Controlling Pesticides and Toxic Chemicals Chapter 20 © 2007 Thomson Learning/South-WesternThomas and Callan, Environmental Economics

Pesticide Controls

3 Overview of Pesticide Regulation Rulings on Pesticide Use Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) of 1947 and subsequent amendments regulate pesticide use Controls storage, transportation, and disposal of pesticides, including labeling regulations Controls use, disposal, refill, and reuse of pesticide containers Chief regulatory instrument is registration of new pesticides and reregistration of those already on the market Recent revisions made through the Pesticide Registration Improvement Act of 2003 Main objectives include promoting quicker decisions for reduced- risk pesticides and creating a new registration fee system

4 Overview of Pesticide Regulation Rulings on Pesticide Residues Food Quality Protection Act (FQPA) of 1996 amended FIFRA as well as the Federal Food, Drug, and Cosmetic Act (FFDCA), which sets tolerances for pesticide residues left on food FQPA provides consistency by establishing a single health-based standard for all pesticides in all foods and gives special attention to pesticide risks faced by infants and children

5 Registration of New Pesticides Pesticide registration refers to formally listing a pesticide with the EPA based on risk-benefit analysis before it can be sold or distributed Risk-benefit analysis is an assessment of risks of a hazard along with the benefits to society of not regulating that hazard At registration, EPA sets the pesticide tolerance, A pesticide tolerance is the legal limit on the amount of pesticide residue allowed on raw or processed foods

6 Reregistration Reregistration of Existing Pesticides Pesticide reregistration is a formal reevaluation of a previously licensed pesticide on the market At the final phase of reregistration, EPA issues a Reregistration Eligibility Decision (RED) An RED is a document that gives the results of the EPA’s risk assessment of the pesticide EPA must reassess each pesticide every 15 years

7 New Policy Direction Objective of the Pesticide Environmental Stewardship Program (PESP) it to achieve pollution preventionPesticide Environmental Stewardship Program (PESP) A voluntary program whose main objective is to reduce pesticide use—not just regulate it PESP promotes Integrated Pest Management (IPM) Methods that foster more selective use of pesticides and greater reliance on natural deterrents Sets up partnerships with pesticide users to implement preventive strategies

Analyzing FIFRA

9 Risk-Benefit Analysis According to FIFRA, costs and benefits of pesticide use are to be considered in determining risk, suggesting risk-benefit analysis Risks of using a pesticide should be weighed against benefits, such as greater crop yields In practice, risks are the dominant factor in EPA's registration decisions

10 Assessing Risks For new pesticides, risks are evaluated using data on health and environmental effects submitted by manufacturers as part of the registration application If risks are negligible, EPA usually assumes that private benefits exist because manufacturer is willing to absorb high registration costs If risks are greater than negligible, onus is on manufacturer to formulate a risk reduction strategy or show that benefits exceed risks For existing pesticides, a formal benefit analysis is done by determining and monetizing biological gains, such as increased crop yields

11 Risk Assessment Problems Scientists question EPA's risk assessment methods Some argue risks are underestimated  Due to EPA’s lack of attention to inert ingredients and cumulative effects from using a combination of pesticides Some argue risks are overestimated  Due to findings from animal bioassays that overstate the potential harm to humans Federal government's environmental priorities do not align consistently with expert risk ranking

12 Benefit Assessment Problems Primary incremental benefits are reduced plant damage and increased crop yields In theory would be modeled as a supply (S) increase, with incremental benefits estimated as change in consumer and producer surpluses Problems in practice Precise information is likely not available for demand, pre- pesticide supply, and post-pesticide supply for every market in which the pesticide were used Difficult to estimate secondary benefits such as improved worker productivity linked to greater food supplies

Toxic Chemical Controls

14 Overview of Toxics Regulation Toxic Substances Control Act (TSCA) of 1976 is aimed at identifying and controlling chemicals that present a health or environmental risk before they are introduced into commerce Gives EPA authority to collect data on chemical risks from producers, to call for testing on existing chemicals, and to review new chemicals before they are made available for use Requires compilation of the TSCA InventoryTSCA Inventory A database of all chemicals commercially produced or processed in the U.S.

15 Controlling Chemical Use New Chemicals For new chemicals, TSCA requires producers to notify government at least 90 days before they plan to produce or import the substance A new chemical is one not listed in the TSCA inventory Notification is done via a premanufacture notice (PMN)

16 Controlling Chemical Use Existing Chemicals For existing chemicals, manufacturers must notify the EPA if any chemical is found to present a substantial risk to health or the environment An existing chemical is one listed in the TSCA inventory EPA response can vary and may include labeling requirements or outright ban

17 New Policy Direction Green Chemistry Program promotes the development and use of innovative technologies to prevent pollution by minimizing or eliminating production of hazardous substances Green Chemistry Program Extended Product Responsibility (EPR), also known as product stewardship, calls for commitment by all participants in the product cycle to reduce environmental effects Extended Product Responsibility (EPR),

Analyzing TSCA

19 Risk-Benefit Analysis TSCA's objectives are to regulate chemicals posing an unreasonable risk Use of risk-benefit analysis in the chemical approval process is implied in a Congressional report discussing how “unreasonable risk” is determined Therefore, TSCA empowers the EPA to ban or restrict use of toxic chemicals that do not pass the risk-benefit test

20 Risk Assessment Problems Testing is done only upon formal request by EPA, so some risks are not discovered until after a chemical has been introduced into commerce Reportedly, risk assessments have been done on relatively small proportion of registered chemicals Government's environmental priorities do not always align with expert risk rankings

21 Benefit Assessment Problems Estimating social benefits is particularly difficult for chemical use because the benefits accrue in various ways and across multiple markets Expected benefits are difficult to measure because of so many substances to assess Over 76,000 chemicals are registered Over 1,000 premanufacture notices (PMNs) are filed each year

22 Bias Against New Chemicals Bias exists because government is more efficient at testing new substances than it is for existing chemicals Analysis of existing chemicals is complex and time- intensive relative to rules for reviewing new substances Result is that chemical producers have an incentive to continue selling existing, and possibly more dangerous, substances, to avoid costs of introducing new substances that will be subject to government’s more efficient testing

Economic Analysis and Market-Based Solution

24 Inefficient Outcomes Nothing in FIFRA or TSCA assures efficiency In both the pesticide and chemical markets, source of inefficiency is a negative consumption externality associated with use Modeled as a negative marginal external benefit (MEB), that causes marginal social benefit (MSB) to lie below marginal private benefit (MPB) Without government intervention, the negative MEB is ignored, so competitive equilibrium output, Q C, where MPB = MPC, is higher than efficient output level, Q E, where MSB = MSC Result is overallocation of resources to production

25 Market-Based Solution Product Charge To internalize the consumption externality, a product charge could be implemented as a unit tax (t) on the chemical. To achieve efficiency, t must equal MEB at Q E Modeled as a shift up of MPC, by the amount of the tax, raising effective product price to (P E + t) Product charges are used by some state governments to discourage chemical use, and by other countries, such as Belgium, Denmark, Norway, and Sweden

26 Modeling the Product Charge Price ($) D = MPB Q of Chemicals 0 S = MPC = MSC MSB = MPB + MEB QCQC QEQE Product charge P E + t S t = MPC t = MSC t