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Enviropreneur Showcase: GreenFaith

In an era of increased environmental degradation and strife, PERC Enviropreneur Institute (PEI) alum Reverend Fletcher Harper and his organization GreenFaith offer a unique look at environmental solutions and activism. Established in 1992 as a small and local organization in New Jersey, GreenFaith has grown to national proportions as an inter-faith environmental organization working with diverse religious groups to promote and mobilize environmental leadership.

Although religion and the environment may initially seem odd bedfellows, Harper is one among many* working to reclaim environmental stewardship as an integral part of the world’s religious traditions. Deep connections between religion and the environment already exist. For example, most of the world’s religions recognize the natural world as a source of revelation or site of sacred presence. Although presented in a variety of ways, human stewardship of this divine creation is part of the religious practitioner’s job description.

While hard science is needed to predict and study the physical properties and changes of the earth, anthropogenic environmental problems also require a close study of the beliefs and actions of those driving the environmental change. GreenFaith is calling on environmental leaders to not only preach good environmental standards, but to act on them. Through the GreenFaith certification program, congregations across the nation have reduced carbon emissions by 30 to 50 percent, financed solar energy programs, and decreased water consumption, to name a few.

GreenFaith has used lessons garnered from PEI to attract new congregations to their certification program by touting the benefits of financial savings. Economic incentives are therefore a major driving force in the “greening” of congregations. Harper points out that economics and religion, counter to popular belief, really are working toward the same objective: human flourishing.

“In the end, GreenFaith isn’t just about teaching people that God wants a healthy environment,” said Harper. “It’s about mobilizing the faith-based sector – one of the largest social networks in the country – to make it actually happen. PERC has helped us understand new tools and perspectives on how to achieve this goal.”

*See the Yale Forum on Religion and Ecology for further reference

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Why Gasoline Prices Are Volatile

Andrew Morriss and Donald Boudreaux have an op-ed in today’s WSJ explaining why gasoline prices have become more volatile. The short version: Boutique fuel requirements have balkanized the gasoline market, magnifying the effects of local supply disruptions.

For most of the 20th century, the United States was a single market for gasoline. Today we have a series of fragmentary, regional markets thanks to dozens of regulatory requirements imposed by the federal Environmental Protection Agency (EPA) and state regulators. That’s a problem because each separate market is much more vulnerable than a national market to refinery outages, pipeline problems and other disruptions. . . .

The role of regulators in fuel formulation has become increasingly complex. The American Petroleum Institute today counts 17 different kinds of gasoline mandated across the country. This mandated fragmentation means that if a pipeline break cuts supplies in Phoenix, fuel from Tucson cannot be used to relieve the supply disruption because the two adjacent cities must use different blends under EPA rules.

To shift fuel supplies between these neighboring cities requires the EPA to waive all the obstructing regulatory requirements. Gaining permission takes precious time and money. Not surprisingly, one result is increased price volatility.

Another result: Since competition is a key source of falling gas prices, restricting competition by fragmenting markets reduces the market’s ability to lower prices.

While most of the fuel standards were adopted in the name of the environmental protection, many are actually the result of special interest pleading. Producers of various products, ethanol in particular, sought fuel content mandates or performance requirements that would benefit their particular product. (I detailed part of this history in “Clean Fuels, Dirty Air,” in Environmental Politics: Public Costs, Private Rewards.) Worse, some of the content requirements are irrelevant for new cars due to modern pollution control equipment. Federally imposed boutique fuel requirements have outlived whatever usefulness they ever had.

Cross-posted at The Volokh Conspiracy.

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Could the Health Care Decision Hobble the Clean Air Act?

Sackett v. EPA was the big environmental case from this past Supreme Court term, but the Court’s decision in NFIB v. Sebelius, the health care case, could actually turn out to have the larger effect on environmental law.  While most commentators on NFIB focused on the Commerce Clause challenge to the individual mandate, the arguments against the health care reform law’s provisions expanding Medicaid turned out to be more consequential, as seven justices concluded that in trying to create incentives for states to expand Medicaid, the health care reform law went too far.  This aspect of the Court’s ruling could also have a significant impact on environmental law.

As part of the Patient Protection and Affordable Care Act, Congress sought to expand Medicaid to cover all adults at or below 133 percent of the poverty line.  As states are tasked with implementing Medicaid, Congress had to make it worth their while.  So in addition to offering generous funding (at least in the beginning), the PPACA also threatened to cut off all Medicaid funding to any state that did not go along with the expansion.  In effect, Congress made the states an offer they couldn’t refused, which is one reason over twenty states sued.

In NFIB a majority of the Supreme Court found Congress’ offer to be unconstitutional.  Congress’ use of conditional spending, seven justices concluded, crossed the line from inducement to coercion, and was constitutionally impermissible.  In the process, the Court reaffirmed that the Constitution creates a federal government of limited and enumerated powers, and that the federal government’s spending power is subject to judicially enforceable limits.

The NFIB ruling matters for environmental law because conditional spending is a staple of modern environmental law.  Most of the major federal environmental statutes adopt a “cooperative federalism” model under which states are encouraged to implement federal environmental programs.  State cooperation is encouraged through, among other things, the promise of federal financial support and, in some cases, the threat to withhold money for other programs. Under the Clean Air Act, for example, states that fail to adopt federally approved air pollution control programs risk losing federal highway funding.  This condition, combined with the threat of direct federal regulation, has been largely successful at inducing state acquiescence.  Yet after the Supreme Court’s NFIB decision, this arrangement may be unconstitutional.

The Clean Air Act would appear potentially vulnerable on several grounds.  First, the Clean Air Act conditions the receipt of money for one program (highway construction) on compliance with conditions tied to a separate program (air pollution control).  This may be problematic because a majority of the Court thought Congress was trying to leverage state reliance on funding for one program (traditional Medicaid) to induce participation in another program (the Medicaid expansion).  While the money at stake under the Clean Air Act is far less – most states receive substantially less in highway funds than in Medicaid funds – highway funding is less directly related to air pollution control (particularly from stationary sources) than traditional Medicaid is to the Medicaid expansion.

Though highway funding is less than that for Medicaid, it still may be enough to raise constitutional concerns. Highway funds are raised from a dedicated revenue source in gasoline taxes and placed in the Highway Trust Fund.  For many states, federal highway funds represent the lion’s share of their transportation budget.  As a consequence, threatening to take highway funds may strike some courts as unduly coercive under NFIB.  In the 1980s the Supreme Court upheld conditioning five percent of a state’s highway funds on setting a 21-years-old drinking age.  Under the Clean Air Act, however, a state can lose all highway funds, save those that will reduce emissions or are necessary for traffic safety, for failure to adopt a complete pollution control plan that satisfies the federal EPA.

The Court in NFIB also stressed that conditional grants of federal funds operate much like a contract, and that the parties are limited in their ability to unilaterally revise the terms.  This could expose another vulnerability in the Clean Air Act because while the statutory requirements don’t regularly change, what states must actually do to comply with the Clean Air Act’s terms do. The requirements for state pollution control plans are constantly changing, as the EPA tightens or otherwise revises federal air quality standards and additional pollutants become subject to Clean Air Act regulation.  Were this not enough, the recent inclusion of greenhouse gases as pollutants subject to regulation under the Act has radically altered states’ obligations, such that states will now have to do many things they could not have anticipated when the Clean Air Act was last revised in 1990.

Many states are already chafing under the Clean Air Act’s requirements.  The NFIB decision may give them a tool to relieve the burden.  Specifically, the Court’s decision to limit the federal government’s authority to place conditions on the receipt of federal funds may offer states some relief from Clean Air Act requirements.

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The D.C. Circuit’s Greenhouse Gas Decision

Today’s decision by the U.S. Court of Appeals for the D.C. Circuit in Coalition for Responsible Regulation v. EPA is quite significant for environmental law. The court turned away the state and industry challenges to the EPA’s decision to begin regulating greenhouse gases under the Clean Air Act. The only element of the decision that is at all surprising is the court’s dismissal of the challenges to the EPA’s “tailoring rule” due to a lack of standing.

On the merits, the court rejected challenges to the EPA’s determination that the emission of greenhouse gases causes or contributes to air pollution that which may be reasonably anticipated to endanger public health or welfare (the “endangerment finding”) and rejected claims that the EPA’s new standards for GHG emissions from mobile sources were arbitrary and capricious. This was to be expected. As I’ve noted before, judicial review of these sorts of decisions is highly deferential, and the EPA did not have to do much to support its decision. Even if the industry challengers had been able to convince the court that climate change is not that big of a deal, this would not have been enough to overturn the endangerment finding, provided the EPA gave a sufficient explanation of its conclusions — which it did.

The more interesting parts of the opinion concern whether the petitioners could challenge the EPA’s decision to regulate stationary source GHG emissions generally, and the EPA’s adoption of the tailoring rule in particular. On the former question, the court concluded that industry petitioners could challenge a decades-old EPA determination that the regulation of a pollutant from mobile sources under Section 202 of the Act triggers stationary source regulations. This was because there were some plaintiffs who had never-before been subject to stationary source regulation under the Clean Air Act because it was not until carbon dioxide was treated as a pollutant that these plantiffs emitted enough of a regulated substance to fall within the Act’s controls.

This small victory on ripeness was but a prelude to a loss on a larger question: Whether large emitters of greenhouse gases could challenge the EPA’s decision to forego regulation of smaller sources. No, the court concluded, because the industry petitioners did not satisfy the requirements for Article III standing to challenge the EPA’s failure to regulate someone else. However great the injury some industry groups may suffer from GHG regulation, the court reasoned, forcing the EPA to regulate additional sources would provide no meaningful redress. It does not matter that the EPA’s tailoring rule flatly contradicts the plain text of the Clean Air Act and represents a dramatic assertion of agency discretion over a detailed, legislatively crafted scheme. If there’s no standing, the suit cannot proceed.

This decision will be the last stop for most, if not all, of the industry challenges to the GHG rules. En banc and cert petitions may get filed, but I can’t see either the full D.C. Circuit or the Supreme Court having much interest in the endangerment finding or the EPA’s mobile source rules. If any claim has a chance to go on, it would be the standing argument. If there’s an issue in this case that could catch the Supreme Court’s attention, this would be it. Among other things, it could giver the Supreme Court the opportunity to address how recent standing decisions affect standing claims based upon alleged competitive harm (i.e. the harm suffered by company A due to the government’s favorable treatment of company B). Still, I would not bet on it. In all likelihood those who oppose GHG regulation under the Clean Air Act will have to direct their attention to Congress. They’re done in the courts.

Cross-posted at the Volokh Conspiracy.

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Whatever happened to SO2 trading?

A decade ago, Dan Benjamin wrote that tradable permits seem to offer the advantages suggested by their proponents: “The total costs of achieving the current SO2 cap are at a minimum—and surely lower than under command-and-control. Perhaps now some serious consideration will be given to environmental protection systems in which there is even less administrative control by the government.”

Indeed, this scheme was considered by most economists to be the poster child of cap and trade. As Terry Anderson and Gary Libecap write in the Daily Caller by 2007 annual SO2 emissions dropped to 8.95 million metric tons at a cost of $747 million, “one-third less than it would have cost had the EPA used standard command-and-control regulation. The system worked beautifully—for a while.”

Today, however, the sulfur dioxide scheme is dead. The cause of death, according to Anderson and Libecap, is regulatory manipulation.

The Clean Air Interstate Rule and subsequent rules from the Obama administration have significantly undermined the sulfur dioxide trading scheme by preventing the use of 12 to 14 million pre-2010 banked allowances for future trading and changing the ratio of allowances per ton of sulfur emissions from 1:1 to 2:1 for 2010–2014 and to 2.86:1 for 2015 and beyond.

Not surprisingly, sulfur dioxide allowance prices began falling in 2005 from $1,600 per allowance and hit an all-time low in April of $0.56 on the spot market and $0.12 on the seven-year future market. For all intents and purposes, the EPA’s taking of banked allowances and manipulation of the trading ratio wiped out billions of dollars worth of assets held in the form of allowances.

The original SO2 trading scheme, according to Benjamin, had some characteristics of property rights; for example, anyone was legally permitted to buy or sell allowances at market-determined prices: “Because the allowances are standardized (each represents the right to emit one ton of SO2) and the major potential traders (electric utilities) are likely to be well-informed, trade should be feasible at low transaction costs, just as we find in stock and bond markets.” But as Anderson and Libecap state, when allowances are not treated as property rights and are “given and taken at the whim of regulators,” the system fails.

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No New Coal: New Source Performance Standards Don’t Clear the Air

The current administration continues to push for cleaner air. That means reducing carbon emissions according to the 2009 EPA ruling that defines carbon dioxide as an air pollutant. It should be no surprise then, that the New Source Performance Standards (NSPS) on newly constructed power utilities reduces allowable carbon emissions.

The new emission levels, however, are below what is technologically feasible for coal burning plants. This effectively means that no new coal power plant can be constructed until new technology is developed and economically feasible. That is estimated to be ten or more years away. “[I]t is odd that they [the EPA] think it’s a good idea to ban new coal-fired power plants,” says Jeff Holmstead, former EPA air chief.

There are multiple consequences from this ruling. Whether they are good, bad, or otherwise depends on your perspective.

1. Increased power demand will have to be satisfied from alternative fuels. Coal currently provides about half of all US electricity consumption.

2. Natural gas is presently the most cost effective substitute for coal. Gas powered plants already meet the new emission standard. An increase in demand for electricity will increase the demand for natural gas. (Natural gas providers have an interest in this ruling.

3. Renewable energies, such as wind and solar, are more than twice as expensive as gas and coal and we do not have the technological capability to store the power during down times. These renewable energies require backup power sources.

4. Natural gas, similar to coal, is a fossil fuel that must be ‘mined’ from underground. Each has their own environmental consequences.

5. Unless new supply meets increasing demand, electrical rates will rise. (At present the slow economy has kept demand relatively low and natural gas production has been booming.)

6. The rule impacts only new emission sources. Existing coal fired plants remain regulated under the old rules; they can continue to produce at current emission levels.

7. Because new plants cannot be built to meet the standards, existing plants with older technology, hence more emissions, will stay online longer.

8. The fastest growing countries continue to build new coal powered electric utilities to energize manufacturing at the lowest cost and compete at the global level.

The new emission standards are similar to previous regulations in a couple of ways. First, there are some “strange bedfellows” lobbying for the new air regulations. Alternative power providers benefit from reduced competition, regardless of environmental consequences. Second, by discouraging new coal burning facilities, the rule discourages investment in cleaner coal and keeps existing utilities online longer.

Originally posted at Environmental Trends.

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EPA to Release More Greenhouse Gas Regulations

The Washington Post reports the Environmental Protection Agency will release proposed regulations governing the emissions of greenhouse gas emissions from power plants this week, perhaps as early as today.  As described by the Post, this New Source Performance Standard regulation could put a halt to the construction of new coal-fired power plants unless and until carbon sequestration or some other GHG-emission-reducing technology becomes economically viable.

The proposed rule — years in the making and approved by the White House after months of review — will require any new power plant to emit no more than 1,000 pounds of carbon dioxide per megawatt of electricity produced. The average U.S. natural gas plant, which emits 800 to 850 pounds of CO2 per megawatt, meets that standard; coal plants emit an average of 1,768 pounds of carbon dioxide per megawatt.

Industry officials and environmentalists said in interviews that the rule, which comes on the heels of tough new requirements that the Obama administration imposed on mercury emissions and cross-state pollution from utilities within the past year, dooms any proposal to build a coal-fired plant that does not have costly carbon controls.

“This standard effectively bans new coal plants,” said Joseph Stanko, who heads government relations at the law firm Hunton and Williams and represents several utility companies. “So I don’t see how that is an ‘all of the above’ energy policy.”

The rule provides an exception for coal plants that are already permitted and beginning construction within a year. There are about 20 coal plants now pursuing permits; two of them are federally subsidized and would meet the new standard with advanced pollution controls.

These new regulations are but one piece of the surge in GHG regulations the EPA is adopting under the Clean Air Act as a consequence of Massachusetts v. EPA.

Originally posted at The Volokh Conspiracy.

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Cities Face New Emission Controls Even Without Tighter Ozone Standard

Earlier this month President Obama asked the Environmental Protection Agency to shelve a proposal to tighten the National Ambient Air Quality Standard for ozone this year. The Administration was apparently concerned about the cost a tighter standard would impose, and the EPA is required to consider revising the standard in 2013 anyway. Does this mean metropolitan areas are off the hook for additional environmental controls? Nope. Even without a tighter standard, many metropolitan areas will have to adopt more stringent pollution controls in order to meet the revised ozone standard adopted by the Bush Administration in 2008, as EPA Administrator Lisa Jackson confirmed in House testimony yesterday. The WSJ reports:

Testifying before a House subcommittee, Ms. Jackson said her agency would enforce an ozone standard of 75 parts per billion, adopted by the EPA in 2008. Until now, the standard had been suspended because of the EPA’s intention to introduce a more stringent measure, and the 1997 standard of 84 parts per billion prevailed.

There are 52 areas where air quality fails to meet the 2008 standard, the EPA said in a memo to state officials. Among them are Baltimore, San Diego, Dallas-Fort Worth and parts of Los Angeles. Ms. Jackson said the EPA would enforce the standard in a “common-sense way” to minimize the burden on state and local governments.

In practical terms, this shows how the Obama Administration’s decision not to tighten the ozone standard this year will not have a significant environmental effect in the near– to medium– term. Those areas with the worst ozone pollution do not meet either standard, so such areas would be required to adopt more stringent regulations either way. As for areas that meet the 2008 standard but would fail to meet more stringent requirements, the compliance date for a revised standard would be years off anyway, so if a more stringent standard is adopted in 2013 as many expect, the practical effect will be small.

While the EPA now plans to enforce the 2008 standard, there is some question whether it will be the standard for long. Not only is a scheduled revision only two years away, but legal challenges against the rule by both environmentalist and industry groups are pending in federal court as well. Given the EPA’s poor record of defending Bush-era air quality rules, it’s certainly possible one of these challenges will succeed.

Originally posted at the Volokh Conspiracy.
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A Tale of Two Cases

The Yale Law Journal’s new “Summary Judgment” online series features a set of essays on the Supreme Court’s decision in American Electric Power v. Connecticut, in which the Court held unanimously that suits against utilities alleging their emissions of greenhouse gases contribute to the “public nuisance” of global warming under federal common law were displaced by the Clean Air Act.  Contributors to the online symposium include Hari Osofsky, Daniel Farber, James May, Maxine Burkett, Michael Gerrard, and yours truly. My contribution, “A Tale of Two Cases” (PDF), discusses how the outcome in AEP was predetermined by the Court’s prior holding in Massachusetts v. EPA that greenhouse gases were pollutants subject to regulation under the Clean Air Act.  The essay is based on a longer article forthcoming in the Cato Supreme Court Review that I will discuss at the Cato Constitution Day event on Thursday.

Originally posted at The Volokh Conspiracy.
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Jobs vs the Environment One More Time

The New York Times tries to provide some perspective to the renewed debate over the economic effect of environmental regulation, and the effect of regulation on jobs in particular.  The story was prompted by President Obama’s decision to ask Environmental Protection Agency Administrator Lisa Jackson to withdraw a proposed revision of the National Ambient Air Quality Standard for ozone.  Business groups and many local government officials cheered the move; environmentalist groups were dismayed.

Part of the problem in evaluating the costs of regulation is that there have been few systematic studies of such costs after regulations are imposed.

“Regulations are put on the books and largely stay there unexamined,” said Michael Greenstone, an economist at the Massachusetts Institute of Technology. “This is part of the reason that these debates about regulations have a Groundhog’s Day quality to them.”

Mr. Greenstone has conducted one of the few studies that actually measure job losses related to environmental rules. In researching the amendments to the Clean Air Act that affected polluting plants from 1972 and 1987, he found that those companies lost almost 600,000 jobs compared with what would have happened without the regulations.

But Mr. Greenstone has also conducted research showing that clean air regulations have reduced infant mortality and increased housing prices, and indeed many economists argue that job losses should not be considered in isolation. They say the costs of regulations are dwarfed by the gains in lengthened lives, reduced hospitalizations and other health benefits, and by economic gains like the improvement to the real estate market.

The NYT story did not provide links to Prof. Greenstone’s research, so I added them above. For those interested in the subject, a third paper by Greenstone looks at the extent to which air quality improvements can be attributed to the federal Clean Air Act. Prof. Greenstone is, among other things, the former chief economist of President Obama’s Council of Economic Advisers.

The story closes with a quote from current Obama Administration “regulatory czar” Cass Sunstein, who’s in leave from the Harvard Law School.

“My view is that the Republican claim that ‘job-killing regulation’ is a redundancy is as ridiculous as the left-wing view that ‘job-killing regulation’ is an oxymoron,” said Cass Sunstein, head of the White House Office of Information and Regulatory Affairs. “Both are silly political claims that have no place in a serious discussion.”

I agree with Professor Sunstein that the debate over whether regulation kills or creates jobs is not very productive. As a general matter, when a firm is forced to spend money complying with environmental regulations, such expenditures are likely to take the place of more productive investments.  Some of these expenditures may benefit other firms, such as those which sell products or services that assist with compliance, but are still unlikely to offset the negative effects of the initial diversion.  As a consequence, whether or not there are net economic benefits from environmental regulation will usually depend on the magnitude and nature of the other benefits the regulation provides — benefits that may or may not translate into job creation. Even if an environmental regulation generates net economic benefits, this does not necessarily translate into increased employment.  But whatever the effect of regulation on jobs, and even assuming the effect could be predicted with any accuracy, this is only one factor to be weighed when considering the desirability of regulation.

UPDATE: Matt Kahn notes that Clean Air Act regulation is not uniform across the nation, and insofar as regulations adopted pursuant to that law have reduced employment in some parts of the country, this has been offset by greater job creation elsewhere.  Indeed, this differential effect is one reason why the Clean Air Act was amended to impose greater restrictions on “cleaner” areas, as B. Peter Pashigian documented in a 1985 paper.

Another interesting aspect of Clean Air Act regulation, relevant to President Obama’s recent decision, is that the economic consequences of tightening a NAAQS may be severe, but they are anything but immediate.  Once a new NAAQS is finalized, state and local governments have many years to develop plans to come into compliance, so no direct regulatory burden would have been imposed on private firms for many years.  Thus whatever the merits of withdrawing the NAAQS revision proposal, and deferring any tightening to 2013, it will not do much for the economy in 2011, except insofar as one believes the prospects of tighter environmental regulations in the future is a significant impediment to investment and job-creation in the present.

Originally posted at The Volokh Conspiracy.

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Constricting the Wind Commons

According to the U.S. Bureau of land management, wind power is the fastest growing energy technology in the United States. With this growth comes the desire to develop a legal framework for wind rights.

Today at PERC, Daniel Kaffine, with the Colorado School of Mines, explored the legal status of wind collection rights. Wind can be compared to other resources such as water and oil, but it is most often compared to mineral rights. Indeed, there is some legal precedent that argues that a mineral rights framework can be applied to wind rights. In Contra Costa Water District v. Vaquero Farms (1997), the California appellate court held that the right to harness wind for electricity constitutes a wind right that is severable from surface rights.

As Kaffine asks, “If the mineral rights framework is an appropriate analog for wind power, the question arises: should wind rights be severable from surface rights?” Some states such as Colorado think no. Other states such as Wyoming think yes. What do you think?

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The promise and problems of free market environmentalism

In the summer issue of PERC Reports Charles Kolstad, author of Environmental Economics, suggests that “free market environmentalism works well for problems pertaining to natural resource allocation, where well-defined property rights solve the problem of excludability,” but that it is “less efficient at dealing with environmental goods, such as the provision of clean air, which is nonrival.”

As Kolstad points out, proponents of free market environmentalism often offer a solution to air pollution that includes a technological innovation such as seeding emission streams with tracers to determine specific sources of ambient pollution. Another solution is to rely on common law—”if party A is causing injury to party B through pollution discharge, then party A may seek remedy in court.”

Kolstad believes these ideas for managing air pollution are unsatisfactory. What are your thoughts?