Environmental Law and Market Incentives

Mention the word "regulation" to most business people and they will usually wrinkle their noses as if they've smelled something bad. For many this is understandable. A manager's job is relatively complex even in the absence of regulation. Managing the various forces and constituencies while trying to maximize shareholder value can be tricky indeed. Add to this "regulation" and now there is just meaningless red-tape and bureaucratic hurdles. For the majority of managers who believe that they would have obeyed the principles of the regulation even without being compelled to do so, it is just unnecessary cost. Understandable.

But their are two aspects of the situation worth pointing out. First, one bad apple doesn't spoil the whole bunch. If a single bad actor violated social norms in rung their business, say for example releasing industrial by-products into a river, conventional nuisance law would be up to the task. The very existence of regulation shows that the problem is wide-spread enough for people to bother with the overhead of getting the regulation approved in the first place. It's like those signs that say, "No Loitering" an obvious sign that people do loiter here. Or the signs on hair dryers that say "do not use this while in the bathtub." Someone definitely used a hairdryer in the bathtub. We need the Clean Air Act because without it people pollute the air (not you, of course, but other people). We need the Clean Water Act because people really do fill in fragile wetlands, and pollute rivers (not you of course, but other people). We need the Endangered Species act because people really do destroy critical habitat that causes species stress and extinction (again, other people). For those who bristle under the weight of regulation, it is a sad fact, other people do things that spoils it for the rest of us.

There is a second aspect of regulation that is often missed by business managers, and I think this is partly because of the heavy burden placed on them by regulations they can never see themselves violating in the first place. This second aspect is that every regulation is in fact an incentive for someone. Regulations create and structure markets, and in so doing, result in a wealth transfer. In every wealth transfer there is someone who gives and someone who gets. For the person that gets the benefit of the regulation, it is an incentive. For example, before the Clean Air Act, there was essentially no market for smoke-stack scrubbing technology. The regulation was an incentive for investment in this technology, and the companies that had formed around solving this problem were the beneficiaries. Climate regulation will do exactly the same thing. Business managers are more accustomed to thinking, how can I limit my exposure to this new regulation? They have been missing the opportunity to ask, how can I capitalize on the market created by this incentive?

Regulations directed at climate change are going to have sweeping economic effects, just like the economic effects of the negative externalises they seek to avoid. There will be losers in this, those that have struggled against the regulation, and have attempted to debunk the science. But the objectors are dwindling now, perhaps primarily because they'd rather be at the table, then fight a futile battle against the coming regulation. But even that approach misses what is perhaps one of the greatest business opportunities of our time, the opportunity to be the beneficiary of the incredible wealth transfer that will take place. The transfer will be from old technology companies (old-school power production for example) to new technology companies (carbon sequestration, alternative energy, energy efficiency etc.). On the horizon, Congress is preparing to pass some of the most significant bu sines incentives in years. There will be winners and losers. I know who I want to work with.....

About Green-Arrow Network

Green-Arrow Network started as an internet domain name: www.green-arrow.net. The purpose of Green-Arrow was to provide internet services in support of community, conservation and preservation. The site started by hosting the Salem Common Neighborhood Association's web-site. The site has also hosted The Columbia Law School Macintosh Users Group, and the [e]Vent community art project in support of the Massachusetts ACLU. Green-Arrow provides web-hosting for Boston artist Linda Price-Sneddon's web-site (disclaimer, yes, that's the same Sneddon). Green-Arrow also supports the CCT Collaborative Community project founded by students at the Columbia University Law School.

Over time Green-Arrow has evolved, and is now a corporate entity that continues to support the groups and web-sites above, as well as capturing the consulting business of Green-Arrow's founder Scott F. Sneddon. Scott returned to Law School after a successful career in Biotech/Pharmaceutical research with a goal of combining law and science in the service of the environment. That goal has become the mission statement of Green-Arrow, which continues its firm belief that strong communities, with a sense of "home" are the best starting place for environmentally responsible living.

This Blog contains thoughts on the intersection of science, law and the environment. It is as much a place to raise questions as to provide answers, and hopefully, to encourage thought and action.