Today’s Topics n Environmental Economics n Exporting “Dirty” Industries n Bizarre interactions in American Law

What is the Best Method to Ensure Environmental Protection? n Bowie and Ruff--Let markets operate n Hoffman and Sagoff--Markets are inadequate to the task

Market Approaches to Environmental Protection n Free Markets (Ruff) n Mixed Markets (Bowie) n Regulated (command and control) Markets

The Free Market Approach n Since producers produce only those things that consumers want, it follows that consumers want some pollution.

In fact, the people responsible for pollution are consumers, not producers. They create, as it were, demand for pollution. People who use electricity are responsible for the smoke that comes out of the stacks of generating plants. Friedman

The Free Market Approach n Since producers produce only those things that consumers want, it follows that consumers want some pollution. n How much pollution do consumers want? What is the optimal level of pollution?

How do we determine the optimal level of any good? n Prices in the open market n BUT, a clean environment is a COMMON GOOD and markets are notoriously bad at protecting common goods.

The Free Market Approach n Consumers want some pollution. n What is the optimal level of pollution? n Set prices with a Pollution Control Board, then let the market operate.

“Under such a system, anyone could emit any amount of pollution so long as he pays the price which the PCB sets to approximate the social cost of pollution.” Ruff

Bowie’s Mixed Market Approach n Responsibility for pollution control belongs with government n In cases of market failure legislation can express consumer preferences

Consumers do not want green products and green businesses behave foolishly.

Bowie’s Mixed Market Approach n Responsibility for pollution control belongs with government n In cases of market failure legislation can express consumer preferences n The environmental obligation of business is to stay within the law n Business should not lobby in environmental causes

n 1)Business satisfies consumer demand. n 2)Markets reveal consumer preferences. n 3)In cases of Market Failure demand is displayed in legislation. n 4)Markets fail to reflect consumer demand for environmental protection. n 5)Law reflects consumer preferences. n 6)Staying within the law satisfies demand. n 7)Therefore, the only environmental obligation of business is to stay within the law.

Silverstein argues that assumptions of both business and environmentalists are mistaken.

Business and Environmentalists both Assume: n The business/environment trade off is ZERO SUM. n This is mistaken. Environmentalism is a NON-ZERO SUM activity. n Being Green is good business, and there is a business for green products and technologies.

Reasons to reject market approaches n Principles of Deep Ecology n Distinguishing roles of consumer, citizen, neighbor

Hoffman’s Deep Ecology n “Good ethics is good business” is NOT a rationale for business ethics (Josephson) n Makes ethics merely and INSTRUMENTAL good, not an INTRINSIC one n When ethics stops being good business, then ethical behavior should stop n Same for “Green is good business.”

Green is Good Business is Homocentric (Anthropocentric) n All value is related to human interests n The last tree p. 439

We Need a BIOCENTRIC Ethic n Recognize the intrinsic value of plant and animal life n See natural objects as being valuable independent of their usefulness n Develop a Deep Ecology of nature that is Panpsychist

When Biocentric Environmentalists use Homocentric Arguments, they Risk Undercutting the Movement

Not all Political Questions are Economic

Value, Power and Awe n The dynamo as a source of unlimited power n The dynamo as a symbol of infinity

What happens when efficiency replaces infinity as the central conception of value? n All the steam in the world could not build Chartres

From an economic point of view, the only values that matter are those on which we can put a market price. n Environmental values, like others, are determined by a consumer’s willingness to pay

What is wrong with willingness to pay? n We are not merely consumers. n We are also citizens, AND n Our desires qua citizens conflict with out desires qua consumers n What is best for me and what is best for the community may differ

Some values are not convertible into market prices, but they are still crucially important. n Do we really want to argue that there is an optimal number of abortions based on the marginal cost of reducing abortions by one and the apparent unwillingness of abortion opponents to bear that cost?

Some political values cannot be reduced to economic values.

The Lawrence Sumers Memo n Group Work n Group Reports and Analysis

Bizarre Interactions in American Law n Bankruptcy Protection vs. Environmental Protection n My research interests

Bankruptcy Protection n Bankruptcy is an Article One power of Congress n Bankruptcy serves important social and economic goals -Risk allocation and management -Clean slate, fresh start n Most debts are discharged

Environmental Obligations n C.E.R.C.L.A, Superfund, R.C.R.A. etc impose financial liability for environmental damage n Whoever makes the mess pays to clean it up

There is a conflict between the goals of a clean slate and a clean site

However, n Bankruptcy law sometimes allows a polluting debtor to discharge the financial obligations for the cleanup. n Bankruptcy law thus undercuts environmental protection n “Dump on it then dump it” as a business strategy

4 Specific Problem Areas n When does a claim arise? n Are injunctions dischargeable? n Who has to look for a possible claim and when? n Can contaminated property be abandoned?

Abandonment n The Bankruptcy Code allows the trustee to abandon some property n § 554(a)--After notice and hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate

Can a trustee abandon a hazardous waste site?

The Supreme Court Speaks n Midlantic National Bank v. New Jersey Dept. of Environmental Protection 474 U.S. 494 (1986)

Facts— n Quanta resources sought to abandon property contaminated with waste oil (470,000 gallons at 2 sites) n Bankruptcy Court and Federal District Court allow abandonment n Court of Appeals (3rd Circuit) disallows abandonment n Supreme Court disallows abandonment in 5-4 decision n Rehnquist’s dissent

Rationale in Midlantic n No abandonment contravening state health laws n i.§ 554 codifies pre-Code law on abandonment n ii.Other Code sections are subordinate to state health laws n iii.Bankruptcy estate must be operated in compliance with state and federal la n iv.Congress recognizes the importance of environmental protection

A troublesome footnote: n The abandonment power is not to be fettered by laws or regulations not reasonably calculated to protect the public health or safety from imminent and identifiable harm.

Rehnquist’s Dissent n The language of § 554 is absolute n No textual basis for applying pre-Code law n No basis for importing restrictions used elsewhere n A tortured reading of the requirement to comply with state and federal laws n Ignores economic and property rights of secured creditors

Voting Pattern in Midlantic n Majority n Powell n Blackmum n Marshall n Brennan n Stevens n Dissent n Rehnquist n Burger n White n O’Connor

Changes since Midlantic n Majority n Powell (Kennedy) n Blackmum (Breyer) n Marshall (Thomas) n Brennan (Souter) n Stevens n Dissent n Rehnquist (Scalia) n Burger (Rehnquist) n White (Ginzburg) n O’Connor

Recent Lower Court Decisions Interpreting Midlantic n Abandonment allowed absent a showing of immanent harm n Abandonment allowed despite apparent immanent harm -Bankruptcy court gets to decide whether there is immanent harm -Weak state laws, or lax enforcement, justify finding of no immanent harm

n Cases disallowing abandonment absent a showing of immanent harm n Why these lower court decisions matter

Trends in the Supreme Court n The doctrine of legislative supremacy n i.Legal positivism and legislative supremacy n ii.Article I § 8 clause 4 of the Constitution Congress shall have the power to... establish an uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States. iii.Article VI, Supremacy Clause issues

n The ‘plain meaning’ approach to Code interpretation n The re-emergence of Takings Clause jurisprudence -i.The new importance of property rights -ii.The Lucas decision n Personnel changes and voting patterns