Notes

What Are Environmental Policies?
Human activities while conducting business have certain costs attached to them. For instance, you might own a company that produces toys. The costs you incur (raw materials, machinery, employees, and so on) become part of the price of the finished goods. These internal costs are called direct costs. You recover these direct costs along with a profit from your end consumer.

Costs that have an impact on society or the environment fall under the category of external costs. They are not part of the product price that the consumer pays. For instance, a product’s price does not take into consideration the cost of air pollution, disposal of manufacturing wastes, or depletion of non-renewable resources involved in the manufacturing process. These external costs are generally borne by third parties who may not even be a part of the manufacturer–consumer equation. For example, people who reside near a factory may have to live with degraded air quality.

The total cost of a product ideally involves both internal and external costs related to manufacturing it. However, as you learned, the price of the final product does not take external costs into account. Market forces that include demand, supply, competitive pricing, and so on, do not incentivize the reduction of external environmental costs in a free market.

Based on these factors, government intervention is necessary to curb external costs that have huge and sometimes irreversible effects on the environment. The government exercises control through environmental policies. These policies establish certain regulations and laws that businesses must adhere to in order to protect the environment.



The government enacts different types of environmental policies to protect various aspects of the environment. Let’s discuss the common ones.

Incentives: These policies incentivize manufacturers to curb environmental hazards in the course of production. The government provides tax credits, subsidies, low-interest loans, and assistance in implementing environmentally friendly practices. For example, a pollution tax provides an incentive for manufacturers to reduce pollution emissions because it decreases their taxes.

Disincentives: Manufacturers may receive fines and penalties if their practices exceed or go beyond acceptable levels of pollution emissions.

Regulations: The government enforces numerous regulations on manufacturers in order to protect the environment. For instance, if a manufacturer produces goods that are potentially harmful to the environment or does not treat its waste products before disposal, they will face legal consequences. The US National Environmental Policy Act (NEPA) went into effect in 1970. It established a broad national framework for protecting the environment, and it applies to both public and private organizations. According to NEPA, all government branches need to consider their actions on the environment. For example, the policy is practiced during federal activities like the construction of military bases, airports, buildings, highways, and so on.


Conversion of costs: The government also ensures the conversion of external costs to internal ones by levying fees on businesses. These include waste disposal costs, costs for obtaining permits, improvements to manufacturing systems in order to avoid penalties, and so on. Similarly, the government has developed other methods of internalizing external costs with respect to market forces.

Cap and trade is one such environmental policy tool. It puts a customary cap on the pollution emission levels. However, it provides manufacturers (sources) with the flexibility to decide on how they will comply and remain within the permitted caps. If a particular manufacturer emits less pollution than allotted, it receives extra allowances. It can sell the extra allowances to other manufacturers, who can then emit more pollution than covered by their original allowances. Manufacturers can thus turn pollution cuts into dollars.

Costs and Benefits
We would all like to live in an environment that is free from pollution. However, modern life has no provisions for a pollution-free environment. For example, we travel in vehicles that burn fuel to function. In addition, our goods are manufactured in factories that release harmful by-products.

While there are alternatives to many of our modern activities, they cannot meet the convenience and efficiency levels to serve as adequate replacements.

There are two main questions to address when considering the environmental impact of pollution. First, how much pollution control is practically possible? Second, how much can it be regulated? One way to achieve positive environmental results with a reduced negative impact or lower cost to society is to conduct a cost–benefit analysis.

Conducting a cost–benefit analysis involves looking at social concerns like environmental well-being. Then, it determines how best to address these concerns by reducing pollution with respect to the associated costs. The cost of pollution is the cost society incurs because of pollution. Higher amounts of pollution result in higher costs to society. The cost of pollution abatement refers to the cost of preventing pollution. Higher costs are needed to attain lower levels of pollution.

The graph shows the pollution implications. The cost that society incurs due to pollution will decrease as the amount of pollution decreases. However, this increases the cost of pollution control. The horizontal axis represents the target levels of pollution (from low to high). The vertical axis is the cost of pollution control, or the cost that the pollution poses to society. The green curve shows that reducing pollution amounts to a low level is more expensive than allowing pollution to remain at a high level. The optimum level is the point where the two curves meet and it is not a static point. It can change along with circumstances.

The graph indicates that the cost of removing pollution would be relatively high, and the benefit to society of removing the pollution would be relatively low. This is because the cost of removing pollution becomes exponentially more expensive as the target amount of pollution decreases. In contrast, it is inexpensive to have little or no pollution control.

The cost–benefit analysis is not a foolproof measure to arrive at a practical, cost-effective level of pollution control. The shortcomings of this method include the following:

It is difficult to quantify the cost of pollution that society has to bear. The cost of habitat loss, water, air and noise pollution, loss of biodiversity, etc., cannot be accurately measured.
It is difficult to determine a price for the aesthetic qualities of nature. For instance, you cannot put a price on pristine landscape.
Environmental costs are geographically distributed. This distribution is neither even nor consistent. For instance, society’s cost due to pollution from a factory might be low. However, the cost might be quite high for people residing in the factory’s vicinity.


Public Support and Implementation of Policies
Environmental law refers to the set of statutes, treaties, regulations, and customary laws that regulate human activities with respect to the environment. The United States has numerous laws addressing environmental concerns. Congress has passed many landmark environmental regulatory acts. Other federal laws also help protect environmental interests. Sources of environmental laws include the following:

Statute laws are passed by legislative bodies such as Congress or state legislative bodies.
Federal laws govern the use of natural resources and biodiversity, and these are strongly influenced by environmentally friendly principles.
Regulatory agencies establish federal regulations, enact statutes and laws, and provide guidelines on compliance and enforcement.
The US judicial system also takes part in legislative enactments. Common laws derive from a judge’s decision in a particular court. The reasoning for a given decisions sets a model (precedent) that other judges will follow.

Congress is in charge of making new federal laws and necessary amendments to existing ones:

To begin the process of creating a policy, lawmakers must be persuaded of the need for the policy. The persuaders can include anyone, from one citizen to an entire industry, trade organization, or advocacy group.
Lawmakers then request relevant information on environmental concerns related to the policy.
A member of Congress agrees to sponsor the bill and invites co-sponsors to help pass the legislation. The appropriation of funding is determined at this stage. Congressional representatives build partnerships to support the bill.
A regulatory agency drafts the necessary regulations. Certain bills then move to a committee vote. Those with momentum are presented before the Congressional Committee with appropriate jurisdiction.
If the bill passes through the committee, then it goes to the full House or Senate for a vote. At this stage, representatives propose modifications or amendments.
If the above stages proceed smoothly, the bill goes to the President for approval or veto. If the president signs the bill, the federal government will enforce the regulation. If the president vetoes the bill, Congress can modify the policy and resubmit it.

Many parties take part in the successful implementation of a policy. These parties may include the public at large, various special interest groups, businesses and industries, and so on. Each group generally proposes ideas that suit their interests.

Various factors influence the perceived benefits of pollution control with respect to environmental policies. Let’s examine some of these factors:

Public opinion and support is one of the strongest influencers in determining the success of a policy. Public opinion through the electoral process, activism, and influence on government decision makers has a huge impact on policy making and execution.
Economic conditions also directly affect the policymaking environment. They can change perceptions of the costs and benefits of pollution control.
Technological advancements (such as improved renewable energy technologies) influence support for policies that promote renewable energy.
Interest groups and business associations can affect federal legislators through lobbying (attempts to influence a legislator on a decision).