Competition: The Next Generation of Environmental Regulation?

Abstract:     
A few months ago, Professor Wendy Wagner published an article in the Indiana Law Journal that advocated a “competition-based”approach to regulate toxic chemicals and other substances. In her proposed system, a company could obtain a certification from EPA that a product that it produces is environmentally superior to a competitor’s product, based on an adjudication between the companies. This would create an advantage for the company in the market, as the product could be labeled as superior to its competitor. Under Professor Wagner’s proposal, in light of the information disclosed in the adjudication, EPA could also ban the inferior product or impose other limits on it, in addition to certifying the superior product. While Professor Wagner’s proposal centers on toxic chemicals, she suggests that “competition-based” regulation could be applied on a broader scale.

The attached article examines the advantages of Professor Wagner’s proposal and the challenges inherent in implementing it, and explores whether the proposal could be modified to minimize those challenges.

Professor Wagner’s “competition-based” regulation proposal is a combination of command and control regulation and market-based alternatives, and could combine the strengths of both approaches. However, Professor Wagner’s proposal may be very difficult to implement because it requires EPA to make a decision to certify a product as “superior” based on a vague, largely undefined standard. For all of the reasons that EPA has had difficulty setting “harm-based” standards under other regulatory programs, it is likely to have difficulty making the determination of whether one product is “superior” to another with regard to its environmental and health impacts. In addition, the proposal provides EPA with broad discretion to resolve difficult policy decisions regarding “superiority” with limited public input and allows the agency to hide those policy decisions from public view. Further, Professor Wagner proposes that the agency make the “superiority” decisions through the formal rulemaking process, a process which has long been out of favor with agencies and Congress because it is expensive and time consuming. Formal rulemaking is also a poor vehicle for resolving the difficult questions of fact and policy that will be central to a determination that one product is environmentally superior to another. Finally, the cumbersome rulemaking process, combined with the vague standard for “superiority”, raises “environmental justice” concerns.

Working Paper Series