The Political Economy of Mercury Regulation: The History of the New Mercury Rule Offers Important Insights into Improving Environmental Policymaking
Gayer, Ted, Hahn, Robert, Regulation
IN ITS WANING DAYS AFTER THE 2000 ELECTION, the Clinton administration decided to initiate an expensive plan to regulate mercury emissions from power plants. The decision culminated a lengthy process that began with the 1990 Clean Air Act Amendments, which required the Environmental Protection Agency to evaluate mercury and other toxic emissions to determine if they warranted more stringent regulation.
The Clinton administration had earlier dragged its feet on completing that analysis. But after environmental groups filed suit over the inactivity, the administration agreed to make a determination on mercury regulation by December 15, 2000. In a settlement agreement, the administration stipulated that if mercury were to be regulated, a final rule would be issued by December 2004--a date that was later extended to March 2005.
This created a difficult situation for the incoming Bush administration. While there are thought to be some identifiable economic benefits from regulating mercury emissions, such as an increase in IQ levels in children, it is not clear that the benefits of regulation justify the cost. But even if the expected benefits fall far short of the expected costs, the Bush White House was under political pressure to formulate a concrete proposal for regulating emissions. Any decision to move away from regulating mercury would have to reverse the Clinton administration's determination that such regulations are "appropriate and necessary."
The 15-year saga that concluded with the Bush administration's mercury rule offers insights into the politics and economics of environmental regulation. The mercury saga also illustrates several policy lessons for future regulation.
LAW AND ECONOMICS 101
In 1990, President George H. W. Bush signed into law several far-reaching amendments to the federal Clean Air Act. The president had said he wanted a new law and he got one. And even though the environmentalists gave him little credit for the legislation, it likely would not have moved forward without his support.
The new amendments had some desirable and undesirable features from an economist's perspective. On the plus side, the legislation mandated that reductions in sulfur dioxide emissions were to be accomplished using a market-based approach that features emissions trading. The basic idea, suggested over four decades ago, is to put a cap on the overall level of emissions that were allowed, but to permit firms to trade emission rights in order to achieve the goal in the least costly manner. Although the legislation explicitly states that the allowances to pollute are not property rights, a key reason the trading program reduces costs is that the market treats the allowances as such.
The trading program was the major piece of good economic news in the act. The legislation, however, contained a number of undesirable economic features. It did not have a requirement, for example, that benefits exceed costs when developing regulations indeed, in setting overall air quality standards, the EPA is forbidden from even considering costs. The legislation also contained a number of mandates in which the benefits of regulation were not likely to exceed the costs. One example is the regulation of ozone, which contributes to smog. A second example is the new provision to regulate toxic air emissions like mercury. The act requires the EPA to determine whether it is "appropriate and necessary" to regulate toxic air emissions from utilities using conventional command-and-control regulations.
METHYLMERCURY As any chemistry student should know, mercury is nasty stuff. You do not want to break an old glass thermometer and let the mercury bead up on the floor for some child to touch. But the mercury coming from smokestacks is different because humans are likely to be exposed to much smaller concentrations. Indeed, mercury coming from smokestacks poses a risk only after it is converted by bacteria into methylmercury and then accumulates in fish tissue as it moves up the food chain. …