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Saturday, July 05, 2014

EPA's Decentralization of Policy-Making: The Obama Administration varies regulation with citizens' willingness to pay for it

It is probably bad form to brag about one's students, but it is worth a breach of etiquette to publicize their work. With his permission, therefore, I am posting Joe Kolatch's outstanding paper on the EPA's proposed rule on energy utilities' water intake systems, written for my Federalism Seminar. (Download Joe Kolatch 316b Paper) Aside wanting to publicize Joe's work, I want to publicize an interesting example of the EPA's apparently endorsing a theory of decentralization more frequently associated with conservatives -- the idea that the level of environmental regulation should vary with a subnational community's willingness to pay for it. Conservatives sometimes give the Obama Administration guff for alleged command-and-control centralization in environmental regulation. But, as Joe notes, the EPA's proposed section 316(b) rule is an example of environmental federalism for which (if you like that sort of thing -- I do) the Obama Administration deserves some credit.

The EPA's proposed rule implements section 316(b) of the Clean Water Act by setting standards for the "entrainment" of critters by water cooling systems used by energy utilities. Utilities suck up billions of gallons of water from river to cool their machinery, and critters that get sucked up with the water are cooked as they are "entrained" through the pipes. Utilities can avoid such slaughter of river fauna by installing cooling towers with self-contained systems of water -- but the cost of such towers runs into the billions. Do the benefits of saving larvae and small fry justify increasing citizens' electric bills?

EPA's proposed rule says, "it depends on the citizens." According to the EPA's survey of residents' willingness to pay for environmental quality, tastes for environmental protection vary a lot from jurisdiction to jurisdiction, ranging from a high of $2.52 for a percent reduction in critter mortality in the Pacific region to only 75 cents in the Southeast. So the EPA proposes that each state be permitted to conduct their own cost-benefit analysis to strike their own balance between environmental protection and cheaper energy.

This approach to environmental law is music to my federalism-lovin' ears. According to Wallace Oates' Decentralization Thereom, there are big welfare gains to be had from varying regulation to suit the people affected by the rules. Moreover, as Joe notes, any state agency lacking the personnel to crunch the data on local citizen preferences and critter kill rates can either just adopt the blanket "cooling tower" rule (i.e., maximal protection) or ask the EPA for technical assistance: Scale economies in scientific information, therefore, do not require a nationally uniform standard.

Anyway, take a look at Joe's paper -- an admirably succinct, clear, and intelligent summary and analysis of an important but obscure case of environmental federalism.

Posted by Rick Hills on July 5, 2014 at 08:59 AM | Permalink


Thanks for sharing. Note that the final rule (released in June) keeps the site-specific standard but disclaims reliance on the surveys, and says they're not required for site-specific determinations. See pp. 104, 283-84: http://water.epa.gov/lawsregs/lawsguidance/cwa/316b/upload/316b-prepub-preamble.pdf

EPA does, however, note that "values that communities place on their resources could vary from site to site", and says that's "further support" for its final rule. See pp. 218-19.

Posted by: James Coleman | Jul 6, 2014 7:17:11 PM

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