Environmental Economics: A Market Failure Approach to the Commerce Clause

By Lee, Mollie | The Yale Law Journal, November 2006 | Go to article overview

Environmental Economics: A Market Failure Approach to the Commerce Clause


Lee, Mollie, The Yale Law Journal


NOTE CONTENTS

INTRODUCTION

 I. THE COMMERCE CLAUSE THREAT TO THE ENDANGERED SPECIES ACT
   A. The Endangered Species Act
   B. The Supreme Court's Economic Requirement
   C. The Lower Courts' Response

II. THE MARKET FAILURE APPROACH: ENVIRONMENTAL PROTECTION AS
    ECONOMIC REGULATION
    A. Environmental Harm as a Market Failure
    B. Doctrinal Support for a Market Failure Analysis
    C. Defending the Market Failure Approach
    D. Evaluating the Endangered Species Act as a Response to Market
       Failures

CONCLUSION

INTRODUCTION

When Congress passed the United States' major environmental statutes in the 1970s and early 1980s, (1) it acted under its constitutional authority to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." (2) At the time, courts and Congress shared an expansive understanding of the Commerce Clause. (3) The idea that there were limits on Congress's Commerce Clause authority was an "intellectual joke," (4) and the standard law school treatment of Commerce Clause powers boiled down to the explanation that "Congress can do whatever it wants." (5)

However, congressional authority to enact environmental legislation has been called into question by recent Supreme Court cases suggesting that Commerce Clause regulation is valid only if Congress is regulating "economic activity." (6) While lower courts applying this new doctrine have held that environmental regulation is valid Commerce Clause regulation, they have had difficulty explaining why. In particular, they have struggled to identify the economic activity regulated by certain environmental statutes.

The Endangered Species Act (ESA) is especially vulnerable under the Court's new Commerce Clause analysis. Many environmental statutes may be upheld because they directly regulate industrial activity, which courts regard as sufficiently "economic" for Commerce Clause purposes. (7) This logic is more difficult to apply to the ESA, however, because the statute seeks to protect threatened and endangered species by prohibiting any actions that harm designated species, rather than by regulating specific types of commercial activity. For decades, the wide reach and strict prohibitions of the ESA have generated resistance, (8) and the Court's new Commerce Clause doctrine has created an opening for a wave of legal challenges to the statute. In response to the Court's renewed attention to the economic nature of Commerce Clause legislation, opponents of the ESA have challenged applications of the statute that have only a questionable link to economic activity.

In particular, they argue that Congress lacks the authority to regulate intrastate activity impacting species that have no commercial value and that exist entirely within a single state. (9) These arguments have gained a certain degree of traction, with respected jurists such as then-Judge John Roberts expressing doubt that "regulating the taking of a hapless toad that, for reasons of its own, lives its entire life in California constitutes regulating 'Commerce ... among the several States."' (10) Currently, this remains the minority understanding, and all of the circuit courts hearing Commerce Clause challenges to the ESA have upheld the statute. However, they have failed to present a convincing account of how the ESA can be understood as economic regulation.

This Note argues that the ESA and other environmental statutes do address economic activity, although not in the various ways suggested by the circuit courts. Instead, I draw on environmental economics to argue that environmental statutes should be understood as a response to market failures. These market failures occur because environmental damage is likely to be an externality, environmental benefits are a public good, and environmental assets are frequently common resources. All too often, these factors lead rational people to engage in environmentally damaging behavior because it confers a net personal benefit, even though it imposes a net cost on society.

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