone Water Pollution Abatement District vs EPA, 690 F.3d 9 (1st Circuit 2011).

  4. Cities of Annandale and Maple Lake NPDES/SDS Permit Issuance for the Discharge of Treated Wastewater, 731 N.W.2d 502 (Minnesota 2007).

  5. Recent theoretical studies explore the interaction between state and federal governments in the environmental regulatory realm (see, for instance, Revesz and Stavins 2007; Goulder and Stavins 2011, 2012; Banzhaf and Chupp 2012; Williams 2012).

  6. Political economy models are used by many studies to explore various environmental policy settings, such as those relating to climate protection and trade. Several of these studies explore the effects of institutional changes on the stringency of environmental regulation, with some studies considering the role of lobbying, such as Fredriksson (1997), Damania et al. (2003), Binder and Neumayer (2005), Markussen and Svendsen (2005), and Gullberg (2008). However, these papers all assume full compliance and ignore the role played by the enforcement policy.

  7. In the concluding section, we assess the implications of a convex fine structure.

  8. The choice of the objective function of the inspection agency has already been the subject of debate. Cohen (2000), Firestone (2002, 2003) and Heyes and Kapur (2009) provide extensive summaries of the different arguments and assumptions made in various studies. Overall, evidence seems to support the conclusion that national environmental inspection agencies are mainly concerned with deterrence and less concerned with the compliance cost burden placed on the regulated industry. However, at the local level, the enforcing authorities might have different priorities that emphasize the economic concerns of the local community over compliance with nationally imposed regulations.

  9. Keeler (1995) introduces this same parameter \(\psi \). If \(0<\psi <1\), abatement costs matter but enjoy a lower priority than environmental damages and monitoring costs. If \(\psi >1\), then the agency’s concerns about facilities’ abatement costs dominate the other concerns.

  10. One way to interpret citizens’ negotiation effort is to assume that citizens act as a collective environmental advocacy group. In this capacity, citizens aim to minimize the sum of expected environmental damages and the costs of their negotiation effort. Thus, citizens’ objective is captured as \({\min }_{\{\hbox {g}\}}\left[ d_{j}\left( \hbox {e}_{\mathrm{ij}} \left( \hbox {e}_{\mathrm{ij}}^{\mathrm{w}} (\hbox {g})\right) \right) +\hbox {ug}\right] \).

  11. One way to interpret the facility’s negotiation effort is to assume that the facility minimizes the sum of abatement costs, expected fines for non-compliance, and its own negotiation costs. Thus, the facility’s objective is captured as follows: \({\min }_{\{\hbox {h}\}} \left[ c_{i} \left( \hbox {e}_{\mathrm{ij}} \right) +\hbox {p}_{\mathrm{ij}} \hbox {fmax}\left\{ 0, \hbox {e}_{\mathrm{ij}} -\hbox {e}_{\mathrm{ij}}^{\mathrm{w}} (\hbox {h})\right\} +\hbox {vh}\right] \).

  12. We do not explicitly model the standard and fine setting decisions of the national regulator. However, we allow the stringency of the discharge limit to be endogenously determined by the permit writer in negotiation with the regulated facility and concerned citizens.

  13. In a static model with deterministic discharges such as ours, the facility never chooses to reduce its discharge level strictly below the limit. This reduction merely increases abatement costs without any fine savings.

  14. Consult Fredriksson et al. (2011) as an example of a study exploring how elected officials can alter budgets for local environmental agencies. As another example, Jones and Scotchmer (1990) used the size of the budget allocated to the agency to influence monitoring strategies. However, in contrast to our study, the standard is exogenous in their model.

  15. For simplicity, we assume that fine payments are welfare-neutral transfers; consequently, these policy changes do not affect consumer surplus.

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Acknowledgements

We wish to thank Mitchell Polinsky, Daniel Klerman, Jun Jie Wu, the participants of the 2014 World Congress of Environmental and Resource Economists, the 2015 Conference of the Society of Environmental Law and Economics, the 2016 Annual Conference of the European Association of Environmental and Resource Economists, and two anonymous referees for their comments and suggestions on earlier drafts. Carmen Arguedas and Sandra Rousseau also acknowledge financial support from the Spanish Government under research projects ECO2011-25349 and ECO2014-52372-P.

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Authors and Affiliations

  1. Departamento de Análisis Económico: Teoría Económica e Historia Económica, Universidad Autónoma de Madrid, Madrid, Spain

    Carmen Arguedas

  2. Department of Economics, University of Kansas, Lawrence, KS, USA

    Dietrich Earnhart

  3. Faculty of Economics and Business, KU Leuven, Brussel, Belgium

    Sandra Rousseau

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  1. Carmen Arguedas
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  2. Dietrich Earnhart
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Correspondence to Carmen Arguedas.

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Arguedas, C., Earnhart, D. & Rousseau, S. Non-uniform implementation of uniform standards. J Regul Econ 51, 159–183 (2017). https://doi.org/10.1007/s11149-017-9321-2

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