Want Clean Air? Try This
Tuesday, April 4, 2006; 12:00 AM
Environmentalists gained an important victory last month when a federal appeals court rejected a Bush administration effort to amend key provisions of the Clean Air Act. The administration sought to rewrite the "New Source Review" program, which requires power plants and other industrial polluters to install state-of-the-art air pollution control equipment whenever they build a new plant or modify an existing one.
The current law provides no clear explanation of what constitutes a modification, creating both uncertainty and the opportunity for regulatory mischief. The Bush administration wanted to create a bright-line rule that the a modification would be considered major only if it cost at least 20 percent of the plant's original cost. Environmentalists justifiably opposed the rule as being too broad -- industry could break up major renovation and expansion projects into stages that individually would not cross the 20 percent threshold, and old plants would never become subject to the Clean Air Act's equipment mandates.
The environmentalists -- both environmental organizations and state attorneys general -- should be pleased with their victory, but they should not ignore the fundamental problem with New Source Review. The problem is not that the modification threshold is unclear or that it could be construed too broadly -- the problem is that the exemption exists at all.
The 1977 Clean Air Act Amendments "grandfathered" plants that were built before August 7, 1977 and allowed those plants to replace equipment and undergo minor modifications without triggering the new pollution control requirements. While this seems like a fair approach, it is actually grossly unfair in that it creates a two-tier regulatory environment that disadvantages the owners of new plants. It also is environmentally disastrous because it creates an enormous incentive for industry to keep old plants up and running. Grandfathering slows the turnover of polluting capital, locking in archaic technologies and keeping alive power plants built during Herbert Hoover's presidency. Old, patched-up, grandfathered plants account for an enormous percentage of U.S. air pollution.
Environmentalists display an unfortunate stubbornness when they remain committed to fighting the modification battle. Last month's decision was only the latest (and not the last) round in a decades-long legal fight over New Source Review. Thousands of work-hours have been spent litigating the issue of how significant a modification must be before it triggers pollution control requirements.
There is a better way to fight air pollution. For decades, economists have argued for the levy of pollution taxes to provide economic incentives to reduce pollution. If set stringently enough, pollution taxes can accomplish all of the environmental objectives that pollution control requirements are meant to accomplish. Moreover, by not forcing industry to employ the specific (and often extremely expensive) pollution control equipment designated state-of-the-art, a pollution tax would encourage industry to explore and develop new technologies that could be more effective and less expensive.
Perhaps most importantly, a pollution tax would be much easier politically to apply to all sources, old or new, thereby doing away with grandfathering. Because of the presumptive universality of taxes, people expect them to apply to everybody, not just new polluting sources. By contrast, the U.S. has never really embraced the notion that equipment regulations should apply to all pollution sources. That is why, for example, the nation has a relatively small number of old cars on the road that account for a large portion of our vehicle pollution problem, and why we allow a large number of old, outdated industrial pollution sources to enjoy a huge regulatory advantage over new plants.
The expensive and talent-consuming litigation over New Source Review has gone on long enough. Wholly apart from economic efficiency concerns, there are the thousands of people who die prematurely from air pollution annually who deserve better than the fruitless legal wrangling. The public, as well as the environmental movement and industry, would be better served by less fighting and more thinking about reducing air pollution.
Shi-Ling Hsu is associate professor of law at the University of British Columbia. His analysis of New Source Review's grandfathering problem appears in the spring issue of the Cato Institute's Regulation Magazine.