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Abstract:
This paper addresses the choice of regulatory instrument for international control of global climate change. First, it examines the efficiency attributes of options including harmonized policy measures, international emissions taxes, and quantitative emissions reductions with internationally tradeable allowances. The paper argues that in the international context of voluntary assent, regulatory instruments not only must promote cost-effectiveness, but also must be designed to attract participation in the cooperative regime and to prevent emissions leakage. The paper suggests that a system of international allowance trading could best fulfill these objectives in concert.

Second, the paper addresses the international politics of climate policy. Individual countries and interest groups may favor globally inefficient policy in order to capture parochial rents. The interests arrayed against international allowance trading may include, among others, environmentalists who favor a high-cost policy on moral or social engineering grounds, and industrialized countries who would benefit from a high-cost policy that hurts them a little while it much more substantially raises their trade rivals' costs. Thus, global climate policy may confront a coalition of environmental baptists and predatory bootleggers. Meanwhile, some developing country diplomats may oppose international allowance trading because they feel their political status at home threatened by the empowerment of markets and the growth of the merchant class. Efficient global climate policy therefore requires both the selection of an efficient regulatory instrument and the cultivation of a political coalition for efficiency.

Abstract:
"Better Regulation" is afoot in Europe. After several transatlantic conflicts over regulatory topics such as the precautionary principle, genetically modified foods, and climate change, Europe and America now appear to be converging on the analytic basis for regulation. In a process of hybridization, European institutions are borrowing "Better Regulation" reforms from both the US approach to regulatory review using benefit-cost analysis and from European member states' initiatives on administrative costs and simplification; in turn the European Commission is helping to spread these reforms among the member states. In many respects, the Better Regulation initiative promises salutary reforms, such as wider use of regulatory impact assessments and a reduction in unnecessary bureaucracy. In other respects, the European initiative speaks more of Procrustean deregulation than of better regulation. Meanwhile the European Commission still needs to establish the institutional infrastructure needed to succeed. This paper argues that the European program of "Better Regulation" is well-founded but could be even better if it adopted several strategies: enlarging the scope of impact assessment and benefit-cost analysis toward a broader, "warmer" and more evenhanded application of these tools, with greater attention to multiple risks; moving beyond a narrow focus on cutting administrative costs or simplification for their own sake, toward criteria that address benefits as well as costs; centralizing expert oversight so that impact assessments actually influence decisions, both to say 'no' to bad ideas and 'yes' to good ideas; and undertaking ex post evaluation of policies for adaptive policy revision and for improvement of ex ante assessment methods. These reforms would help Better Regulation achieve its true objective: better, not less or more. In turn, the US could study these European innovations and borrow from them where they prove successful.

Abstract:
Heads up: the "Precautionary Principle" is coming to a law near you. It aspires to answer a timeless question: how should society in general, and regulatory authorities in particular, respond to uncertain risks? This chapter addresses the normative and positive implications of adopting the Precautionary Principle.

Whereas many analyses have compared precautionary versus reactive regulatory strategies as applied to individual risks taken one at a time, this chapter examines precaution in a world of multiple risks. It distinguishes different versions of the Precautionary Principle, some of which are more sensible than others. It suggests that precaution against one risk may induce other countervailing risks, so that the ideal is a middle ground of "optimal precaution" rather than maximum precaution. It observes that real-world applications of the Precautionary Principle, in both the US and Europe, have often been sensitive to this reality and therefore have moderated the degree of precaution as the legal instrument gains more regulatory teeth and as the countervailing risks rise.

Abstract:
State-level actions to address global climate change, such as laws and litigation recently undertaken by California and by several Northeastern states to limit greenhouse gas (GHG) emissions, reflect creative legal strategies understandably intended to achieve a major environmental objective while the US federal government has not joined the Kyoto Protocol and has not yet adopted national legislation. But even assuming that forestalling global climate change is urgently needed, state-level action is not the best way to do so. Acting locally is not well suited to regulating moveable global conduct yielding a global externality. Legally, state-level action confronts several obstacles, including the dormant commerce clause, dormant treaty clause, interstate compacts clause, and standing to sue. Politically, local action to limit GHG emissions confronts the obstacle that it would incur in-state costs for minimal in-state benefits (raising the positive question why states are acting at all). Normatively, state-level action would make only a minor difference in global emissions, and may even yield perverse results by spurring emissions leakage to other jurisdictions. Given that such state-level action is actually occurring, its best uses include stimulating technological change, learning from experimentation with policy designs, and fostering momentum for broader national and international action. Yet varied policy experiments may conflict with a larger harmonized regime. The best approach to a global externality is a well-designed global regime that engages all major GHG emitters.

Abstract:
A century ago, Oscar Wilde spun the story of the Canterville Ghost, who haunts a stately British manor and terrifies its European denizens, rattling chains at night and leaving bloodstains on the carpet. But the Otis family arrives from America and buys Canterville Chase, undaunted by the ghost. The ghost does his best to frighten the Otises, but they nonchalantly barrage the ghost with American technology, commercialism, and fearlessness. Unable to scare the Americans, the European ghost ultimately capitulates and falls on the mercy of the Otis daughter, who guides his guilty soul to a final resting place where his haunting days can end.

How far has comparative law progressed since Wilde's day? Like Wilde's satire, modern comparisons of risk regulation in the United States and Europe are often cast in stereotypes. They depict Europeans as risk-averse, afraid of the unknown, afraid of new technologies and of global markets, jumping to adopt precautionary regulations against the most remote and speculative risks. Meanwhile Americans are seen as risk-indifferent or even risk-preferring, blustering blithely past risks, confident that new technology and the power of (American) markets will solve every problem and that precaution is a waste of time and a hindrance to progress.

As Herbert Bernstein would have told us, these are stereotypes, fit for an Oscar Wilde comedy, not for serious analyses of comparative law. In this article, I echo Herbert's admonition to those who would paint stark contrasts between American and European legal systems based only on a few data points. I argue in this article that despite some divisive rhetoric of late, U.S. and European systems of risk regulation are not divergent in the simple way in which they are claimed to be. Part I documents the claim of divergence and greater European precaution. Part II argues that, instead, U.S. and European risk regulatory systems diverge in some ways, converge in others, and display a complex pattern of interaction. Both the United States and Europe have quite active environmental regulatory systems; the United States has hardly ceased regulating. Both the United States and Europe are often highly precautionary - and on several prominent examples, including particulate air pollution, mad cow disease in blood, youth violence, and terrorism, it is the United States that is acting in the more precautionary manner. The United States and Europe do not diverge as much as is claimed on the general use of precaution in regulation, but they often do diverge on the particular question of which risks to worry about and regulate most. This particularized divergence gives rise to visible conflicts. Part III considers the methods and challenges of comparative law and argues that the broader reality in transatlantic risk regulation is a process of "hybridization," in which both systems borrow legal concepts from each other in a complex and continuous mutual evolution. Part IV offers concluding thoughts.

Precaution, Risk Regulation

Abstract:
This paper is a draft of a chapter for a forthcoming book, Public Choice and Public Law, edited by Daniel Farber and Anne Joseph O'Connell, to be published by Edward Elgar. This chapter reviews the literature on the selection of regulatory policy instruments, from both normative and positive perspectives. It first reviews the mechanism design literature to identify normative objectives in selecting among the menu or toolbox of policy instruments. The chapter then discusses the public choice and positive political theory literatures and the variety of models developed to attempt to predict the actual selection of alternative policy instruments. It begins with simpler early models focusing on interest group politics and proceeds to more complicated models that incorporate both supply and demand for policy, the role of policy entrepreneurs, behavioral and cognitive choice, and public perceptions and mass politics. It compares these theories to empirical experience. The chapter examines literature in law, economics, political science, and related fields, and it draws examples from US, European, and international regulation. It concludes with suggestions for future research.

Abstract:
Stunned by the terrorist attacks of September 11, 2001, the Bush administration adopted a new National Security Strategy in September 2002. The UK government took a similar stance. This new strategy calls for anticipatory attacks against potential enemies with uncertain capacities and intentions, even before their threat is imminent. Rather than wait for evidence of weapons of mass destruction, it shifts the burden of proof, obliging "rogue" states to show that they do not harbor weapons of mass destruction or terrorist cells, or else face the possibility of attack. This new strategy amounts to the adoption of the Precautionary Principle against the risk of terrorism. We offer two main conclusions about precaution against terrorism. First, any action taken to reduce a target risk always poses the introduction of countervailing risks. Moreover, a precautionary approach to terrorism is likely to entail larger, more expensive interventions, so the expected opportunity costs are likely to be higher. While considering worst-case scenarios is important for the development of sound policy, taking action based only on worst-case thinking can introduce unforeseen dangers and costs. We argue that a better approach to managing risk involves an assessment of the full portfolio of risks - those reduced by the proposed intervention, as well as those increased. We argue that decision makers developing counterterrorism measures need mechanisms to ensure that sensible risk analysis precedes precautionary actions. Such a mechanism currently exists to review and improve or reject proposed precautionary measures against health and environmental risks, but not, so far, for counterterrorism and national security policies. We urge the creation of such a review mechanism.

International Security

Abstract:
This article recommends the key design elements of US climate law. Much past environmental law has suffered from four design problems: fragmentation, insensitivity to tradeoffs, rigid prescriptive commands, and mismatched scale. These are problems with the design of regulatory systems, not a rejection of the overall objective of environmental law to protect ecosystems and human health. These four design defects raised the costs, reduced the benefits, and increased the countervailing risks of many past environmental laws. The principal environmental laws successfully enacted since the 1990s, such as the acid rain trading program in the 1990 Clean Air Act (CAA) Amendments and the 1996 Safe Drinking Water Act amendments, were consciously designed to overcome the prior design defects.

New law for climate change should improve on the design of past environmental law, fostering four counterpart solutions to the prior design defects: cross-cutting integration instead of fragmentation, attention to tradeoffs instead of their neglect, flexible incentive-based policy instruments such as emissions trading in place of rigid prescriptive commands, and optimal instead of mismatched scale. This article advocates a design for U.S. climate policy that embodies these four design solutions. It proposes a policy that is comprehensive in its coverage of multiple pollutants (all GHGs), their sources and sinks; multiple sectors (indeed economy-wide); and multiple issues currently divided among separate agencies. It advocates explicit attention to tradeoffs, both benefit-cost and risk-risk (including both ancillary harms and ancillary benefits), in setting the goals and boundaries of climate policy. It advocates the use of flexible market-based incentives through an efficient cap-and-trade system, with most allowances auctioned along multi-year emissions reduction schedules that are reviewed periodically in light of new information. And it advocates matching the legal regime to the environmental and economic scale of the climate problem, starting at the global level, engaging all the major emitting countries (including the U.S. and China), and then implementing at the national and sub-national levels rather than a patchwork bottom-up approach. In so doing it addresses the roles of EPA regulation under the current CAA and of new legislation. It argues that among environmental issues, climate change is ideally suited to adopt these improved policy design features.

climate change, regulation, risk-risk

Abstract:
Much attention has been addressed to the question of whether Europe or the United States adopts a more precautionary stance to the regulation of potential environmental, health, and safety risks. Some commentators suggest that Europe is more risk-averse and precautionary, whereas the United States is seen as more risk-taking and optimistic about the prospects for new technology. Others suggest that the United States is more precautionary because its regulatory process is more legalistic and adversarial, while Europe is more lax and corporatist in its regulations. The flip-flop hypothesis claims that the United States was more precautionary than Europe in the 1970s and early 1980s, and that Europe has become more precautionary since then. We examine the levels and trends in regulation of environmental, health, and safety risks since 1970. Unlike previous research, which has studied only a small set of prominent cases selected nonrandomly, we develop a comprehensive list of almost 3,000 risks and code the relative stringency of regulation in Europe and the United States for each of 100 risks randomly selected from that list for each year from 1970 through 2004. Our results suggest that: (a) averaging over risks, there is no significant difference in relative precaution over the period, (b) weakly consistent with the flip-flop hypothesis, there is some evidence of a modest shift toward greater relative precaution of European regulation since about 1990, although (c) there is a diversity of trends across risks, of which the most common is no change in relative precaution (including cases where Europe and the United States are equally precautionary and where Europe or the United States has been consistently more precautionary). The overall finding is of a mixed and diverse pattern of relative transatlantic precaution over the period.

Abstract:
A central issue in environmental law is the choice among regulatory instruments. From Pigou to Coase to the present, scholars have debated the relative merits of liability rules, property rules, technology standards, taxes, subsidies, and tradeable allowances. An emerging scholarly consensus in economics and law would crown taxes as the presumptive optimal instrument for controlling environmental externalities. But this debate has largely been confined to the context of national law. This article examines the choice of regulatory instruments at the global level--the Olympics of instrument choice. It contends that the choice of optimal regulatory instrument is contingent on the underlying legal system of the regulatory polity. The article focuses on two salient dimensions of variation across legal systems; the voting rule for adoption of law, and the implementation structure for execution of law. The economics literature on instrument choice typically assumes that the regulator wields automatic fiat and unitary implementation. National regulatory legislation is generally adopted under a majoritarian voting rule which can compel sources of externalities to comply, and executed through a federalist structure which can impose constraints directly on sources. By contrast, global regulatory treaties are generally adopted under a voluntary assent voting rule which requires source countries to choose to participate, and executed through a jurisdictional structure which requires regulation to be implemented by nation-state intermediaries.

The article argues that the fundamental differences along these two dimensions between the national and global legal systems--voting rules and implementation structures--make tradeable allowances, not taxes, the presumptive first choice for environmental protection at the global level. The article shows that the voluntary assent voting rule for international treaty law necessitates side payments to engage reluctant sources of externalities--a "beneficiaries pay" rather than a "polluters pay" approach. And it shows that making such side payments is more "participation efficient" under tradeable allowances than under taxes, where participation efficiency is defined as minimizing the sum of the costs of securing participation (which include not only out-of-pocket costs but also the moral hazard distortions induced by subsidizing or compensating polluters for the costs of abatement) plus the costs of enduring nonparticipation (which include "leakage" of the externality-generating activities from regulated to unregulated jurisdictions). The article argues that when participation must be secured rather than coerced, side payments can be made in a more participation efficient manner alongside tradeable allowances than alongside other instruments. In addition, the article shows that implementation by nation-states makes taxes more costly to monitor than tradeable allowances. In concert, these two legal system variables counsel selection of tradeable allowances, not taxes or command-and-control technology standards, to address global environmental problems such as greenhouse warming and biodiversity loss.

More generally, the article argues that whether the regulatory polity is the entire planet or a local neighborhood, the prevailing voting rule and implementation structure will powerfully affect the relative merits of regulatory instruments, and that the debate over instrument choice needs to be reconceived with more explicit attention to the assumed underlying legal framework. Indeed, the article suggests that a key explanation for the divergence between the Pigouvian and Coasean approaches is the assumed underlying legal system. The article seeks to demonstrate that in the design of international regulatory law, economics matters; and, at the same time, that in the economics of regulatory design, law matters.