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• U.S. environmental policy is out of control, costing jobs, depressing living standards and being run by politicians, scheming business people and social extremists. Even one of the EPA's strongest supporters says bluntly ... "You can't get there from here" By Peter Brimelow and Leslie Spencer WHO PROTECTS THE ENVIRONMENT of the U.S. Environ- mental Protection Agency? Its nvin-towered, 3,100-per- son headquarters in Washington, D.C.'s bleak South West section is appalling even by the grim standards of govern- ment office buildings. Dirty, rain-stained, maze-like, its home is an aborted apartment complex remodeled for the agencv-according to rumors, at the behest of then Vice President Spiro Agnew, a friend of the developer. Ironically, given the EPA's recent drive to expand its grasp on indoor air regulation, its own HQ has "Sick Building Syn- drome," causing the general malaise apparently related to poor ventilation and assorted airborne contaminants. "I'm not supposed to talk about that!" quips EPA Administrator Wil- liam K. Reilly, rolling his eyes. The reason: liability. Some EPA employees are already suing. And the agency is embroiled in quite enough litigation. Reillv, 52, a suave, Harvard-edu- cated la«1•er, darts among his various contradictorv constituencies with the delicacy of a pond-skimmer on the surface of a swamp. In a Republican administration he is a career profes- sional from the Beltway cnvironmcn- talist lobby-formerly head of the World Wildlife Fund. Among (mild) conservatives, he is an erstwhile Rockefcller associate who once put out a report calling for more govertt- ment involvement in land use, weaker apparatus. The EPA's staff has quadrupled since 1970. Its in0ation-adjusted spending has gone up ten times. All federal regulation has surged under George Bush, over- whelming the brief respite of the early Reagan years. But the Bush-era burgeoning of the EPA, in the considered opinion of the Washington University in St. Louis' regula- tion-monitoring Center for the Study of American Busi- ness, has been "astounding" (rcc charr, p. 60). The impact of the EPA upon the U.S. economy is, of course, many times its own size. In 1990 the agcncv estimated that complying with its pol- lution-control regulations was cost- ing Americans 5115 billion a year, or a remarkable 2. 1 % of GNP, versus 0.9% in 1972. (And critics complain EPA estimates are typically too low.) Put it EPA headquarters in Washington Ae iraek twist to EPA Nilptles tro.s. property rights and a national land use act. In an agency that reckons it has imposed some $1.4 trillion in compli- ance costs (1990 dollars ) on industry since its founding in 1970, his cmphasis has been on voluntany agreements with business-mostly big business. The swamp upon which this agile pond-skimmer oper- ates is rising. And beginning to smell. The Ee.q now has 18,000 staff and an operating budget of S4.5 billion. That's about a seventh of the staff and a third of the spending of the entire federal regulatory Forbes a July 6, 1992 this way: Because of pollution con- trols, every American is paying on average about $450 more in taxes and higher prices. That's $1,800 for a familv of four-about half its average expenditure on clothing and shoes. In the 1990s the EPA projects that compliance costs will total another $1.6 trillion. And that's not counting the radical 1990 Clean Air Act amendments legislation. It could add $25 billion to $40 billion annually. Tellingly, the U.S. spends a larger share of its gross national product on pollution control than do most Westr ertt European countries. Yet they have far denser populations. France, for example, with 56 million people in rather less space than Texas, spends only two-thirds as much. Imposing costs at this level cannot but be a drag on the economy. Another EPA-funded study, by econometricians Michael Hazilla and Baymond J. Kopp, estimated that because of long-run distortions of saving and investment, real GNP in 1990 had alreadv been depressed by no less than 5.8%below where it would have been without federal clean air and clean water regulation. And it diverges more 59

0 0 M Environmental Protection Agency "Environmental Politics" editors Fred Smith and Michael Greve Ooarnoe law waked Ynql {ovetrmienk stNpped In. every ,vear. Compare that with the amount the economy seems likely to crawl upward in the four Bush years: 4.5%. And air and water are only part of er.4 activity. Thus the Superfund toxic waste program, which takes over 40% of the EPA's operating budget and 20% of staff time, isn't included. But hasti t all this spending brought economic benefits, too? Kopp and Hazilla's model could not pick up pre- sumed benefits from clean air and water-for example, fewer days lost through illness. "But these must be very small, much less than 1%ofc;,tP," says Brookings Institu- tion economist Robert Crandall. He points out that the model still probably underestimated regulation's depress- ing effect: It could not assess the impact of investments wholly forgone. For example, erp regulations discourage the replacement of old plants by holding them to lower pol/ution standards than new plants-irrational both eco- nomicallv and environmentally, but politically essential. What about environmental bcncfits? The agency claims that between 1970 and 1990 emissions of lead fell 97%, carbon monoxide 41% and sulfur oxides 25%. Perhaps the EPA is Bke the Soviet military complex: brutally effective, albeit bariltrupting. But even here the EPA may be claiming more than it is entitled to claim. Critics argue that post-1970 pollution reductions are often due to other factors, such as higher gas prices. Brookings' Cranda8 has found that the adjusted reduction rate for several pollutants since the EPA's fnund- ing has actually been slower than in the 1960s, when the environment was regulated primarily by state and local governments. And, lie adds, it is not clear that whatever overall reduction has occurred is actually the result of controls. "Assertions about the tremendous strides the EPA has made," he savs, "are mostly religious sentiment." Nor is it clear that these pollution reductions have improved human health. Surprised? That's because you 60 missed a little-publicized but dramatic shift in the public health field since the late 1970s. Tlu Grcat Canccr Scare- which was used to shift the eP.a's tikus from "bugs 'n' bunnies" to health-has been discredited. "kVhen looking at causes ofcancer. .. pollution is almost irrelevant," says Berkeley biochemist and cancer authority Bruce Ames. One thing, however, is absolutelv clear: The cost per life theoretically savcd-as measured by the F.rn itself; often under statutory requirement-is now verging on the fantastic. "I have never seen a single [proposed regulaton•] rule where we weren't paying at least $100 million per life for some portion of the rule, or very few," sa,vs Yale Law School Professor E. Donald Elliott, a Reillv allv and recent r.r.a general counsel. "I sawrules costing $30 billion." John Goodman of the Dallas-based National Center for Policy Analysis reports a 1990 EPA regulation on wood preservatives that imposed costs at a rate of $5.7 trillion per life presumed savcd. This implies a willingness to spend the entire GNP to avoid a single hvpothetical premature death. Goodman also points out that regulating for health is a policy at war with itself: The reduction of living standards associated with a$5-million-to-$12-million increase in regulatory costs is estimated to cause one additional death. Granted the EPA's elaims to saving Gves are correct, the saving of one life may be purchased at the cost of many others dying from, for example, poorer diet. To put this in perspective: Practically everything in life involves risk at the infinitesimal level at which the EPA operates-crossing the street, for example, or eating seafood. But people are willing to bear the risks-indeed, positively eager. Many court risks knowingly--climbing mountains, hang gliding, smoking cigarettes. Others court risk for money-for example, high-rise construction workers. "According to some economists," admits Elliott, "the revealed preference for a life saved, the point at which you have to pay people to put themselves at risk, is in the $500,000 range." "Everybody at erA understands, and everyone who works in this business understands, that you could save many more lives if i 70 1 '72 '77 '74 '75 76 '77 '78 79 2074144089 Forbes . (ulv 6, 1992

I • vou took the same amount ofmonev and devoted it to say, infant nutrition programs, or a whole range of public health services," says Elliott. Which perhaps explains why phoning the EPA almost at random invariabiv unearths a depressed and disillusioned bureaucrat. (And whv the agency now wants to retocus on vast, and conveniently vague, international issues like global warming. ) As Elliott puts it, reflecting on prospective costs and benefits: "I've come around to the viem that vou just can't get there from here using these kinds of techniques." What Elliott means by "here" is known in the trade as °command-and-control" bureaucracy-prescribing de- tailed rules attempting to cover even• possible circum- stance. The ErA's pervasive rules, some observers sav, amount to a national industrial policy ... or land use act. "[Command-and-control] is expensive, it has high transaction costs and it requires tremendous amounts of information," Elliott says. "There arc 70,000 chemicals on the EPA Toxic Substances Control Inventory. Of those, we have health effects information on about 9,600, or one in seven.... I mean, there just aren't enough rats around to test every single substance." What Elliott and Reilly say they want to do is regulate The agency that ate America . 0 ~ stafnnA /Full-time equnalent employmentu ~ Spending IMJlions of constant 1987 aouarsl more flexibly. For example, thcy want the freedom to assess the risks from toxicitv more realistically and to focus on the truly dangerous chemicals. But other EPA critics believe the agency can never get there from here even if it focuses its goals more narrowlv and precisely. "It's just another fundamentally flawed Nixon-era idea, like wage and price controls or racial quotas," says Fred L. Smith Jr., president of Washington, D.C.-based Competitive Enterprise Institute. To some extent, the EPA's problems are those of manag- ing chaotic growth. The federal government's watchdog General Accounting Office has complained for years about lack of cost control over the outside contractors who do the bulk of EPA work: Representative John Dingell's (D-Mich.) oversight subcommittee has begun a noisy investigation. The EPA's ten regions reportedly pursue inconsistent policies-Region Five, in the Midwest, is said to be the most orrtery-with exceptional power in the hands of very junior staff. Many city and county govern- mcnts have recently rebelled against the complexity and COst of EPA directions. Within this chaos, fiefs can be carved out by strong (or savage) characters. In the Carter Administration, the EPA now accounts for a sswMh of the staH and a t1dN nf 1,2oa 6.000 the sp.nding of ths .MU. fadsral regulatory apparatus. And the sost of complying with snWromn.nW '--- r.ptlations is rlsing In stsp: At $1.4 trillidn ana tM flM ..._._. _.. ...~ _.. _.. a.666 20 years, the agency estimaaes its rulss will eost Americans atuNhar $1.8 trillion in the 1990s. Saorce: MeunCa Warren and James Lx Begwa,o. -:a~lsmr A-:,ssor 0a 1993 Federai fieauiamry ButlgeLCM/NfP-f/llSNP/O,Fme.KinBv4~re9 r'ra5hinafon,.-.er,rty,5t LomSMO. 1182 '83 '84 '85 .._ ' _ 88 '87 '88 es 92 8] e agency was essentially run by the Policy Office head, William Drayton, now in exile as head of Environmental Safety, a Washington, D.C. EPA monitoring group, and vengefully writing an environmental transition paper urging an increase in EPA spending. In the Bush Administration, former real estate developer William Ro- senberg, now Assistant Administrator for Air and Radiation, was key in burying the ten--vear, $500 million national acid pre- 'cipitation assessment program. It incon- venientl,v debunked the acid rain panic just when Congress and the agency were using it to extend the Clean Air Act. Then there's the Superfvnd catastro- phe. Reilly has reportedly described it as the worst piece of legislation ever passed by the U.S. Congress. He may be right. Reacting in 1980 to hvsteriaover the Love Canal toxic landfill leak, Congress in effect provided for the legal mugging of any passing deep pockets (or even shallow pockets-see box, p. 64) to finance a na- tionwide cleanup. But mainstream scientific opinion is now agreed that the danger from toxic waste was vastly exaggerated. Thus-an- other surprise?-healthwise, Love Canal was in the end harmless. And anyway the leak was basically caused by careless gov- ernment development after compulson, purchase. Nevertheless, estimates of fu- ture expenditures under the Superfund program now range from $125 billion to a stupendous $1.25 trillion. Much of it- sometimes 85%-is going in transaction costs like lawyers' fees. 0 Forbes e July 6, 1992 61

Bnvtrotnnental Protection Agency But the real reason EPA is such a swamp is hard for non- Washingtonians to understand: It is hopelessly trapped in its own ecocycle of conflicting, interacting elements (see diagram belutn). These are:  The Beltway environmentalist lobby. No longer just sandal-wearing ecofreaks, the 20 or so major env'vonmen- tal organizations are a formidable force in Washington, with perhaps 15 million members in total, budgets of about $600 million and top executives with six-figure salaries. (Reilly earned $111,000 at World Wildlife Fund in 1988.) Their main hold on the EPA: lawsuits-Of every five major decisions made by Reilly, four are litigated. And the suits name him personally. Policy ends up being made by judicial order and in settlement negotiations rather than by the Er-A itself. The Supreme Court just reduced environmentalists' ability to force their will on federal agencies but eertaud,v hasn't eliminated it.  Congress. The 535 members of the legislative branch micromanage EPA (and can sneak favors to their constitu- ents) through the 100 committees and subcommittees to which the agency is obliged to report. Even more impor- tant, the statutes under which the EPA operates are highly specific, and getting more so: The 1970 Clean Air Act had 50 pages; the 1990 Amendments, some 800. This cffec- tively deprives the EPA of discretion in key areas-Don Elliott could not Iegally implement his toxic substance EPA ecocycle O' _ . /II CY/~p ~-SrAnRES - . OEM•• .Nw. ;_-= WVa/IRCOIaRIR7. - I'Ifll~llll'I'I~I I~~~I~~ ~ I INEIYNY.......... IOt ILY_ ER ideas. Sometimes statutes conflict: Clean Air Act mandates have created hazardous solid waste, requiring further regulation. Sometimes they reflect opposing philosophies: Cost-benefit considerations are precluded under Super- fund, required under the EIFan pesticide legislation. And the way they are written, under environmentalist influ- ence, frequentl,v provides opportunities for litigation.  White House. The executive branch affects EPA through personnel nominations and reviews of its finances and regulatory efficacy conducted by the Office of Manage- ment & Budget (and recently by Vice President Quayle's Competitiveness Council). But usually this just means delaying regulations that are statute-driven. Evcntuallv lawsuits result in courrordered deadlines, cutting back White House influence.  Business. Business sues the EPA, too, often over the same decisions as the environmentalist lobby. And it lobbies Congress and the executive branch. But business is pro- foundly divided. Too frequently, it can't resist trying to use regulation to cripple competitors. Thus ethanol pro- ducers allied with environmentalists, and against the oil industry, to influence the Clean Air Act Amendments in a way that increased demand for their costly alternative fuel. A whole class ofcompanies has been created to meet EPA requiremcnts-and lobby for more. Thus the waste treat- ment industry's Hazardous Waste Treatment Council has "If you took out a(tha EM's watkload.rwytlft tlut I. MI/{ NIw.6y abttdary d.aNNu, eerrMaposM NadMee a ax.eWw Mttlatlw, thnN wotldM! M a Mok of a let Nft," s.ys fat.n EPA di.f l.. ihaetaa. . / / -9iY1'li'f CqM/pL ~ UM COaf/~IpOlN tt ana a rYl..mrt /x..wR 2074144091 62 Forbes s July 6, 1992

r • I EPA Administrator William Reilly taking a break from the Earth Summit in Rb 4hNt1nL ErA't focus ft0[O MMIh to [M gIObY MIHPonINntL helped block reform of Superfund. Significantly, two formcr EPA heads now run waste disposal companies. Business' ambivalent attitude to regulation perhaps explains the flower of Reilly's EPA tenure: the Pollution Prevention Program. In its most publicized aspect, he has persuaded many companies to curtail the use of various designated chemicals voluntarily. On closer inspection, however, the Pollution Preven- tion Program looks less voluntary-the companies are often being strong-armed by the EPA after technical filing violations. Some EPA staffers fear the "voluntary" ap- proach is illegal-it may violate the Administrative Proce- dures Act. The chemicals may not be a problem anyway- they are merely the object of one of those statutes. And by making expensive agreements, big companies raise the costs of entering their industrics--Icading to carteGzation. "It's a problem," Reilly concedes. What, then, is to be done about the EPA? Certainly the environment must be protected, even if we are now going about protecting it in the wrong ways. A comprehensive environmental bill, reconciling the present statutory con- fusion, seems a logical first step. But an EPA veteran flinches at the thought of the Washington warfare this would unleash. Instead, he looks wistfully at the environmental bureaucracies in Britain and Canada, able to go about their business efficiently without public interference. Such a solution, however, is precluded by the U.S. system's separation of powers. Lawsuits and troublemaking legislators cannot be avoided. There is an environmental policy ideally suited to the American way: the development ofpropetty rights and the common law of tort. The threat of litigation will discour- age pollution, with the details worked out between private parties. For example, neighbors could use "nuisance law" to suc a malodorous factory. Iaw students are taught in Environmental Law 101 that Ronald Coase, winner of the 1991 Nobel Prize for Economics Prep.rty rlpMS off.r hat.r prot.atlon Uue r.pl.tlon.. Forbes a July 6, 1992 63

Environmental Protection Agency Much ado about very little A STEEPLED CHURCH and neurs, never actually con- a three-door fire station tributed to the pollution. mark the center of Ash- So what's the point? land, Mass. (pop. 13,000). From 1917 to 1970 Ash- On the edge of town, land was a dye manufac- Megunko Hill, once wood- turing center for New Eng- land, is now a vast, bald land's textile industry. It 20-acre concrete "cap," survived W WII by supply- cordoned off by a deep ing blue dye for Navy uni- moat and high steel fence. forms. Nyanza Inc. was the Red danger signs mark last of the local dve com- the N,vanza chemical waste panies. Over the decades Superfund site. they buried dye sludge, In 1983 the EPA pre- bad batches and solvents in cmpted the efforts of local trenches on the hill. landowners and the state The waste contained of Massachusetts to clean mercury, lead, arsenic and up an abandoned dump chromium. The brook on the hill. Since then the that ran from the dye plant Nyanza site has come to through town carried the Nyanza Superfund site 11M ""Swtlnpy r.qo.sw. MrtNs".r..'t epitomiu everything that liquid waste. It was noted its gold-plated solutions. is wrong with Superfund. for its stench. Locals still "It's like the Gestapo, the Roughly $25 million call it Chemical Brook. way these guys operate. has been spent so far, in- Lore holds that after play- They have been harassing a cluding costs of a ten-year ing there dogs would come bunch of innocent people study while things got home blue. to the point where we've worse. That's just earnest In the early 1970s the just had it " he wails. The money. Massachusetts Su- state, responding to local "potentially responsible perfund chief Richard complaints, told Nyanza parties" (P2rs in Super- Cavagnero plans to spend to clean up. But the decline fundese) arc a mixed crew another $8 million to fin- in New England's textile arbitrarily associated with ish and possibly "hundreds industry brought Nyanza the designated area. They of millions" to clean and down with it. The com- include Gayner, a small monitor the site's water pany dissolved in 1978. highway cleaning contrac- "forever." Local developer Rob- tor who happened to buy The payofl? Superfund ert Gayner agreed to clean a polluted acre nearby, and staffers acknowledge that up Megunko Hill when the nephew of Nyanza's the site's risk to human he bought the land in last chief executive officer. health is now negligiblc. 1980, hoping to develop They have been threat- But the rules say: Keep it. He figured he would cned with fines of $25,000 cleaning anyhow. Super- spend roughly the a day fbr failing to comply fund staffers also ac- amount estimated by state- with the stream of paper- knowledge that the 20-odd approved studies: at most work the EPA has de- people mugged to pay $300,000. manded. And they have no the tab, local small land- Gayner never bar- control over EPA spend- owners and entrepre- gained on Supcrfund and ing at the site, although this approach didn't work, just as economics students are told about "market failure"-the solution in both cases being government inten•ention. But modem scholarship suggests that the common law was indeed working, until governments intervened. And anyway government has its own problems. (One such study is Environmental Politics: Public Corts, Private Rewards, edited by Fred Smith and Michael Greve, and just published by Praeger.) And last year the Nobel Prize for Economics was awarded to the University of Chicago's Ronald Coase, 64 they are supposed to fi- nance it. Their only practi- cal defense: Find others who might, just as remote- ly, be considered habic. In the meantime, banks have refused loans to PRPs, and property values in the area have plunged. Is it fair to target peo- ple with only remote associ- ation with the site? "We identify people Congress says are liable, and we col- lect hundreds of millions in settlements," insists Su- pcrfund's Cavagnero. So far Superfund has spent $6.7 billion. It has cleaned up only 84 of some 1,250 identified sites. That's why estimates of what it will take to do the job top $1 trillion- much spent needlessly. -L.S. ~ whose seminal 1960 essay, The Problem of Social Costs, argued precisely that propem• rights could protect the environment better than a regulatorv bureaucracy. Of course, relying on common law to protect the environment would deprive Congress of some of its po« cr to grant and withhold favors, cost thousands of bureau- crats their jobs and power, and spoil the games plaved bv lots of business people. But isn't the limiting of govern- ment control over people's livcs an important part of what :lmerica is all about? M Forbes n lulv 6, 1992