The High Cost of Command and Control

The EPA Misses Opportunities for Low-Cost Pollution Control

We may not all agree on how much pollution to reduce, but we certainly should agree to reduce it as cheaply as possible. Since cleaning up at least cost is exactly the same as maximizing the cleanup for any given cost, cost minimization should appeal even to those who dislike thinking about the cost of protecting the environment.

I pointed out last month that reducing pollution at least cost requires that (1) every polluter reduce its pollution as cheaply as possible and (2) the marginal cost of pollution reduction be the same for all polluters. While satisfying these two conditions is an ideal that can never be fully achieved, the U.S. Environmental Protection Agency (EPA) relies almost completely on a policy approach that guarantees that the cost of protecting the environment is much higher than necessary. The EPA favors a “command and control” approach that relies on directives (or commands) for how, and how much, polluters control their pollution. I shall point to the problems with this approach in this column, which provides a basis against which to compare the market approach I shall discuss in future columns.

The EPA can never acquire all the information necessary to know the cheapest way for each of a large number of polluters to reduce its pollution. And even if by some miracle it did have the information, it wouldn’t use it properly for reasons that I will explain. Not surprisingly then, the EPA regulations do not take different circumstances into account. Instead, the EPA typically imposes uniform regulations on very different situations, making it unlawful for polluters to control pollution in the cheapest way possible. Imagine the federal government’s taking over shoe production and making all shoes the same size. Ridiculous, right? But no more ridiculous than some of the consequences of the EPA’s “manufacturing” one-size-fits-all pollution-control commands.

For example, one EPA regulation mandated that 30 percent of the organic matter be removed from the inflow into sewage treatment plants, probably a defensible regulation in most cases. But not in Anchorage, Alaska, which is blessed with some of the purest water in the world because it comes from nearby glaciers. Anchorage officials asked the EPA for a waiver, since its untreated inflow was cleaner than the treated outflow in most jurisdictions, and removing 30 percent of almost nothing would require building a new $135 million treatment plant. The EPA refused to grant the waiver. So Anchorage officials had fish guts dumped into the water and then removed most of them—surely exceeding the 30 percent requirement by a wide margin. Anchorage taxpayers saved buckets of money and EPA mandates were satisfied, but the water was dirtier than before.1

Such one-size-fits-all regulations obviously prevent polluters from protecting the environment in the most cost-effective ways. The people closest to the situation, who know the most about reducing their pollution, should be allowed to utilize that knowledge to reduce pollution as cheaply as possible.

If the EPA quit telling people how to reduce pollution and simply told them how much to reduce, each polluter could use its localized knowledge to reduce pollution in the cheapest way possible. This would be an improvement over the prevailing practice of imposing uniform approaches to pollution control. But it takes more than allowing people to reduce pollution at least cost to minimize the cost of reducing pollution. The EPA would also have to require a pattern of reduction that equates the marginal cost of reduction for all polluters.2

The EPA could never collect all the information necessary to determine how much each firm should reduce pollution to achieve the least-cost pattern. The information is too dispersed and sensitive to local circumstances, and too subject to change, to be collected, processed, and updated in order to be appropriately considered by the EPA. Therefore the agency operates in an informational vacuum and couldn’t fine-tune its commands to fit local circumstances even if it wanted to. And it wouldn’t want to. Even if the EPA had all the information necessary to determine the least-cost pattern of pollution reduction, political considerations would insure that it would not be used properly.

Arbitrary and Unfair?

The least-cost pattern of reduction will generally require that some polluters (low-cost reducers) reduce a lot while others (high-cost reducers) reduce very little. This will seem arbitrary and unfair, since the implications of differences in marginal costs of pollution reductions are hard to explain in concise and compelling language. (If such explanations were easy, the marginal value of economists would be even lower than it already is.) So any attempt to force some firms to reduce pollution a lot more than others is sure to motivate polluters to lobby politicians and bureaucrats to reduce their control requirements. These lobbying efforts will be not only expensive, but effective as well, and the result will have little to do with reducing pollution economically. For example, a firm that should reduce its pollution a lot because it can do so cheaply may be in a district whose congressional representative chairs a committee that can influence the EPA budget. Does anyone believe that in this situation the EPA would put the goal of least-cost pollution reduction ahead of its budget? Of course not!

The evidence is clear that the command-and-control approach of the EPA misses opportunities to greatly reduce the cost of achieving a given level of pollution control. For example, it has been estimated that the marginal capital cost of removing a kilogram of biological oxygen demand (BOD)—a standard measure of water pollution—varies from one penny for one firm to $59.09 for another.

In other words, if the first firm reduced BOD by one kilogram more while the second reduced it by one kilogram less, $59.08 would be saved with no degradation in water quality.3 The saving would add up as the first firm continued to substitute BOD reduction for the second until each had the same marginal cost of reduction. The total saving can be substantial in each of a large number of pollution control situations.

Next month I shall explain why politics favors command-and-control approaches to environmental policy, and why it is often the failures of command and control that make it politically popular. But are there better policy approaches? The answer is yes, which I shall explain in the coming months.


Notes

  1. See Thomas J. DiLorenzo, “Unfunded Federal Mandates: Environmentalism’s Achilles Heel?” Contemporary Issues Series 62, Center for the Study of American Business, December 1993.
  2. Obviously, this condition has to be satisfied for each type of pollution, with possible adjustments made when the damage done by a particular pollutant varies, depending on where it is discharged.
  3. This and other examples are discussed in Roger Meiners and Bruce Yandle, eds., Taking the Environment Seriously(Lanham, Md.: Rowman & Littlefield Publishers, Inc., 1993), Chapter 8.